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TMI Blog2015 (3) TMI 550X X X X Extracts X X X X X X X X Extracts X X X X ..... ation seeking impleadment. There is clearly no formation of opinion by the CLB that the „true persons‟ who are or have been financially interested in the success or failure of the company, are different from the persons who appear to be the members of the company or the „true persons‟ who are or have been able to control or materially influence the policy of the company, are different from the persons who appear to be in the control of the company and a probe into the company's affairs is desirable in the interest of the company itself, and/or in public interest and that such an investigation was required into the affairs of WIPL. There was admittedly no request or prayer made by the respondent for the same. Parties have not even been put to notice that such an order was contemplated. Parties have admittedly not been heard on this issue. There is clearly a violation of the principles of natural justice. Furthermore, the proceedings in which directions have been issued in suo moto exercise of powers under section 247(1A), in respect of WIPL, are not proceedings in respect of WIPL. WIPL is not even a party to the said proceedings. Though an application seeking impl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... order. The application was dismissed by the CLB by its order dated 29.05.2011. 5. Appeal was filed by PTPL before this court against the order of CLB dismissing the application for modification of status quo order. By an order dated 19.10.2011, the appeal was disposed of in the following terms:- After some arguments, Mr. C,A. Sundaram, learned senior counsel on instructions of Ms. Ranjana Roy Gamin, learned counsel, states that for the moment, appellant would be satisfied if appellant No.8 and/or his associates are allowed to bring :in money as share application money, subject to further orders to be passed by the Company Law Board in the petition pending before it. Mr. Ramji Srinivasan, learned senior counsel on instructions of Mr. Krishna Kumar, learned counsel for respondent, states that in the event the aforesaid amount is brought in as advance share subscription, he has no objection to the appellant No.8 and/or his associates bringing in money. In view of the aforesaid agreement appellant No.8 and/or his associates are allowed to bring in money into the appellant as share application money, subject to further order to be passed by the Company Law Board ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urt by order dated 19.10.2011 and that the agreement is a nullity. 12. The appellants are further aggrieved by the finding of the CLB that the true persons who are or have been financially interested in the success or failure of WIPL are different from the persons who appear to be members of WIPL and the true persons who are or have been able to control or materially influence the policy of WIPL are different from the persons who were in control of WIPL and therefore a probe into the affairs of WIPL is desirable in the interest of not only PTPL but also of WIPL. 13. The appellants are aggrieved by the exercise of the suo moto powers by the CLB under section 247 (1A) of the Act and the direction to the Central Government to appoint a team of inspectors of unimpeachable integrity for investigating into the affairs of WIPL for the purposes of determining the true persons who are or have been instrumental in providing funds to WIPL to the extent of ₹ 150 Crores and also for determining the true persons who are or have been financially interested in gaining control over PTPL and its group companies through WIPL. 14. The appellants are further aggrieved by the direction of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eeting or EOGM of WIPL be held or seeking appointment of a nominee director on the Board of PTPL. It is contended that the order was really an order on Company Applications No. 85, 86 and 87 of 2013, which even as per the order, are still to be heard. It is contended that the impugned order issues directions that were not even the subject matter or arise out of any of the applications/petitions pending before the CLB. 20. Learned Counsel for the appellants contended that it is an admitted position that by agreements dated 30.01.2013 and addendum agreements dated 09.02.2013 and 30.03.2013, ₹ 150 Crores were infused by WIPL into PTPL. Even the application of Respondent no.1 conceded that ₹ 150 Crores were infused into PTPL by WIPL. It is contended that the application further admits that PTPL had loans of more than ₹ 200 crores from public sector banks and the said amount of ₹ 150 crores so infused in PTPL was utilized for liquidating the liabilities of PTPL. The personal guarantees given by respondent no.1 to the public sector banks to enable PTPL to avail of the loans were also discharged. 21. Learned Counsel for PTPL contended that because of the infu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ven by the respondent no.1. 27. It is further contended that the application for impleadment of WIPL filed by the respondent no.1 is mala fide as the respondent no.1, after the infusion of ₹ 150 Crores by WIPL, has got all the assets of PTPL freed and debts paid off and thereafter the said application is being used as a modus operandi to force WIPL into giving up or writing off the said ₹ 150 Crores. 28. Learned Senior Counsel for WIPL submitted that the powers have been exercised by the CLB under Section 247(1A) of the Act without there being any specific application for the same and without the appellants being even put to notice that such powers were sought to be exercised. 29. It is contended that neither is WIPL a party to nor the affairs of WIPL are subject matter of the petition/proceeding pending before the CLB and as such, there could not have been any direction issued for investigating into the affairs of WIPL. It is contended that under Section 247(1A), the company whose affairs could be investigated into, is a company that is the subject matter of the proceedings pending before the CLB. It is contended that in exercise of powers under Section 247(1A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... picture much later and had infused ₹ 150 Crores in terms of order dated 19.10.2011 and as such, no direction can be issue qua WIPL. 36. It is further contended that WIPL is neither a necessary nor a proper party to the petition filed by the respondent No.1 alleging oppression and mismanagement by PTPL and the other respondents therein. 37. Learned Senior Counsel further contended that no asset of PTPL was either charged or mortgaged with WIPL, therefore the plea that the WIPL had attempted to take over PTPL was not sustainable. 38. Learned Counsel for the Respondent per contra contended that Mr. Matang Sinh, appellant No.2 in the appeal filed by the PTPL, who is also the husband of the respondent no.1, alongwith his group had indulged in various fraudulent activities including actions that resulted in siphoning of the profits of the company. 39. Respondent No.1 contended that there was an arrangement/agreement/understanding between Mr. Naveen Jindal, his associates/company with Mr. Matang Sinh whereunder Mr. Naveen Jindal, his associates and companies have given more than ₹ 150 crores and Mr. Matang Sinh had secured all his share holding, assets of the comp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dated 19.10.2011 and the subsequent addendum agreements dated 09.02.2013 and 30.02.2013 would not validate the agreement dated 30.01.2013. 47. It is submitted by the respondent no.1 that WIPL by infusing ₹ 150 Crores had attempted to virtually take over PTPL and the investigation directed by the CLB was to investigate into the coalition between WIPL and PTPL. 48. It is contended that the impugned order only expressed a strong prima facie view on the invalidity of the agreement dated 30.01.2013. It is contended that if the CLB were to finally hold that the agreement is not a nullity, it could always take steps for enforcement of the same. It is contended that the same is only an opinion and not an order. It is submitted that the impugned order does not return a finding of fact that the agreement dated 30.01.2013 is a nullity but the same is only a prima facie opinion. 49. Though elaborate submissions have been made by the parties on the factual matrix as elucidated hereinabove, the controversy involved in the present appeals is in a narrow compass. For disposal of the appeal, it is not necessary to deal with the elaborate submissions on the factual matrix. Further, si ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he purpose of determining the true persons- (a) who are or have been financially interested in the success or failure, whether real or apparent, of the company; or (b) who are or have been able to control or materially to influence the policy of the company.] (2) . 55. Section 247(1) empowers the Central Government, for good reason, to appoint one or more inspectors to investigate and report on the membership of any company and other matters relating to the company, for the purpose of determining the true persons who are or have been financially interested in the success or failure, whether real or apparent, of the company; or who are or have been able to control or materially to influence the policy of the company. 56. Section 247(1A) lays down that the Central Government shall appoint one or more inspectors under sub-section (1), if the CLB in the course of any proceedings before it, declares by an order that the affairs of the company ought to be investigated as regards the membership of the company and other matters relating to the company, for the purpose of determining the true persons who are or have been financially interested in the success or failure, whether rea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion of oppression and mismanagement has been made and not to other companies that may be party to the proceedings either as petitioner or as performa respondent. Section 247(1A) would not empower the CLB to direct investigation into the affairs of a company which is merely party to the proceedings but is not the company in respect of which there is any allegation of oppression and mismanagement. 60. The Calcutta High Court in UNIWORTH TEXTILES LIMITED V ASSET RECONSTRUCTION COMPANY (INDIA) LIMITED, (2012) 175 COMP CAS 418(CAL) has laid down that, if Section 247(1A) is read as giving the CLB unfettered authority in all circumstances to declare by an order that the affairs of a company ought to be investigated as regards the matters specified in such provision, it would result in the expression in course of any proceedings before it being rendered otiose. That would be impermissible by any rule of construction. Since section 247(1A) of the Act was not meant to be directly invoked - or such provision being taken recourse to only for the purpose of an investigation being directed thereunder - it does specify who may apply thereunder or who may be heard in course thereof. In the ab ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ended to be perceived. The true meaning of a written word is as it ought to appear to a reasonable reader. The fundamental tenets of statutory interpretation recognise the gulf between the words in a statute and the varied understanding thereof and attempt to bridge the gap. 62. In BIRLA CORPORATION LTD. V. EAST INDIA INVESTMENT CO. PVT. LTD., (2006) 133 COMP CAS 515(CAL), the Calcutta High Court has laid down as under: 34. Section 247(1A) does not lay down the circumstances in which the CLB might pass orders for investigation into the affairs of the company. 35. The essential ingredients of sub-section (1A) of section 247 of the Companies Act are (i) there should be proceedings before the CLB (ii) in course of those proceedings, the CLB should form an opinion that the true persons‟ Who are or have been financially interested in the success or failure of the company, are different from the persons who appear to be the members of the company, (iii) the true persons‟ who are or have been able to control or materially influence the policy of the company, are different from the persons who appear to be in the control of the company and (iv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e in the control of the company and a probe into the company's affairs is desirable in the interest of the company itself, and/or in public interest and that such an investigation was required into the affairs of WIPL. There was admittedly no request or prayer made by the respondent for the same. Parties have not even been put to notice that such an order was contemplated. Parties have admittedly not been heard on this issue. There is clearly a violation of the principles of natural justice. 65. Furthermore, the proceedings in which directions have been issued in suo moto exercise of powers under section 247(1A), in respect of WIPL, are not proceedings in respect of WIPL. WIPL is not even a party to the said proceedings. Though an application seeking impleadment of WIPL is pending but it is yet to be decided by the CLB. Even if the said application were to be allowed and WIPL was impleaded as a party, it would make no difference as the proceedings do not relate to the affairs of the company WIPL. Merely because WIPL is impleaded as a party to the proceedings would not empower CLB to direct an investigation into its affairs as permitting so would render the very words in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... remaining applications thereafter. It is in these circumstances that arguments commenced on CA No.88 first and concluded. The remaining CAs are yet to be heard in continuation. (Underlining supplied) 71. Paragraphs 6 and 7 of the impugned order show that though on 19.11.2013, the counsel for respondent no.1 was heard on admission of various applications, however as pleadings were not complete in some of the applications as of 10.01.2014 and 07.02.2014, thus on 13.03.2014 it was agreed between the parties that application for impleadment (CA No. 88) shall be heard in order of precedence and the hearing on the said application was concluded and the other application are yet to be heard in continuation. 72. However, while dealing with the application for impleadment, the CLB in paragraph 18 of the order has recorded as under:- 18. Therefore, before adjudicating on the issue of impleadment in CA No.88/C.No.1/2013 it needs to be investigated as to who are the true persons who are or have been financially interested in the success or failure of, whether real or apparent, of WIPL, in gaining complete control of PTPL or materially to gain complete control of PTPL, by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... time in the employment of JSPL and Mr. Navin Jindal but also held vital positions in JSPL. A probe into the nexus of Mr. Rajiv Jain with such true persons shall also be conducted. (Underlining supplied) 75. In paragraph 19 also, the CLB has recorded that before adjudicating on the application for impleadment, the powers under Section 247(1A) have been exercised. 76. The CLB by the impugned order has further directed that no Board Meeting or EOGM of PTPL or WIPL shall be held without seeking prior approval of the CLB. The CLB has further directed status quo as on the date of the order on the share holdings of WIPL and has injuncted the transfer of any share holdings. The CLB has directed the Central Government to appoint a nominee director on the Board of PTPL without whose presence, no Board Meeting of PTPL shall be held and without whose affirmative vote, no Resolution can be passed by the Board of PTPL. The nominee director has been made a joint signatory in all bank accounts and no withdrawal is permitted from any bank account of PTPL till the nominee director assumes position on the Board. The CLB has listed the matter for hearing on the other applications and also for c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oan of ₹ 150 Crores to PTPL and the contention that the agreements dated 30.01.2013 are in violation of status quo order dated 25.05.2009 of the CLB. 82. The other applications apart from the application for impleadment that were pending as per the order were (i) CA.No. 85 seeking directions to prevent breach of status quo order dated 25.05.2009, (ii) CA No. 86 for setting aside the agreement dated 30.01.2013 between PTPL and WIPL and (iii) CA No. 87 praying for initiating contempt proceedings against some of the respondent for violating order dated 25.05.2009. 83. The above clearly shows that the CLB has passed directions in the impugned order that are beyond the scope of the application for impleadment and some of the directions passed by the CLB emanate from the other pending applications which are yet to be heard and decided. Even the impleadment application has not been disposed of. The finding of the CLB that the agreement dated 30.01.2013 aims at a complete takeover of PTPL by WIPL and the finding that the agreement is fraudulent, mischievous, in breach of and a complete abuse of the order passed by the CLB on 25.05.2009 and the liberty granted by the High Court ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d be passed by the Board of PTPL and further of making the nominee director a joint signatory in all bank accounts and not permitting any withdrawals till the nominee director assumes position on the Board are also directions that do not emanate from the application for impleadment. The other applications are still pending and to be taken up for hearing and the directions have been issued without a hearing and without affording an opportunity to the affected parties. There is a clear infraction of the principles of natural justice. The impugned order in this respect is also not sustainable. 86. Similarly, the direction by the CLB that the parties to the addendum agreement dated 09.02.2013 and 30.03.2013 shall not act on such agreement and further direction that no Board Meeting or EOGM of PTPL or WIPL shall be held without seeking prior approval of the CLB and the direction of maintaining status quo on the shareholding of WIPL are also directions that do not emanate from the application for impleadment. The other applications are still pending and to be taken up for hearing and the directions have been issued without a hearing and without affording an opportunity to the affected ..... X X X X Extracts X X X X X X X X Extracts X X X X
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