* IN THE HIGH COURT OF DELHI AT NEW DELHI Reserved on:
21. t March, 2014 Date of decision:
28. h April, 2014 % + CO. APPL (SB) No.11/2014 WITH CO. APPL. Nos.475476/2013 & CO. APPL. No.482/2014 R.P. KHOSLA & ANR. Through: ..... Appellants Mr. Deepak Khosla in person. versus CONNAUGHT PLAZA RESTAURANT PVT. LTD. AND ORS. Through: None. ......Respondents CORAM: HON’BLE MR. JUSTICE R.V.EASWAR R. V. EASWAR, J.:
1. This is an appeal filed by Mr. Deepak Khosla under Section 10F of the Companies Act, 1956 impugning the orders passed by the Company Law Board (CLB) on 18.12.2013 and 31.12.2013.
2. The question of law sought to be urged in this appeal is whether the CLB was right in law in holding that the appellant (petitioner before the CLB) had no locus standi under Section 237(b) of the said Act.
3. The appellant had filed Company Petition No.130(ND)/2013 before the CLB invoking the suo motu jurisdiction of the CLB under Section 237(b) of the Act to investigate into the affairs of M/s. Connaught Plaza Restaurant Pvt. Ltd. and M/s. McDonald India Pvt. Ltd. In the petition, it was alleged that these two companies had committed a number of illegal acts and violations of law in the conduct of the business, including breaches of RBI and SEBI regulations, violation of accounting practices, breach of Foreign Investment Promotion Board approvals and so on and so forth and a prayer was made that the CLB may form an opinion in this regard and submit the same to the Central Government which will carry out an investigation into the affairs of these companies.
4. The order was passed by the CLB on 18.12.2013 in which it held that the petitioners were not qualified under any of the clauses of Section 237(b) to seek its opinion. The order also refers to the conduct of the petitioner. Ultimately the petition was dismissed as misconceived.
5. The appellant (petitioner before the CLB) moved applications before the CLB seeking recall of the order dated 18.12.2013 passed in Company Petition No.130/2013 and also sought deletion of the alleged personal remarks made against him in the order after tendering an apology in the application. The CLB passed an order on 30.12.2013 deleting the remarks made in the earlier order, accepting the apology. On the merits of the matter the CLB reiterated its view that the appellant had no locus standi under Section 237(b) and that if he had any grievance against the companies mentioned above on the ground that they violated certain provisions of law he would be at liberty to approach the authorities under the respective laws, the violation of which is alleged. The CLB also examined the merits of the appellant’s petition and held that the allegations were not either covered by the Section or were not substantiated. The Company Petition No.130/2013 as well as all the connected applications were accordingly dismissed.
6. I have extensively heard the appellant who appeared in person. A question of law does arise as to the locus standi of the appellant to invoke the suo motu jurisdiction of the CLB under Section 237(b) of the Companies Act. I accordingly admit the appeal. I may clarify that I have considered the point whether the impugned orders are only administrative orders passed by the CLB, and if so, whether an appeal against them is maintainable under Section 10F. Even assuming that they were administrative orders, I am of the view that the appeal is maintainable since the language of Section 10F is wide enough to cover even administrative decisions taken by the CLB. The Section is as follows:
“10F. Appeals against the order of the Company Law Board. – Any person aggrieved by any decision or order of the Company Law Board made before the commencement of the Companies (Second Amendment) Act, 2002 may file an appeal to the High Court within sixty days from the date of communication of the decision or order of the Company Law Board to him on any question of law arising out of such order: Provided that the High Court may, if it is satisfied that the appellant was prevented by sufficient cause from filing the appeal within the said period, allow it to be filed within a further period not exceeding sixty days. ”
7. As provided in the Section, any decision or order of the CLB is appealable, provided a question of law arises from such decision or order. Thus I am of the view that the impugned orders, even if they are considered to be administrative orders, are subject to the appeal jurisdiction of this court. In any case the formation of an opinion by the CLB that there are circumstances suggesting the existence of various situations as described in the three sub-clauses of clause (b) of Section 237 is a judicial act or a judicial decision to be taken after considering the material placed before the CLB. This involves judicial consideration and application of mind to the facts brought before it. This would be judicial or quasi-judicial act. The decision would, therefore, be appealable under Section 10F. The question seems to be concluded by the judgments of the Supreme Court in Barium Chemicals Ltd. v. CLB (AIR1967SC295 and Rohtas Industries Ltd. v. S.D. Agarwal (AIR1969SC707.
8. Having cleared the preliminary point, the next question to be considered by me is whether the appellant had locus standi to invoke the suo motu jurisdiction of the CLB under Section 237(b). Section 237 reads as follows:
“237. Investigation of company’s affairs in other cases. – Without prejudice to its powers under section 235, the Central Government – (a) shall appoint one or more competent persons as inspectors to investigate the affairs of a company and to report thereon in such manner as the Central Government may direct, if – (i) the company, by special resolution; or (ii) the Court, by order, declares that the affairs of the company ought to be investigated by an inspection appointed by the Central Government; and (b) may do so in its opinion or in the opinion of the Tribunal there are circumstances suggesting – (i) that the business of the company is being conducted with intent to defraud its creditors, members or any other persons, or otherwise for a fraudulent or unlawful purpose, or in a manner oppressive of any of its members, or that the company was formed for any fraudulent or unlawful purpose; (ii) that persons concerned in the formation of the company or the management of its affairs have in connection therewith been guilty of fraud, misfeasance or other misconduct towards the company or towards any of its members; or (iii) 9. that the members of the company have not been given al the information with respect to its affairs which they might reasonably expect, including information relating to the calculation of the commission payable to a managing or other director, or the manager, of the company.”
The appellant’s arguments run like this. Clause (b) does not say at whose instance the opinion can be formed by the CLB as to the existence of the various circumstances described in the three sub-clauses. While it may be open to the CLB to form such an opinion while examining any matter before it, there is no prohibition placed upon it from forming an opinion on the basis of material which is brought to its notice by any person who may not be a member or creditor of the company or in any way connected to the company. Under Section 235(2) the application for investigation can be moved by not less than 200 members or by members holding not less than 1/10th of the total voting power. Section 237(b) does not place any such restriction. There may be several persons other than members of the company who may be in the know of the violations and irregularities or fraudulent practices perpetrated by a company. Those persons, driven by public spirit or public interest, may bring the relevant facts and the material with all the supporting evidence to the notice of the CLB to assist the CLB to suo motu form an opinion as to the existence of circumstances described in the three sub-clauses of clause (b). In the present case, the appellant contends that he has brought to the notice of the CLB several facts and material relating to the affairs of the two companies. The CLB ought to have itself formed any opinion and was not right in its view expressed in paragraph 8 of the order passed on 30.12.2013 that the alleged violations and irregularities will have to be taken up by the appellant before the appropriate authorities under the different statutes regulating those matters. The power is obviously given to the CLB to look into all the irregularities and violations allegedly perpetrated by the companies, which cannot be abdicated by it in the manner done by it. So ran the argument of the appellant.
10. The argument seems attractive but has been examined and rejected by this court thirty-four years back in V.V. Purie v. E.M.C. Steel Ltd., and ors. (1980) 50 Comp. Cas.
127. The identical objection regarding locus standi was raised in that case also and was upheld. In that case, certain persons who owned a property in Panchsheel Park entered into an agreement of tenancy with a company on certain terms and conditions. Disputes thereafter arose between those persons and the company regarding payment of rent, misappropriation of the amounts paid as rent and so on, with mutual allegations. The owners of the property (who were neither shareholders nor creditors of the company) filed an application before this court under section 237 for investigation into the affairs of the company. The company raised a preliminary objection before this court that the petition was not maintainable even under the wide terms of section 237 and the section, however widely couched, shall not be so construed as to vest an absolute and unlimited right in a complete and total stranger who has no manner of interest in connection with the company to seek an investigation into its affairs.
11. Ranganathan, J (as he then was), examined the issue with the thoroughness and erudition associated with him – if I may say so with great respect – and upheld the preliminary objection. After noticing, on the basis of Supreme Court judgments, that there can be no remedy by way of legal action unless there is infringement of a legal right to demand that an act shall not be done, the learned judge held that this general principle runs through and governs the right of any petitioner to approach the court for redress. The learned judge then observed:
“11. After deep consideration, I have come to the conclusion that the argument of Shri Ved Vyas has to be accepted. The courts are intended to provide redress to litigants who complain of the infringement of their legal rights and, in the absence of very clear words in a statute, it may not be construed as conferring on any person a right to move a Court when no legal injury has been caused to him.”
Thereafter, at paragraph16, the learned judge held as follows:
“16. I have already pointed out that, on general principles, it would not be correct to read the section as authorising any man in the street to seek orders for investigation into the affairs of a company, merely because it is a public company and its affairs are, in his opinion, being conducted to the detriment of public interest. The interest which the person may have as a member of the public in the purity of the administration of public companies is too remote and intangible for the infraction of which he may move a court. That apart I do not think that Section 237 is capable of such a wide interpretation even when read in the context of the Scheme and the various other provisions of the Companies Act. There are several provisions of the Companies Act which contemplate restrictions and provisions to safeguard the interests of the public. A contravention of the provisions of the Act would also be an offence which can read to a criminal prosecution. Nevertheless whenever there is a violation of the statute, a right to seek redress from the courts is conferred only upon the statutory authorities who are entrusted with the supervision of the companies or on members, creditors or other persons interested in the company. Under Section 397-398, where the affairs of a company, inter alia, are being conducted in a manner prejudicial to the public interest, the intervention of the court may be sought but only by a specified number of members of the company though even a smaller number may apply subject to certain conditions and restrictions. A petition for the winding up of a company even where such winding up is occasioned by the conduct of its affairs in disregard of the statute and to the detriment of public interest, can be presented only by the company, its creditors or contributories or by the designated officers of the Government. Where a company is being wound up and it appears that the busness of the company has been carried on in a fraudulent manner, only the liquidator, creditor or contributory can seek appropriate orders from the court against the persons who are alleged to have been parties to the carrying on the business in a manner aforesaid. Thus the scheme of the Act does not seem to envisage that, merely because a company is a public company, it would be open to any member of the public to move the Court for directions.”
The learned judge then proceeded to refer to a decision of the House of Lords in Gouriet & others v. Attorney General (1977) 3 WLR300which applied the principle that a person whose rights as a private individual are not affected cannot seek an injunction even if it be to prevent what he considers to be the threatened breach of law or even the commission of an offence. After referring to the weighty observations of Lord Wilberforce, Lord Diplock and Lord Fraser in that decision, the learned judge summed up the legal position in the following terms:
“19. The above extracts contain an enunciation of the general principle that the courts will not entertain actions on behalf of private persons to enforce the observance of public rights and duties unless they have a personal interest in the matter and unless their rights and interests are in some way affected. I think that, even in the interpretation of Section 237, this basic limitation should be treated as implicit and the section should not be given an interpretation which would make it possible for persons to start litigation in respect of what does not concern them. The section should be so interpreted as to enable relief to be obtained only by some person whose rights have been affected by the manner in which the affairs of the company have been conducted or accounts maintained and has, therefore, a grievance in the eyes of law for which he seeks relief from the court. There is ample scope for the invocation of Section 237 by persons whose rights are infringed or affected and whose interests need to be protected or safeguarded by an investigation A creditor who is unable to move the Central Government under Section 235; member or members though aggrieved, are unwilling to move the Central Government or unable to fulfil the requirements of Section 236 and hence unable to move the Central Government members who approach the Central Government under Sections 235 & 237(b) and are not aggrieved by the rejection of their applications; a company which wants an investigation but is unable to have a special resolution passed. These are all some illustrations of persons who would be able to move the court u/s 237(a). It is, therefore, not as if the scope of the remedy enacted by this provision would be unreasonably curtailed or would become illusory by reading into the section an implied limitation to exclude persons having no manner of interest or concern with the company, from availing of it.”
The judgement of Ranganathan, J (supra), being a judgment of this court, is binding on me. It covers the entire gamut of the arguments advanced before me by the appellant on the point of locus standi. It has been followed by a Division Bench of the Madras High Court in G. Haresh Chand V. Gee Gee Granites Ltd & Ors. (2009) 149 Comp. Cas 353 (Mad) in the following words :
“In the case of V.V.Purie Vs. E.M.C. Steel Ltd.(1980) 50 Comp Cas 127, decided by the Delhi High Court it was held that though Section 237 of the said Act is couched in very wide language, the basic limitation under this section is that the Courts will not entertain any petition on behalf of private persons under the said section unless the private persons have a personal interest in the matter and unless their rights and interests are in some way affected. The Delhi High Court held that Section 237 of the said Act should not be given an interpretation which would make it possible for persons to start litigation in respect of what does not concern them. Rather the said section should be interpreted in such a way as to enable only those persons to obtain relief whose rights have been affected by the manner in which the affairs of the company are being conducted.”
I accordingly uphold the orders of the CLB passed on 18.12.2013 and 30.12.2013 and dismiss the appeal and all connected applications. There shall however be no order as to costs. (R.V. EASWAR) JUDGE APRIL28 2014 hs