Judgment:
P.C.:
1. The appellants have approached this court impugning an order dated 18.8.2015 passed by the Company Law Board in a Company Application, taken out on behalf of respondent nos.1 and 2 for leave to amend the company petition so as to bringing on record the appellants as party-respondents to the Company petition. The respondent nos.1 and 2 had prayed, pending the amendment and pending hearing and final disposal of the said company application, to restrain the appellants in whatsoever manner acting upon in furtherance of a purported development agreement and power of attorney or carrying out any construction or creating 3rd party rights etc. relating to the property which for ease of reference, we shall call Swami Samarth Nagar. The Company Law Board has, pending the disposal of the said company application, where the main relief sought is to implead the appellants as party respondents, restrained the appellants from alienating or creating 3rd party rights over the Swami Samarth Nagar property and directed the appellants to maintain status-quo. Therefore, as on date, it is alleged that though the appellants are not parties to the company petition pending before the Company Law Board but an order has been passed whereby the appellants are restrained from alienation or creating 3rd party rights over Swami Samarth Nagar property.
2. The main company petition pending before the Company Law Board was filed by respondent nos.1 and 2. Respondent nos.3, 4 and 5 are the original respondent nos.1, 2 and 3 in the company petition. Except the appellants and respondent nos.1 and 2 nobody else appeared today. The petition pending before the Company Law Board has been filed by the respondent nos.1 and 2, alleging oppression and mis-management against respondent nos.4 and 5 in the conduct of affairs of respondent no.3-company, invoking the jurisdiction of the Company Law Board conferred upon it by virtue of sections 397 and 398 read with sections 402 and 403 of the Companies Act 1956. Respondent nos.1 and 2 together hold about 25.8% shares in respondent no.3 and the balance is with respondent no.4 and one Anil Mehta Group. On 16.4.2015, on an application by respondent nos.1 and 2 herein, the Company Law Board had passed the following order:-
I therefore, do not feel it just proper and appropriate to stop the development work going on the properties in which the development rights have already been given to the third parties. Therefore, balancing the equities between the parties and to protect the interest of the petitioners the following ad-interim orders are being passed :-
(a) The Respondent Nos.2 and 3 are directed to file an affidavit within a period of 10 days thereby disclosing on oath all transactions dealing and steps undertaking and all approvals sanctions and permission obtained and the status in respect of the properties assets of the company as set out in the schedule Annexure O to the petition.
(b) The petitioners shall be given inspection of the documents to which they are entitled to in the capacity of they being shareholders and directors of the Company. However, the petitioners will serve 3 days advance notice on the Company indicating date, time and details of the documents sought to be inspected.
(c) The properties in respect of which the Respondents have not entered into the development rights, the Respondents are restrained from dealing with, negotiating, disposing off, encumbering, alienating and/or transferring such assets or properties of the Company without prior permission of the petitioners.
(d) It is made clear that the properties in respect of which the development rights have already been given, such properties may be developed. However, such properties/flats/apartments shall not be sold without given an opportunity to the petitioners allowing 30 days time to match the offer with the prospective buyers.
(e) The Respondents shall provide a copy of the bank account of the Company on weekly basis to the petitioners.
(f) The Respondents are restrained from altering the shareholding of the Respondent No.1 company in any manner without prior approval of the Board.
(g) The Respondents are restrained from permitting any other individual to act and/or represent himself/themselves as Directors of the Company save and except those who are directors as on the date on the Board of the Company.
3. On 5.5.2015 the Advocates for the respondent nos.1 and 2 herein addressed a letter to the appellants and the other respondents herein recording that the respondents 1 and 2 have learnt that respondent no.4 has, without any authorization from the Board of Directors or shareholders of respondent no.3, sought to create/grant/transfer rights in respect of the property owned by respondent no.3-company viz. Swami Samarth Nagar Property and put them on notice that any creation or grant or transfer of rights in respect of Swami Samarth Nagar property in favour of the appellants was illegal and void and not binding on respondent no.3 or shareholders and the documents executed by respondent no.4 in favour of the appellants for such creation or grant or transfer are invalid and do not bind respondent no.3-company.
4. Pursuant to the order dated 16.4.2015, the respondent no.4 herein filed an affidavit dated 6.5.2015 in which the respondent no.5 has stated that the development rights in respect of the Swami Samarth Nagar property has been entrusted to the appellants pursuant to a registered agreement dated 13.10.2014.
5. At this point, it is necessary to note that in the appeal memo the appellants have annexed a copy of an agreement contained in a letter dated 19.11.2014 from the company to the appellant no.1 in which it is mentioned that as per the development agreement entered into between the appellants and the respondent no.3 the appellants had handed over 10 cheques for an aggregate amount of Rs.9,51,00,000/- on execution of the agreement as consideration; but as there were problems with the banks, the company was unable to deposit the cheques; and therefore, the cheques were being returned and in view of the consideration of Rs.9,51,00,000/- the appellants to allot flats admeasuring built up area of 7000 sq. ft. on the appellants completing construction upto 25th level of sale portion of the Swami Samarth Nagar project. This has been signed by the appellant no.1 and respondent no.3 on whose behalf respondent no.4 has signed.
6. The Company Law Board thereafter passed an order dated 18.5.2015 in which it is recorded that it is the case of respondent nos.4 and 5 herein that the development rights in respect of Swami Samarth Nagar property has been transferred to the appellant no.1 but there is nothing on record to show that any consideration was received in lieu of granting development rights. It was also observed by the Company Law Board that Respondent no.4 herein had by entering into the agreement with appellant had acted prejudicial to the interest of the Respondent no.3-company and Respondent No.1 and Respondent No.2 herein. The Company Law Board also directed the respondent no.3 herein to produce the alleged agreement entered into with appellant no.1 and also to give inspection to respondent nos.1 and 2 herein and thereafter the respondents 1 and 2 herein may take steps to implead the appellant no.1 as a respondent to the petition if so advised. It was also noted in the order that in the meanwhile, the company viz. respondent no.3 herein shall maintain status-quo with respect to the Swami Samarth Nagar property among other properties. It is necessary to observe that the agreement letter dated 19.11.2004 referred to above has not been produced at all before the Company Law Board.
7. On 11.8.2015 the respondent nos.1 and 2 took out an application to implead the appellants herein and for other reliefs which have been mentioned in paragraph-1 above. The Company Law Board on an urgent application taken out by respondent nos.1 and 2 herein after hearing the parties, passed the order dated 18.8.2015 which is impugned in this appeal, of which paragraphs-10, 11, and 12 read as under:-
10. For having the petitioner alleged that the value of the property is no way close to the real value of the property, for having alleged that R2 caused it transferred to Magnum without notice to the petitioners, and there being an order from CLB that the petitioners are entitled to implead Magnum as party to the proceeding, this Application is maintainable.
11. On seeing the company accounts, it is evident that there is no entry showing that the money of Rs.9,51,00,000/- shown as consideration to the company property has not come into the accounts of the company, therefore, for time being it is to be understood that no money has come into the company showing it as consideration to Swami Samarth Property.
12. For having this Bench already stated in the order dated 18th May, 2015 that R2 dealt with the affairs of R1 prejudicial to the interest of the petitioners, this Bench directs Magnum Landcon LLP not to alienate or create third party rights over the Swami Samarth Property and shall maintain status quo over the property pending disposal of the main Company Petition. The respondent side is directed to file reply to this application within 15 days thereof, rejoinder, if any, within 15 days thereafter .
8. The appellants are aggrieved by the restraining order passed by the Company Law Board in paragraph-12 quoted above.
9. The counsel for the appellants raised two primary grounds on which the impugned order is challenged and they are that the provisions of section 402F are not at all applicable to the facts and circumstances of the case and in any event, there is a time limit of 3 months prescribed under Section 402F for any applicant to move the Company Law Board and the application has been filed beyond the 3 months period consequent to which Company Law Board should not have passed any order. Counsel further submitted that in view of provisions of section 403, an order can be passed only relating to regulating the affairs of the company from the date of the order and order against the 3rd party appellant who is neither a shareholder nor a director of the company cannot be passed. It was also argued that even though final order under Section 402 can be passed, no interim order can be passed because section 403 does not permit any interim order against 3rd party.
10. At the outset, it should be noted that the allegation of the respondent no.1 and respondent no.2 is that respondent no.4 had no authority to transfer the development rights of the company respondent no.3 in Swami Samarth Nagar property to the appellants. It is also alleged that there are no Board Resolution or Shareholders' meeting authorizing respondent no.4 to transfer the development rights in Swami Samarth Nagar property to the appellants. It is also alleged that the so-called Rs.9,51,00,000/- consideration has not been received by the company. Mr.Madon argued that the company may have some reasons not to deposit the cheques but the appellants had paid, as it appears from the agreement between the respondent no.3 and the appellants. He also suggested that in any event, consideration by way of 7000 sq. ft. apartment has been agreed and it is not the appellants' problem that the company and its shareholders and directors are having a fight inter se. I put a question to Mr.Madon as to whether the appellants, before entering into development rights contract with the company, give notice in any newspaper of their intention and called for objection. Mr.Madon on instructions stated that no such notice was given.
11. The status of the application to implead the appellant no.1 as respondent to the company petition is still pending. The appellant no.1 has been directed to file its reply to the application within 15 days and rejoinder, if any, to be filed within 15 days thereafter. In the interregnum the Company Law Board having been satisfied that prima facie it appears that the affairs of company respondent no.3 has been conducted by respondent no.4 in a manner prejudicial to the interest of the company-respondent no.3 and respondent nos.1 and 2 herein and considering the balance of convenience, passed an order as an interim arrangement. An inter locutory remedy is intended to preserve in status-quo, the rights of the parties which may appear on the prima facie examination of a case. Prayer for grant of interlocutory injunction being at a stage when the existence of the legal right asserted by the claimant and its alleged violation are uncertain and remain uncertain till they are established at the trial on evidence, it is required to act on certain well settled principle of administration of such interlocutory remedy which is both temporary and discretionary. A need for such protection of the petitioner against injury by violation of its rights must be weighed against the corresponding need of a party to be protected against any injury resulting from the restraint on the exercise of its rights as sought for. Having said this, it is necessary to reproduce paragraphs-48, 49, 50 and 52 of the judgment of the Hon'ble Supreme Court of India in (2016) 1 Supreme Court Cases 237) Purnima Manthena and Anr. Vs. Renuka Datla and Ors. The same read as under:-
48. This Court in Wander Ltd. (supra), while dealing with appeals against orders granting or refusing a prayer for interlocutory injunction, did reiterate that the same, being in exercise of judicial discretion, the appellate court ought not interfere therewith and substitute its own discretion except where such discretion is shown to have been exercised arbitrarily or capriciously or perversely or where the Court whose order has been appealed from, had ignored the settled principles of law, regulating grant or refusal of interlocutory injunctions. It was enunciated, that appeal against exercise of discretion is an appeal on principle and the appellate court would not reassess the materials and seek to reach a conclusion different from the one reached by the court below, if it was reasonably possible on the materials available. It was held as well, that the appellate Court in such a situation would normally not be justified in interfering with the exercise of discretion of the Court below, if made reasonably and in a judicial manner, solely on the ground that if it had considered the matter at the trial stage, it would have come to a contrary conclusion. It was proclaimed that an interlocutory remedy is intended to preserve in status quo, the rights of the parties which may appear on a prima facie examination of a case. It was held that the prayer for grant of interlocutory injunction, being at a stage when the existence of the legal right asserted by the plaintiff and its alleged violation are both contested and uncertain and remain uncertain till they are established at the trial on evidence, it is required to act on certain well-settled principles of administration of such interlocutory remedy which is both temporary and discretionary. Referring to the fundamental object of interlocutory injunction, this Court noted with approval that the need for such protection of the plaintiff against injury by violation of his rights must be weighed against the corresponding need of the defendant to be protected against any injury resulting from the restraint on the exercise of his rights, as sought for, which he could not be adequately compensated. The need of one, thus was required to be compared against the other, to determine the balance of convenience to ensure an appropriate exercise of discretion for an interim remedy as suited to a particular fact situation. 49. The unequivocal legal propositions as judicially ordained, to ascertain the emergence and existence of a question of law, the scope of examination thereof by a court of appellate jurisdiction and the balancing of the competing factors in the grant of interlocutory remedy, hallowed by time, indeed are well settled. A question of law, as is comprehended in Section 10F of the Act, would arise indubitably, if a decision which is the foundation thereof, suffers from perversity, following a patent error on a fundamental principle of law or disregard to relevant materials or cognizance of irrelevant or non-germane determinants. A decision however, on the issues raised, is a sine qua non for a question of law to exist. A decision logically per-supposes an adjudication on the facets of the controversy involved and mere deferment thereof to a future point of time till the completion of the essential legal formalities would not ipso facto fructify into a verdict to generate a question of law to be appealed from. However, an omission to record a finding even on a conscious scrutiny of the materials bearing on the issues involved in a given case, may be termed to be one. Be that as it may, in any view of the matter, the appellate forum though exercising a jurisdiction which otherwise may be co- ordinate with that of the lower forum, ought to confine its judicial audit within the layout of the adjudgment undertaken by the forum of lower tier. This is imperative, more particularly in the exercise of the appellate jurisdiction qua a decision on discretion rendered at an introductory stage of any proceeding, otherwise awaiting final adjudication on merits following a full contest. It is settled that no adjudication at the preliminary stage of a proceeding in a court of law ought to have the attributes of a final verdict so as to prejudge the issues at that stage, thereby rendering the principal determination otiose or redundant. This is more so, if the pleadings of the parties are incomplete at the threshold stage and the lower forum concerned seeks only to ensure a working arrangement vis-a-vis the dissension and postpone fuller and consummate appreciation of the rival assertions and the recorded facts and the documents at a later stage.
50. Section 10F of the Act engrafts the requirement of the existence of a question of law arising from the decision of the CLB as an essential pre-condition for the maintainability of an appeal thereunder. While the language applied therein evinces that all orders, whether final or interlocutory, can be the subject-matter of appeal, if it occasions a question of law, in our comprehension, the Section per se defines the perimeters of inquisition by the appellate forum conditioned by the type of the order under scrutiny. The nature and purport of the order i.e., interlocutory or final, would thus logically present varying canvases to traverse and analyse. These too would define the limits of adjudication qua the appellate forum. Whereas in an appeal under Section 10F from an order granting or refusing interim relief, being essentially in the exercise of judicial discretion and based on equity is an appeal on principle and no interference is merited unless the same suffers from the vice of perversity and arbitrariness, such constrictions may not necessarily regulate and/or restrict the domain of examination in a regular appeal on facts and law. Section 10F, thus, statutorily demarcates the contours of the jurisdictional exercise by an appellate forum depending on the nature of the order impugned i.e. interlocutory or final and both cannot be equated, lest the pending proceeding before the lower forum, if the order impugned is purely of interlocutory nature, and does not decide any issue on a consideration of the rival assertions on merits, stands aborted and is rendered superfluous for all intents and purposes.
51........
52. In the above overwhelming factual premise, the High Court, as the impugned decision would demonstrate, being fully conscious that the proceeding before the CLB was pending for final adjudication, proceeded to undertake an in-depth exercise to fathom and analyse the facts and the law involved and has recorded its decision on merits in total substitution of the order of the CLB. This to reiterate, is in absence of any pleadings by the appellants, the contesting Directors before the CLB. This assumes importance as the High Court did resort to a full-fledged scrutiny of the factual and legal aspects, to test the legality and/or validity of the order dated 6.8.2014 of the CLB at the stage of mentioning. Having regard to the fact that the appeal before the High Court under Section 10F of the Act was one from an interim order passed in exercise of judicial discretion at the stage of mentioning, in our view, bearing in mind the permissible parameters of exercise of appellate jurisdiction in such matters, the elaborate pursuit so undertaken by it, is neither contemplated nor permissible. The High Court, in any view of the matter, was not dealing with a regular appeal under Section 10F of the Act on a question of law from a decision rendered by the CLB on merits, after a complete adjudication. The appeal before it, being one on principle and from an order rendered by the CLB in the exercise of its discretion at the preliminary stage awaiting the pleadings of the respondents therein, we are of unhesitant opinion that the scrutiny in the appeal ought to have been essentially confined to the aspects of which the CLB had taken cognizance, to pass its order at that stage, and not beyond .
12. A question of law as comprehended in section 10F therefore arises if a decision which is the foundation thereof suffers from perversity following a patent error on fundamental principles of law. The order impugned is a decision on discretion rendered at an introductory stage of the proceedings awaiting final adjudication on merits following a full contest that also not in the main petition but on an interim application. Even this application to implead the appellants is still pending. In the interregnum period this order of status-quo or not to create 3rd party rights of Swami Samarth Nagar property has been passed. The pleadings are also not complete in as much as the appellants herein are yet to file their reply to the application. The application is still at the threshold stage and the Company Law Board has only sought to ensure a working arrangement and postponed fuller appreciation of rival assertions and the recorded facts and documents at a later stage. The Company Law Board has passed the order on the basis that there was no entry showing that the money of Rs.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 and 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.
13. In view of the above conclusion, there is no need to deal with any of the other submissions made by the appellants. 14 Appeal stands dismissed. Interim application also accordingly dismissed.
15. Both the counsels jointly submit that there is an element of urgency in the matter. Therefore, on the next date when the matter is listed before the Company Law Board, The Company Law Board may endeavour to hear the matter and dispose of the same.
At the request of the counsel for the appellants, the time to file reply to the company application is extended by two weeks from today and rejoinder to be filed within two weeks of receiving a copy of the reply.