Company Law Board
Bakhtawar Construction Co. Pvt. Ltd. vs Blossom Breweries Ltd. on 4 June, 1998
Equivalent citations: [1998]91COMPCAS744(CLB)
ORDER
1. The applicant herein, namely, Bakhtawar Construction Company Limited, had filed a petition under Section 248/250 of the Companies Act, 1956, in Blossom Breweries Limited., In re. We dismissed this petition as not maintainable, vide our order dated November 12, 1997 (see [1998] 95 Comp Cas 28). The applicant then filed an appeal against this order in the High Court of Bombay and the said High Court, while setting aside our order, has remitted the same back to us for considering the petition on the merits. In the said order, the High Court has also directed that we should consider the application for interim relief filed by the applicant (see [1998] 95 Comp Cas 28).
2. The applicant had filed an application C. A. No. 133 of 1997, dated April 24, 1997, seeking interim reliefs as sought for in the petition. The interim reliefs sought for in the petition are more or less on the same lines as provided under Section 250(2). However, when the matter was heard as per the directions of the High Court, the applicant sought for restraining the company from registering any shares allotted as promoters' quota, on the ground that the lock-in period in respect of these shares was coming to an end on May 25, 1998.
3. The issue that came up for our consideration was whether Section 248 or 250(1) confers any powers on the Company Law Board for granting any interim relief pending consideration of the petition on the merits. According to Shri Mathur, advocate, appearing on behalf of the respondents, neither Section 248 nor Section 250(1) confers any powers on the Company Law Board in respect of grant of any interim relief during the pendency of the proceedings. According to him, the restrictions on shares as provided in Section 250(2) can be imposed only when an order of investigation is made by the Company Law Board and no restriction on shares could be imposed till such order of investigation is made. As far as Section 248 is concerned, he submitted that, there is no provision in that Section for imposing any restriction on the shares under any circumstances either during the proceedings or on passing of an order on the petition. He also drew our attention, in support of his contention, to the observation of the learned judge of the Bombay High Court in page 12 of the order of the court (page 34 supra) "Once the investigation is ordered by the Company Law Board under the preceding sections, then the question may arise as to whether some interim orders in aid of the investigation are necessary and in case such orders are necessary, recourse to Section 250 can be taken. The provisions of Section 250 are merely in the nature of conferring powers as on the Company Law Board to make interim orders in aid of the investigation that is directed to be held by the Company Law Board". Further, he submitted that, out of the promoters' quota shares of about 34 lakhs, the applicants have impugned only about 10 lakhs shares in the petition as well as in the additional affidavit. Further, according to him, the applicant's group also has been allotted shares under the promoters' quota. Therefore, he submitted that the applicant cannot travel beyond the petition and seek for an order for restraining transfers in respect of the entire promoters' quota. He also submitted that there are a large number of shareholders who were allotted shares under the promoters' quota who are not parties to the proceedings and without hearing them, no orders can be passed against the shares held by them, Accordingly, he submitted that there is no scope either in law or on facts to grant the prayer sought for by the applicant.
4. Dr. Singhvi, senior advocate, appearing for the applicant submitted that the applicant has come before the Company Law Board in pursuance of the directions of the Bombay High Court which has, in the last para, of the order, directed the Company Law Board to consider the interim prayer. According to him, even though there is no specific provision either in Section 248 or Section 250(1) for grant of interim relief pending an order of investigation, in the absence of any specific fetter or prohibition to grant interim relief, it should be presumed that a judicial body will have the powers to grant interim relief to meet the ends of justice. He further submitted that one has to go by the purpose and objective of the provisions of a statute and as long as the interim relief sought is within the objective, then even in the absence of a specific provision, a judicial body is empowered to grant interim relief. According to him the interpretation of the provisions of the statute should be with a purpose to avoid the final relief becoming infructuous. Relying on ITO v. Mohamad Kunhi (M.K.) [1969] 71 ITR 815 (SC) and also on Gujarat Maritime Board v. Haji Daud Haji Harun Abu [1996] JT 11 SC 43 ; [1997] 89 Comp Cas 710, he submitted that the Supreme Court has held in the first case that even in the absence of any specific power of stay granted to the ITAT, the same should be treated as available to the Tribunal as an incidental and ancillary power to its jurisdiction. In the second case he pointed out that the Supreme Court has held that, where a substantive power is conferred on a court or Tribunal, all incidental and ancillary powers necessary for an effective exercise of the substantive power have to be inferred. Even otherwise, according to him, as per regulation 44 of the Company Law Board Regulations, the Company Law Board has inherent powers to make such orders as may be necessary to meet the ends of justice. Relying on the judgment of the Company Law Board in Gammon India Ltd., In re [1990] 3 Comp LJ 89 , he submitted that, in this case, the Company Law Board has recognised its powers to grant interim relief in a proceeding under Section 247/248/250, and therefore, the question of re-examining the issue as to whether it has the power to do so does not arise.
5. We have considered the arguments of counsel. The interim prayers sought for relates to restraining the respondent-company from registering any transfer of shares comprised in the promoters' quota, the lock-in period of which came to an end on May 25, 1998. According to the petitioners, since they have sought particulars to be collected under Section 248 in respect of all the shares issued in pursuance of the public offer made by the company including the promoters' quota, if no restraint order is made now and if these shares are transferred during the pendency of the proceedings, then on passing of final order of investigation, the finding of facts in regard to these shares will become difficult if not infructuous. While we concur with learned counsel for the petitioners that it would be appropriate to grant the relief sought, yet, we find that there is no specific provision either in Section 248 or in Section 250(1) for grant of any interim relief during the pendency of the proceedings. The absence of the specific provision vesting us with these powers is admitted by both the counsel. The only issue to be considered is, whether we have any inherent powers or whether we should assume that the said power is vested in us implicitly in the absence of any specific prohibition in this regard. Regarding inherent power, Dr. Singhvi relied on regulation 44 of the Company Law Board Regulations. A reading of this regulation would make it clear that the inherent powers saved by this regulation relate to matters covered in the regulations which cover the procedural matters. What we are asked to exercise now is not related to procedural matters but a substantive power having the effect of affecting the rights of various other parties who are not before us. A reading of the various provisions of the Companies Act relating to the powers on the Company Law Board would indicate that, wherever the Legislature had intended to confer powers of the Company Law Board to grant interim relief during the pendency of any proceedings, the same has been specifically conferred on the Company Law Board. Reference may be made to Section 111(6) and Section 403 which covers proceedings under Section 397/398. As we have pointed out earlier the interim reliefs sought for in the petition which were sought to be obtained through an application are more in line with those indicated in Section 250(2). These reliefs admittedly can be granted only after an order of investigation is made and not during the pendency of the proceedings. This is clear from the wording of the Section "That there is good reason to find out facts about any shares (whether issued or to be issued) and the Company Law Board is of the opinion that such facts cannot be found out unless the restrictions specified in Sub-section (2) are imposed. The Company Law Board may by an order direct that the shares shall be subject to the restrictions imposed by Sub-section (2) for such period not exceeding three years as may be specified in the order." A reading of the above makes it clear that only when the Company Law Board is of the opinion that there are good reasons to find out relevant facts about any shares, for which an order has to be issued expressing such opinion after the proceedings are completed, restrictions as contained in Sub-section (2) can be imposed, that too, only when the Company Law Board is of the opinion that relevant facts cannot be found out without such restrictions. The observation of the Bombay High Court in this regard which we have already mentioned as a part of Shri Mathur's arguments strengthens our view that during the pendency of the proceedings under Section 248/250, there is no scope for imposing the restrictions as provided in Section 250(2). Dr. Singhvi relied on the decision of the Company Law Board in Gammon India Ltd., In re [1990] 3 Comp LJ 89 , wherein the Company Law Board had imposed restrictions on the impugned shares in that petition under Section 250(2), to state that a precedent has already been set by the Company Law Board and as such we should also follow the same. In this connection, it is necessary to point out that, at the time when the Company Law Board passed the order in Common India Ltd., In re [1990] 3 Comp LJ 89, the Company Law Board was functioning as a delegatee of the Central Government and not as a quasi-judicial body. Further, the provisions of Section 250 as then prevailing empowered the Central Government (Company Law Board as a delegatee) to impose restrictions on the shares as long as it appeared to the Central Government that it was difficult to find out the relevant facts about any shares in connection with an investigation without such restriction. This is explicitly clear from para. 14 of the order in Gammon India Ltd., In re [1990] 3 Comp LJ 89 , wherein the Company Law Board itself has stated that it was exercising the powers as per the provisions of Section 250 as it existed before the 1988 amendment came into force. However, with the changes brought about by the amendment in 1988 to this section, an order of investigation is precedent to imposing restrictions on the shares. Accordingly, we are of the view that the decision to impose restrictions on the shares during the pendency of the proceedings in Gammon India Ltd., In re [1990] 3 Comp LJ 89, cannot be taken as a precedent.
6. However, Dr. Singhvi restricted his prayer only for restraining transfer of shares covered under the promoters' quota. While seeking this prayer, he seeks to invoke our inherent powers which according to him are incidental and ancillary to our substantive power as held in cases cited by him. The case referred to in ITO v. Mohamad Kunhi (M. K.) [1969] 71 ITR 815 ; [1969] 2 SCR 65, relates to the power of the Income-tax Appellate Tribunal in its appellate jurisdiction and the issue was whether in the absence of specific provision in the statute conferring on it power to stay recovery of penalties pending the disposal of the appeal. On this issue, the Supreme Court held that the power to order the stay of recovery of the penalty was an incidental and ancillary power to its appellate jurisdiction. In the case of Gujarat Maritime Board v. Haji Daud Haji Harun Abu [1996] JT 11 SC 43 ; [1997] 89 Comp Cas 710, 716, the issue was whether the National Consumer Disputes Redressal Commission had the power to adjudicate rival claims of the parties in the dispute in a complaint filed under the Consumer Protection Act. The Supreme Court, after examining the provisions of that Act, came to the conclusion that "The jurisdiction of the Commission to entertain and decide complaints necessarily means that where plurality of persons claim the same relief, simultaneously disputing each other's right to claim the said relief, the Commission has the necessary power to adjudicate the rival claims and decide the said dispute also. This power flows from and is incidental and ancillary to the substantive power conferred by Section 21(a)(i) read with Section 22 which applies Sub-sections (4), (5) and (6) of Section 13 to the National Commission as well. It is well-settled that where a substantive power is conferred upon a court or a Tribunal, all incidental and ancillary powers necessary for an effective exercise of the substantive power have to be inferred". We are of the view that the said ruling does not apply to the Company Law Board while exercising its powers under Section 248 or Section 250.
7. Thus, on an overall assessment of the legal provisions, we are of the view that till we come to a conclusion that there are good reasons to find out the relevant facts, to which conclusion we can come only after going through the merits of the case, there is no scope nor any power vested in us to impose the restrictions as provided under Section 250{2) of the Companies Act which the petitioners have sought as interim prayer in the petition. However, during the arguments, Dr. Singhvi prayed for restraining the company from registering shares comprised in the promoters' quota till the petition is disposed of. In other words, he has not pressed for the interim prayers sought in the petition, which, as we have already mentioned earlier, are more or less in line with the provisions of Section 250(2).
8. Now the question that arises is whether, in the facts and circumstances of this case, this limited prayer of the applicant could be considered. This petition was filed on April 21, 1997, and we had fixed the dates of final hearing on December 15, 1997, and subsequent dates subject to this petition being maintainable. But for our dismissing the petition as not maintainable, this petition would have been disposed of in one way or the other and the lock-in period expiring on May 25, 1998, would have been of no relevance. Since this limited prayer has come out of circumstances beyond the control of any one, we are of the view that we should be pragmatic and practical in taking a view on this limited prayer notwithstanding the legal position stated earlier. Therefore, we feel that, granting the prayer of the petitioners, as modified by us hereinafter, especially when we have kept the petition in the next few months, is not likely to cause any hardship to the respondents, and as such, we hereby order that, the company shall not register the transfer of any shares comprised in the promoters' quota as impugned in the petition and the additional affidavit, till disposal of this petition. This is as against the prayer of the petitioners seeking restraint order on all the shares comprised in the promoters' quota of about 34 lakhs shares. Shri Mathur indicated to us that, the promoters' quota shares impugned in the petition and the additional affidavit work out to only about 10,88,440. Subject to verification of this figure by the parties, our restraint order will cover only these shares.
9. The respondents are yet to file their replies on the additional affidavit filed by the petitioners. The respondents may file their reply to the same by July 15, 1998, and the petitioners will file their rejoinder by August 15, 1998. The petition will be heard on September 14, 15 and 16, 1998, at 2.30 p.m. on each day.