Industrial Development Bank Of ... vs Company Law Board And Ors.
2006 Latest Caselaw 881 Del

JUDGMENT

Vikramajit Sen, J.

Page 1785

1. In this writ petition the Order dated 5.8.2005, passed by the Company Law Board (CLB), Principal Bench, New Delhi has been assailed. The CLB had inter alia observed that prima facie Indian Oil Corporation (IOC) is a bona fide allottee of impugned shares for valuable consideration, and therefore, the right of IOC should not be fettered in any manner. It had also taken note of the fact that even after the allotment of shares to IOC, the four petitioners before it, namely the CHATTERJEE GROUP, [who are Respondents 2-5 in these proceedings], would continue to hold a majority of about 53 per cent shares in the Company, namely, Haldia PetroChemicals Limited (HALDIA for brevity). The CLB thereafter proceeded to direct HALDIA to defer allotment of any further shares, which obviously included shares of the value of Rs. 134 crores to the Industrial Development Bank of India (IDBI). It directed the maintenance of status quo of shareholding as of that date.

2. On 5.8.2005 the Petitioner/IDBI was neither a party to the proceedings under Sections 397 and 398 of the Companies Act, being CP No. 58/2005, nor was it afforded any opportunity of being heard. It was in these circumstances that IDBI filed CA No. 236/2005 seeking permission to intervene in the said CP No. 58/2005 and also praying for varying/modifying the Orders dated 5.8.2005.

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3. In the hearings held on 23.1.2006 the CLB noted the submissions of Senior Counsel for IDBI to the effect that the IDBI was not a party to the proceedings and that no relief had been sought against it, that these restraint Orders had adversely affected the contractual rights of IDBI and other consortium lenders, and therefore, the Board ought not to have passed the impugned Orders dated 5.8.2005. The application filed by IDBI had been strenuously supported by Senior Counsel for HALDIA, which is also what has transpired in Court today.

4. On behalf of the Petitioners it had been argued before the CLB and before me that whilst the allotment of shares to IDBI was not objected to in totality, the understanding was that upon transfer of the shareholding of West Bengal Industrial Development Corporation Limited (WBIDC) to the CHATTERJEE GROUP, the basic shareholding structure of the Company would not be changed; namely it would continue to remain a private company. This is also the position that has been proffered before me today. To repulse this impression, learned Senior Advocate for the IDBI has pointed out that the Comptroller and Auditor General (CAG) has appointed the Auditors of HALDIA for the last two years. Although the CLB had recorded its agreement with the contention that an ex parte Order should be subject to Review at the earliest to defer the Orders inter alia on the ground that the process of negotiation should not be hampered.

5. Mr. Gopal Subramanium, learned Additional Solicitor General and Mr. Dave, learned Senior Counsel, who appeared for the IDBI on the previous hearing, have strongly challenged the legal propriety of the decision of CLB in adjourning the disposal of the IDBI application on the grounds that negotiations should not be impeded. They have also challenged the Order dated 5.8.2005 on the ground that the CLB lacked jurisdiction to pass Orders injuncting transfer of equity to IDBI in its absence and in the absence of any prayer in this regard. So far as maintainability of the writ petition is concerned, it is their submission that if an Order has been passed without jurisdiction the extraordinary relief under Article 226 of the Constitution of India can always be invoked; that a remedy of an Appeal was not available to it since IDBI was not a party before the CLB; and that it is always within the discretion of the writ Court to exercise or decline to exercise jurisdiction and that there is no absolute bar or ouster in this context.

6. Mr. Ganesh, learned Senior Counsel for HALDIA, has repeated before me the arguments raised in support of the IDBI before the CLB. He has vehemently submitted that if the injunction Order continues IDBI is likely to recall its understanding and arrangement with HALDIA, which would thereupon have to make restitution to the extent of approximately Rs. 280 crores (Rupees Two Hundred and Eighty Crores Only) already availed by it, and further would have to forego the lower rates of interest agreed to be paid on the outstandings and pay several hundreds of crores of Rupees to IDBI, thereby spelling financial doom on HALDIA.

7. Mr. Shankardass, Mr. Arun Jaitley and Mr. Sarkar, learned Senior Counsel appearing for Respondents No. 2-5 have raised Preliminary Objections relating to the maintainability of the writ petition in view of the failure to avail of the Appellate remedy provided in Section 10F of the Companies Act. They have Page 1787 also reiterated that the foundation of the Agreement for conversion at par of debts of Rs. 135 crores (Rupees One Hundred and Thirty Five Crores only) into equity of HALDIA was that the majority should not be converted into a minority and that HALDIA should remain a private company.

8. This concise and brief encapsulation of the arguments of the parties is being deliberately made since I have come to the conclusion that it would not be expedient or proper for me to exercise in the present case the extraordinary powers under Article 226 of the Constitution of India. I should, therefore, take care not to express opinions on the merits of these arguments, so far as is possible which may affect the CLB's independent decision.

9. Section 10F of the Companies Act states that any person aggrieved by any decision or Order of the CLB may file an Appeal to the High Court within sixty days. So far as HALDIA is concerned it was a party to the proceedings before the CLB. The argument of Mr. Ganesh that it would spell doom on HALDIA if some of the debts of HALDIA owing to IDBI are not converted into shareholding in the Company, HALDIA could have filed an Appeal within the prescribed period. Obviously, some negotiations were underway before and after the passing of the impugned Order dated 5.8.2005. Mr. Subramaniam has, in fact, reiterated the stand of the IDBI that the understanding for purchase of the shares of HALDIA has now been held in abeyance. Prima facie, IDBI may not suffer any financial loss from this decision as it would be entitled to claim a higher rate of interest on the outstandings.

10. From the standpoint of IDBI it was indubitably a 'person aggrieved' by the impugned decision. In Malleswara Finance and Investment Co. P. Ltd. v. Company Law Board 1995 (Vol. 82) Company Cases 36 it had been noted that 'the writ petition was objected to by the contesting respondents on the ground that the petitioner has got an effective alternative remedy, and the extraordinary jurisdiction of this Court should not have been invoked'. The Division Bench thereafter dealt with this conundrum in these words:

Section 10F of the Companies Act provides for an appeal by the person aggrieved by the decision of the Company Law Board within 60 days from the date of communication of the decision or order of the Company Law Board or any question of law arising there from. The High Court is also given the power to condone delay if the appellant shows sufficient cause for not preferring the appeal within the period. In exercise of the powers conferred by Sub-section (6) of Section 10E of the Companies Act, 1956, the Company Law Board has made the Company Law Board Regulations, 1991. Regulation 1(3) says that the General Clauses Act, 1897 (10 of 1897), applies to the interpretation of these regulations as it applies to the interpretations of a Central Act. Regulation 2(p) defines the word 'party'. It says that 'party' means a person who files an application or petition before a Bench, the respondent, the Registrar of Companies or the Regional Director and includes any person who has a right under the Act to make suggestions or objections.

It is not disputed that the petitioner/appellant, as a creditor, or even on the basis of his claim as a mortgagee, had a right to make suggestions or objections even if no notice was issued to him, and even if he was not Page 1788 made an eo nomine party. So, by virtue of the regulation, a person who was not made an eo nomine party, can make suggestions or objections, and such a party would be deemed to be a party for the purpose of proceedings before the first respondent. Such a person can file an appeal under Section 10F of the Companies Act. The expression used is not 'party' but 'person aggrieved'. The appellant is not an eo nomine party. At the most, it may have to seek leave of this Court. In case the Court finds that the appellant's rights have been affected on a prima facie reading of the order, leave will be granted, vide Ponnalagu Ammal (K.) (Smt.) v. State of Madras AIR 1953 Mad 485, since Section 10E of the Companies Act provides for effective remedy, the writ jurisdiction of this Court should not have been invoked. The very same question as to whether the petitioner is a necessary party is also a matter in issue in the appeal filed by the third and the eighteenth respondents. Whether the petitioner's rights are affected is also in issue in the same appeal. When effective remedy is available by statute, we decline to interfere in proceedings which have to be decided mainly on affidavits.

11. In Paam Pharmaceutical (Delhi) Limited v Union of India 88(2000) DLT 251 the Division Bench had construed the words 'any person aggrieved' to include any unsecured creditor who may be aggrieved by a BIFR Order, and who would be fully competent to file an appeal under Sick Industrial Companies Act, 1985.

12. In Bar Council of Maharashtra v. M.V. Dabholkar a Seven Member Bench had to construe the very words 'person aggrieved' in the context of the Advocates Act, 1961. Their Lordships had held that whilst the meaning of these words may vary according to the context of the statute, one of the meanings is that a person will be held to be aggrieved by a decision if that decision is materially adverse to him and that normally one is required to establish that one has been denied or deprived of something to which one is legally entitled. Assuming that IDBI falls in this category it could have filed an Appeal. Otherwise, it has no redressable grievance. It cannot be allowed to prosecute a proxy war on behalf of IDBI.

13. My attention has also been drawn to the decision of the Constitution Bench in The Municipal Corporation of Greater Bombay v. Lala Pancham , wherein it has been observed that the expression 'any person aggrieved' is sufficiently wide to include not only a tenant but also an occupant of a building who is likely to be dishoused as a result of the action taken under a clearance order; the natural meaning of these words would certainly include a person whose interest is in any manner affected by the order. These observations would apply in full force to Section 10F of the Companies Act. The Legislature has employed other words in different statutes including 'any party' as in Order XXXIX Rule 4 of the Code of Civil Procedure. Had the words 'aggrieved party' instead of 'aggrieved person' been employed in Section 10F, there may have been room for debate. I, therefore, hold that the IDBI Page 1789 could have filed an Appeal under Section 10F of the Companies Act. Having failed to do so it should not be permitted to invoke Article 226 of the Constitution of India.

14. My attention has also been drawn to Stridewell Leathers (P) Ltd. v Bhankerpur Simbhaoli Beverages (P) Ltd. , which incidentally was also one of the parties in the Malleswara Finance decision. It had been held that the High Court which can properly exercise jurisdiction under Article 226 would be the one holding territorial sway in respect of the Registered Office of the concerned company. In the present case the Registered Office of HALDIA is in Calcutta. Mr. Jaitley has stated that filing of the present petition after the expiry of the period of limitation prescribed under Section 10F partakes of forum shopping. Even if that were to be too strident an approach it would be good as sufficient reason to persuade this Court not to exercise jurisdiction over the present dispute.

15. The powers of the CLB under Section 402 of the Companies Act are indeed of very wide amplitude. It is thus logistically inconceivable that each and every person who is likely to be affected by any of the Orders passed under that Section should be a party to the proceedings and be heard therein. For example, a company may have so many creditors that it would be well-nigh impossible to pass a timely Order, necessary and expedient in the opinion of the CLB, if each and every creditor is to be heard. This piquant situation could arise across the spectrum of shareholders, debtors etc.-etc. of a Company. In my view, it is for this reason that the Legislature has been wise, practical and sagacious enough to use the words 'person aggrieved' instead of 'party aggrieved'. In my opinion it should be left to the CLB to pass such Orders as it considers expedient and just, and then enable any person who may come within the fold of those Orders to assail it before the Appellate Authority. If my attention had been drawn to the impugned Orders of the CLB in appellate as against writ jurisdiction I may have felt best advised to issue notice to the IDBI, being a single and significant person easily identified as being likely if not certain to be affected by Orders akin to the challenged one, but non-observance cannot be fatal.

16. For these manifold reasons I consider it entirely inappropriate to exercise the extraordinary powers under Article 226 of the Constitution of India. The CLB has already held detailed hearings on the dispute. Why the IDBI has approached this Court after the expiry of the period prescribed for filing an Appeal is a factor which cannot be ignored. The vehemence with which HALDIA has supported the application before the CLB as well as the present Petition becomes fatally relevant, because it could have filed an Appeal but it failed to do so.

17. The CLB has scheduled the Final Hearings by July, 2006 and it is the expectation of this Court that the CLB shall pass Final Orders within that month.

18. It is in these circumstances that the writ petition is rejected, with no Order as to costs.