Honourable Mr. Justice P.R. Shivakumar
1. The present Company Appeal has been filed against the order of the Company Law Board, Additional Principal Bench, Chennai made in
C.P.No. 18 of 2012 passed in the attendance cum order sheet of the hearing of the Chennai Bench of the Company Law Board held on
29.02.2012 at 2.30 p.m stated to be decided on 13.03.2012. K.P. Selvaraaj, who figures as respondent No. 2 in the company petition before the
Company Law Board, is the appellant herein. Selvaraaj Tex Private Limited, which figures as respondent No. 1 in the company petition before the
Company Law Board is the first respondent herein. K.P.S. Manoharan, K.P.S. Sivakumar, K.P.S. Muniswaran, E. Muniswaran and Mrs. M.
Muthumari, the petitioners in the company petition before the Company Law Board, are the respondents 2 to 6 in the present Company Appeal.
Indira Vijayalakshmi and K. Sonai, who figure as respondent Nos.3 and 4 in the company petition are the respondents 7 and 8 in the company
appeal.
2. The appellant K.P.S. Selvaraaj and the respondents 2 to 4, who are the petitioners 1 to 3 in the company petition before the Company Law
Board, are the sons of late Mr. K.P. Subbiah. Subbaiah''s another son K.P.S. Elangovan''s son is the 5th respondent E. Muniswaran. The 6th
respondent Mrs. Muthumari is the wife of the second respondent K.P.S. Manoharan. K.P. Subbaiah (father of the appellant and respondents 2 to
4), K.P.S. Manoharan (2nd respondent) and late K.P.S. Elangovan (the father of the 5th respondent E. Muniswaran), initially started a business
under the name and style of ""Selvaraaj Tex"" as a proprietary concern in 1972. Subsequently, in 1983, the same was converted into a partnership
firm with the name of M/s. Selvaraaj Tex, whereupon K.P.S. Selvaraaj (appellant), K.P.S. Manoharan, K.P.S. Sivakumar and K.P.S.
Muneeswaran (respondents 2 to 4) and late K.P.S. Elangovan (father of the 5th respondent) were brought into the business as partners by
reconstituting the partnership. In 1993, the father of the appellant and the respondents 2 to 4 herein viz. K.P. Subbaiah, died. Subsequent to his
death, the said partnership firm was converted into a private limited company and incorporated in the name of Selvaraaj Tex Private Limited in
2006. As such the first respondent company, namely Selvaraaj Tex Private Limited came to be a closely held company having the members of the
family of late K.P. Subbaiah alone as its shareholders. K.P.S. Selvaraaj, K.P.S. Manoharan, K.P.S. Elangovan, K.P.S. Sivakumar and K.P.S.
Muniswaran were the directors of the company. K.P.S. Selvaraaj was made the Chairman and Managing Director of the company. Mrs. Indira
Vijayalakshmi, the 7th respondent herein (3rd respondent in the company petition before the Company Law Board) and Mrs. Muthumari, the 6th
respondent herein (5th petitioner in the company petition before the Company Law Board) were also inducted into the said company as share
holders.
3. The company was carrying on the business of manufacturing and trading in textiles. It was incorporated as a private limited company under the
provisions of the Companies Act, 1956 having its registered office at No. 204/6, Dindigul Main Road, Vilankudi, Madurai _ 625 018 with an
authorised share capital of Rs. 12,00,00,000/- divided into 1,20,00,000/- equity shares of Rs. 10/- each and issued, subscribed and paid-up share
capital of Rs. 8,61,34,400/- divided into 86,13,440 equity shares of Rs. 10/- each. The shareholdings of the company was as follows:
Sl. No. Name No. of shares (Equity shares of Rs.10/- each)
1. K.P.S. Manoharan 16,22,668
2. K.P.S. Sivakumar 16,22,668
3. K.P.S. Muniswaran 16,22,668
4. E. Muniswaran 16,22,668
5. Mrs. Muthumari 2,50,000
Total 67,40,672
1. K.P.S. Selvaraaj 16,22,688
2. Indira Vijayalakshmi 2,50,000
Total 18,72,688
Selvaraaj Fabrics Private Ltd and Mutharasu Spinners (India) Private Limited were the two sister companies of Selvaraaj Tex Private Ltd. The
said sister companies got merged with Selvaraaj Tex Private Ltd. by a scheme of amalgamation sanctioned by the High Court by order dated
17.07.2007 made in C.P.Nos.116 and 118 of 2007, which was filed with the Registrar of Companies on 16.08.2007.
4. While so, there was a division among the directors and stake holders pursuant to which a family arrangement was made and as per the family
arrangement, a scheme of demerger was proposed with the object of having greater focus in the business by the demerged and resulting companies
to achieve improved efficiency and optimized profitability. In order to facilitate the Demerger, it was proposed to incorporate a new company
under the name and style of Lakshmi Selvaraaj Tex Private Ltd, detach the spinning and weaving division from Selvaraaj Tex Private Limited and
attach it to Laxmi Selvaraaj Tex Private Ltd. On the sanction of the Scheme of Demerger 35% of the shareholdings of the resulting company,
namely Laxmi Selvaraaj Tex Private Ltd held by K.P.S. Selvaraaj and his family members will be transferred to K.P.S. Manoharan and his group
and thereby Manoharan group will become the shareholders and directors of the resulting company Laxmi Selvaraaj Tex Private Ltd. to the
exclusion of K.P.S. Selvaraaj and his family members. Similarly 65% of the shareholdings held by the members of Manoharan group in Selvaraaj
Tex Private Ltd (demerged company) shall be transferred to K.P.S. Selvaraaj and his family members and thereby the said company shall in
entirety come into the hands of K.P.S. Selvaraaj and his family to the exclusion of Manoharan group. Out of the seven shareholders, K.P.S.
Selvaraaj and his wife Indira Vijayalakshmi on the one part and the other shareholders, namely K.P.S. Manoharan, K.P.S. Sivakumar, K.P.S.
Muniswaran, E. Muniswaran and Mrs. M. Muthumari on the other part agreed to give effect to the scheme of demerger. It was agreed that the
properties of Selvaraaj Tex Private Limited, the first respondent herein and the personal properties of the directors of the said company should be
divided in the ratio of 35:65 between the appellant and his wife (Selvaraaj group) on the one part and the other five shareholders (Manoharan
group) on the other part. It was also agreed that the liabilities should also be divided in the same ratio. Such an agreement came to be arrived at on
23.09.2008. Pursuant to the same, a new company company under the name and style of Laxmi Selvaraaj Tex Private Limited was incorporated.
In order to give effect to the scheme of demerger, two company petitions came to be filed as C.P.Nos.153 and 154 of 2010 before this Court for
the sanction of the Scheme of Demerger between the first respondent company, namely Selvaraaj Tex Private Limited (demerged company) and
Laxmi Selvaraaj Tex Private Limited, the resulting company. this Court, by an order dated 08.04.2011 accorded sanction for the Scheme of
Demerger. Accordingly, both the companies started functioning separately. The scheme sanctioned by this Court has also been filed with the
Registrar of Companies on 06.05.2011.
5. As per the Scheme of Demerger, the Directors of the demerged company Laxmi Selvaraaj Tex Private Ltd. will meet and effect the transfer of
shares whereby, the entire shareholding held by the Manoharan group will be transferred to K.P.S. Selvaraaj and his wife. Similarly, the Directors
of Laxmi Selvaraaj Tex Private Limited will also meet and effect the transfer of the shares held by Selvaraaj group in entirety will be transferred to
Manoharan group. Meanwhile, there arose a dispute and difference of opinion between the above said groups regarding implementation of the
scheme, pursuant to which K.P.S. Manoharan issued a notice of meeting on 20.05.2011 for convening the meeting of Board of Directors of
Selvaraaj Tex Private Limited on 26.05.2011 at 11.00 a.m at North Gate Hotel Pvt Ltd, Goripalayam, Madurai: 1) to elect Chairman; 2) to
transfer the shares of late Mr. Elangovan to and in favour of Mr. E. Muniswaran; 3) to implement the scheme of demerger sanctioned by the High
court; 4) for the revocation of the borrowing power and power of selling the assets of the company both movable and immovable from individual
Directors including Chairman and Managing Director and vetting the power to the Board of directors; 5) for requiring Chairman and Managing
Director to place before the Board of directors, the minute book of board meeting and general body meeting and 6) for taking on record the
circular resolution passed by the Board and any other item with the permission of the chair.
6. Despite the request made by K.P.S. Selvaraaj for postponement of the meeting, the meeting was held on 26.05.2011 in which the following
resolutions were allegedly passed. They are: 1) a resolution appointing K.P.S. Manoharan as Chairman of the board and the Managing Director of
the company; 2) a resolution rescinding the power and recalling the powers vested on K.P.S. Selvaraaj as Chairman and Managing Director; 3) a
resolution revoking authorisation given to K.P.S. Selvaraaj as Managing Director of the company to open an account in any bank or operate
Union Bank account for and on behalf of the company; 4) a resolution authorising K.P.S. Manoharan to have the powers which had been given to
K.P.S. Selvaraaj and was revoked by the resolution No. 3; 5) a resolution to the effect that K.P.S. Selvaraaj as a Director of the company shall
have no authority to borrow any amount on behalf of the company and 6) a resolution authorising K.P.S. Manoharan to release the necessary
publication in the newspaper.
7. Meanwhile, K.P.S. Selvaraaj and his wife Indira Vijayalakshmi filed a suit on the file of the Principal Subordinate Judge, Madurai as O.S.No.
669 of 2011 for a declaration that the meeting convened on 05.08.2011 or on any future date by Manoharan group was illegal, for an injunction
restraining them from conducting or convening any extraordinary general meeting of Selvaraaj Tex Private Limited and also for an injunction from
demolishing any building owned by Selvaraaj Tex Private Limited. No interim order could be obtained. Contending that Elangovan had executed a
Settlement Deed in favour of K.P.S. Selvaraaj and also contending that Manoharan group attempted to trespass into the property of the company,
K.P.S. Selvaraaj filed another suit on the file of the Sub-Court, Madurai in O.S.No. 695/2011 for an injunction restraining Manoharan group from
in any manner interfering with the business of Selvaraaj Tex Private Ltd.
8. Subsequently claiming that Manoharan group have resigned as Directors of the company (Selvaraaj Tex Private Ltd.) with effect from
08.04.2011 and they ceased to be the directors of the company as per the Scheme of Demerger, K.P.S. Selvaraaj and his wife Indira
Vijayalakshmi filed a company petition, namely C.P.No. 57 of 2011 before the Company Law Board, Additional Principal Bench, Chennai under
sections 111, 397 and 318 r/w section 402 and 403 of the Companies Act, 1956 for a declaration that K.P.S. Manoharan, K.P.S. Sivakumar
and K.P.S. Muniswaran had ceased to be the directors of the company Selvaraaj Tex Private Ltd with effect from 04.08.2011; for a declaration
that the Board meeting convened by them and E. Muniswaran, in their capacity as directors of the said company was invalid and void ab initio; for
a declaration that all the resolutions passed by the purported board meeting held on 26.05.2011 including the one for the removal of K.P.S.
Selvaraaj as Managing Director of the company are invalid; for a direction against them to transfer their entire shareholdings in Selvaraaj Tex
Private Ltd to K.P.S. Selvaraaj and his wife Indira Vijayalakshmi; for a declaration that the general meeting of the company Selvaraaj Tex Private
Ltd called by Manoharan, Sivakumar, Muniswaran, Mrs. Muthumari was invalid and for a permanent injunction from holding the said meeting on
05.08.2011 or on any adjourned date and from passing any resolution therein. In the said petition, Selvaraaj and Indira Vijayalakshmi had also
sought for an interim order of injunction restraining those five persons form holding out or acting as directors of the company, from holding out or
acting as shareholders of the company and from convening extraordinary general meeting. The Company Law Board passed an order on
02.08.2011 in the said company petition declining the interim reliefs sought for therein.
9. Meanwhile, K.P.S. Manoharan as Managing Director of Laxmi Selvaraaj Tex Private Ltd filed Comp. Appln. No. 483 of 2011 in C.P.No. 153
of 2010 contending that as per the scheme of arrangement and demerger sanctioned by this Court, which was filed with the Registrar of
Companies, certain properties would continue to vest with the demerged company and certain properties would stand vested with the resulting
company, namely Laxmi Selvaraaj Tex Private Ltd and citing certain disputes regarding the settlement of the amount payable by Selvaraaj Tex
Private Ltd as per the scheme of demerger. The said petition has been filed praying for a direction against Selvaraaj Tex Private Ltd to pay a sum
of Rs. 12,09,20,291.45/- and Rs. 7,17,34,460/- and a further sum of Rs. 4,71,38,502.55P to Union Bank of India in accordance with the
Scheme of Demerger. The said application is pending. Without expressly referring to the said application, the Company Law Board chose to take
a stand that the Scheme of Demerger had not been fully implemented and the matter was pending before the High Court and while the matter was
thus pending before the High Court, there was no scope for the Company Law Board to pass any interlocutory order as prayed for in the said
petition, namely C.P.No. 57 of 2011 filed by the appellant and his wife. As against the said order dismissing the prayer for interim relief and
posting the company petition for final hearing, the appellant and his wife have filed an appeal on the file of this Court in C.A.No. 21 of 2012.
10. In the meanwhile, the first respondent company has caused a publication in a Tamil Daily on 13.03.2012 to the effect that the appellant and his
wife were removed from the directorship and they have no rights to interfere with the affairs of the company. For the above said publication, the
appellant has caused a publication on 15.03.2012 in the same Tamil Daily refuting the allegations averred against him and he is also taking legal
steps against the Managing Director of the first respondent company, namely against Mr. K.P.S. Manoharan.
11. While so, taking advantage of the absence of any interim order and claiming to have legally convened the extraordinary general meeting on
05.08.2011 in which the appellant K.P.S. Selvaraaj and his wife (7th respondent) were removed as directors of the Company Selvaraaj Tex
Private Ltd. on the allegation of mismanagement and diversion of funds for the purchase of properties in the names of the appellant and his family
members to the tune of Rs. 10,77,15,000/-, the respondents 2 to 4 filed a company petition in C.P.No. 18 of 2012 before the Company Law
Board under sections 397 and 398 r/w sections 402 and 403 of the Companies Act, 1956. In the said petition, they had sought for a declaration
that the appellant and the 7th respondent had ceased to be directors of the company Selvaraaj Tex Private Limited, for an injunction restraining
them from acting or making any representation as directors of the said company and for an injunction against them from preventing the respondents
2 to 6 from entering into factory premises of the company at No. 5B, Iyyanar Kovil 5th Street, Mahan Gandhi Road, Sellur, Madurai-625 002
and its Registered office at No. 204/6, Dindigal Main Road, Vilangudi, Madurai-625 018 and also for a direction to the first respondent, namely
Selvaraaj Tax Private Limited to pay a sum of Rs. 32,98,97,992/- to Laxmi Selvaraaj Tex Private Limited. Along with the prayers made in the
company petition, they had also sought for interim relief with the following prayers:-
a) for an interim order of injunction restraining the appellant and the 7th respondent from making any representation as directors of the company
and prevent them from interfering with the business of the company in any manner whatsoever and from entering either the factory premises
situated at 5B, Iyyanar Kovil 5th Street, Mahan Gandhi Road, Sellur, Madurai-625 002 or the Registered Office of the company at No. 204/6,
Dindigal Main Road, Vilankudi, Madurai-625018;
b) for an order of injunction restraining the appellant and the 7th respondent from in any manner dealing with both the movable and immovable
properties of the company; and
c) to appoint a commissioner to take inventory of the Plant and Machineries of the company, situated at 5B, Iyyanar Kovil 5th Street, Mahan
Gandhi Road, Sellur, Madurai-625 002 and 204/6, Dindigal Main Road, Vilangudi, Madurai-625018.
12. In the said company petition, the appellant entered appearance. The Company Law Board, Chennai before which the said company petition
came up for hearing passed the impugned order on 13.03.2012 adjourning the company petition to 24.04.2012 and granting the relief of interim
injunction restraining the appellant and the 7th respondent from making any representation as directors of the first respondent company or from
interfering with the business of the company in any manner other than as its shareholders and also restraining them from dealing with the movable
and immovable properties of the company.
13. Challenging the said order, the present appeal has been filed u/s 10F of the Companies Act, 1956 by K.P.S. Selvaraaj, who figured as the
second respondent in the said petition.
14. this Court heard the arguments advanced by Mr. M.S. Krishnan, learned senior counsel appearing for the counsel on record for the appellant
and by Mr. A.K. Mylsamy, Learned Counsel for the respondent were heard. this Court also perused the appeal memorandum, impugned order
and the documents in the form of typed set of papers.
15. An appeal against the order of the Company Law Board shall lie to the High Court u/s 10F of the Companies Act, 1956 on a question of law
arising out of such an order. The questions of law projected to have arisen out of the impugned order of the Company Law Board are:
1. Whether the Company Law Board has passed an order in violation of the natural justice especially the principle of audi alteram partam?
2. Whether the Company Law Board has granted the main relief itself in the interim order much against the principle laid by the Hon''ble Apex
court?
this Court is satisfied that the said questions have arisen in this appeal.
16. The learned senior counsel appearing for the appellant made the following submissions:
i) As per the scheme of demerger, the spinning and weaving division of the company (Selvaraaj Tex Private Ltd.) was to be detached from
Selvaraaj Tex Private Limited and attached to Laxmi Selvaraaj Tex Private Ltd. and thereafter the company Selvaraaj Tex Private Ltd shall be
under the exclusive control of K.P.S. Selvaraaj group, whereas Laxmi Selvaraaj Tex Private Ltd. shall be under the exclusive control of the
Manoharan group. The said position was agreed to and admitted by the members of Manoharan group and the same will be seen from the fact that
he has filed a company application, namely C.A.No. 483 of 2011 in C.P.No. 153 of 2010 in his capacity as Managing Director of Laxmi
Selvaraaj Tex Private Limited praying for a direction against Selvaraaj Tex Private Ltd for payment of a sum of Rs. 19,26,54,751.45P (Rs.
12,09,20,291.45/- and Rs. 7,17,34,460/-) to Laxmi Selvaraaj Tex Private Ltd and for a further direction to pay a sum of Rs. Rs.
4,71,38,502.55P to Union Bank of India. Under the said circumstances, instead of trying to sustain and enforce the said claim, the respondents
devised an ingenuous method by which they wanted to take over the management of both the companies much against the terms of the Scheme of
Demerger. In order to put their evil design into action, they called for a meeting of directors and conducted the meeting without heeding to the
request of the appellant and his wife for postponement of the meeting and created a record as if they had removed the appellant as Chairman and
Managing Director, pursuant to which the appellant and his wife filed a company petition before the Company Law Board as C.P.No. 57 of 2011
praying:- for a declaration that K.P.S. Manoharan, K.P.S. Sivakumar and K.P.S. Muniswaran had ceased to be the directors of the company
Selvaraaj Tex Private Ltd with effect from 04.08.2011; for a declaration that the board meeting convened by them and Muniswaran, in their
capacity as directors of the said company was invalid and void ab initio; for a declaration that all the resolutions passed by the purported board
meeting held on 26.05.2011 including the one for the removal of K.P.S. Selvaraaj as Managing Director of the company are invalid; for a direction
against Manoharan group to transfer their entire shareholdings in Selvaraaj Tex Private Ltd to Selvaraaj and his wife Indira Vijayalakshmi; for a
declaration that the purported general meeting of the company Selvaraaj Tex Private Ltd called by K.P.S. Manoharan, K.P.S. Sivakumar, K.P.S.
Muniswaran, Mrs. Muthumari was invalid and for a permanent injunction from holding the said meeting on 05.08.2011 or on any adjourned date
and from passing any resolution therein. In the said petition, K.P.S. Selvaraaj and Indira Vijayalakshmi had also sought an interim order of
injunction restraining those persons form holding out or acting as directors of the company Selvaraaj Tex Private Ltd; from holding out or acting as
shareholders of the company and from convening proposed extraordinary general meeting. In that petition, the Company Law Board, referred to
the pendency of C.A.No. 483 of 2011, which was filed for a direction against Selvaraaj Tex Private Ltd to make payment of a sum of Rs.
19,26,54,751.45P to Laxmi Selvaraaj Tex Private Ltd. and a direction to make payment of a sum of Rs. 4,71,38,502.55P to Union Bank of India
as an instance of inconclusive demerger proceedings and declined the interim relief sought for by the appellant and his wife on the premise that it
would not be appropriate for the Company Law Board to pass interim order as sought for by the appellant herein and his wife when the matter
was pending before the High Court.
ii) The Company Law Board applied a different yardstick when the respondents filed C.P.No. 18 of 2012 and sought for an order of interim
injunction and passed an order granting the relief of interim injunction restraining the appellant and his wife from making any representation as
directors of the first respondent company and from interfering with the business of the company in any manner other than as its shareholders and
also restraining them from dealing with movable and immovable properties of the company, despite the fact that the very same company
application was pending before this Court and in addition to that a company appeal against the order declining the interim relief in C.P.No. 57 of
2011 was also filed and the same was pending on the file of this Court.
iii) Though the appellant entered appearance before the Company Law Board and sought time for filing counter not only in the main company
petition but also regarding the interim relief, the Company Law Board chose to pass an order in the form of interim order granting the main relief
itself by making an elaborate discussion regarding the merits of the case. The same will amount to passing an order in utter disregard to the audi
alteram partem principle of natural justice. By the said order, the Company Law Board purported to virtually snatch away the management of
Selvaraaj Tex Private Ltd from the appellant and his wife and give it to the respondents and hence the impugned order of the Company Law
Board should be set aside and either this Court should pass an order after hearing the objections or the matter should be sent back to the
Company Law Board for passing an order after giving an opportunity to the appellant to file a counter and make his representation.
iv) The very fact that the respondents have filed a company application for the recovery of money from the first respondent company on behalf of
Laxmi Selvaraaj Tex Private Ltd, the Company Law Board ought to have held that the respondent himself was of the view that the demerger had
been given effect to and only the adjustment of funds was to be accomplished and that is the reason why such a company application was filed for
the recovery of amount. Thereafter there won''t be any question of Manoharan group taking over the management of the first respondent company.
The Company Law Board ought to have held that there was no prima facie case on the side of the respondents and the balance of convenience
was also not on their side. The said aspect is adverted to in order to show that the Company Law Board could have taken such a view regarding
prima facie case and balance of convenience if an opportunity was given to the appellant to put-forth their case.
17. Per contra, the Learned Counsel for the respondents would submit that the impugned order of the Company Law Board is only an interim
order as it has been stated that the said interim relief would be in force until further orders and the respondents therein, namely the appellant herein
and his wife Indira Vijayalakshmi were given three weeks time to file counter; that the appellant herein can file a counter therein and seek the
vacation of the interim order and that under the said circumstances, the appeal against the interim order should be dismissed. In support of his
contention, the Learned Counsel for the respondents would submit that the procedure adopted in the company petition before the Company Law
Board is to seek the interim relief in the company petition itself without filing a separate petition and that a close consideration of the impugned
order will show that it is only an ad-interim order, which could be modified when the appellant and his wife would file a counter and argue the
same.
18. As a reply to the above said contention of the Learned Counsel for the respondents, the learned senior counsel for the appellant contended
that the impugned order, which is typewritten, contains handwritten notes above the typewritten portion to the effect that arguments regarding
interim relief alone was heard and orders regarding the interim relief was reserved; that no such hearing was made and on the other hand when time
for filing counter was sought for by the appellant and his wife, the Company Law Board without even passing an ad-interim order forthwith, simply
kept the petition for 12 days after the hearing date and then passed the impugned order without affording an opportunity of being heard, but at the
same time making elaborate discussions regarding the merits of the case. The learned senior counsel submitted that the granting of the interim reliefs
without even affording an opportunity to the respondents therein to file their counter and make their submissions regarding the grant of interim relief
would amount to denial of justice and abuse of jurisdiction in violation of the principles of natural justice.
19. this Court considered the rival submissions made on both sides.
20. The impugned order shows that the company petition came up for hearing before the Company Law Board on 29.02.2012 at 2.30 p.m. On
the said date no order was passed and on 13.03.2012 alone the impugned order came to be passed. Appearance of the advocate for the
petitioner in the company petition alone has been noted. A handwritten note above the typed part of the order dated 13.03.2012 reads as if
respondents sought time to file counter in the company petition and hence four weeks time for filing counter was granted. It further reads that the
arguments on interim reliefs was heard and orders on interim reliefs was reserved. As rightly contended by the learned senior counsel for the
appellant, when the Company Law Board was not passing any ad-interim order keeping it open to the respondents therein to file their counter and
seek modification of the order, it ought to have given an opportunity before the order was passed, which was not passed on the hearing date. The
learned senior counsel for the appellant also relied on the following judgments of the Hon''ble Supreme Court:-
i) Dalpat Kumar and Another Vs. Prahlad Singh and Others, and
ii) State of Uttar Pradesh and Others Vs. Ram Sukhi Devi,
iii) Union of India (UOI) and Others Vs. Modiluft Ltd.,
21. In the first of the above cited judgments, it has been held as follows:
4. .......... Injunction is a judicial process by which a party is required to do or to refrain from doing any particular act. It is in the nature of
preventive relief to a litigant to prevent future possible injury. In other words, the court in exercise of the power of granting ad interim injunction is
to preserve the subject matter of the suit in the status quo for the time being. It is settled law that the grant of injunction is a discretionary relief.
5. Therefore, the burden is on the plaintiff by evidence aliunde by affidavit or otherwise that there is ""a prima facie case"" in his favour which needs
adjudication at the trial. The existence of the prima facie right and infraction of the enjoyment of his property or the right is a condition for the grant
of temporary injunction. Prima facie case is not to be confused with prima facie title which has to be established, on evidence at the trial. Only
prima facie case is a substantial question raised, bona fide, which needs investigation and a decision on merits. Satisfaction that there is a prima
facie case by itself is not sufficient to grant injunction. The Court further has to satisfy that non-interference by the Court would result in ""irreparable
injury"" to the party seeking relief and that there is no other remedy available to the party except one to grant injunction and he needs protection
from the consequences of apprehended injury or dispossession. Irreparable injury, however, does not mean that there must be no physical
possibility of repairing the injury, but means only that the injury must be a material one, namely one that cannot be adequately compensated by way
of damages. The third condition also is that ""the balance of convenience"" must be in favour of granting injunction. The Court while granting or
refusing to grant injunction should exercise sound judicial discretion to find the amount of substantial mischief or injury which is likely to be caused
to the parties, if the injunction is refused and compare it with that it is likely to be caused to the other side if the injunction is granted. If on weighing
competing possibilities or probabilities of likelihood of injury and if the court considers that pending the suit, the subject-matter should be
maintained in status quo, an injunction would be issued.
In the second judgment cited above, namely State of Uttar Pradesh and Others Vs. Ram Sukhi Devi, , the Hon''ble Supreme Court has opined
that final relief sought for in the main case cannot be granted in the form of an interim measure. The relevant portions in the judgment are as follows:
8. To say the least, approach of the learned Single Judge and the Division Bench is judicially unsustainable and indefensible. The final relief sought
for in the writ petition has been granted as an interim measure. There was no reason indicated by learned Single Judge as to why the Government
Order dated 26.10.1998 was to be ignored. Whether the writ petitioner was entitled to any relief in the writ petition has to be adjudicated at the
time of final disposal of the writ petition. this Court has on numerous occasions observed that the final relief sought for should not be granted at an
interim stage.
Time and again this Court has deprecated the practice of granting interim orders which practically give the principal relief sought in the petition for
no better reason than that of a prima facie case has been made out, without being concerned about the balance of convenience, the public interest
and a host of other considerations.
In the third judgment cited above, namely Siii) Union of India (UOI) and Others Vs. Modiluft Ltd., e Hon''ble Supreme Court expressed a similar
view.
Relying on the said observations of the Hon''ble Supreme Court, the learned senior counsel for the appellants has submitted that, besides applying
different yardsticks one in the petition filed by the appellant herein and the other in the petition filed by the opposite party against the appellant and
besides violating the audi alteram partem principle of natural justice, the Company Law Board has chosen to grant the relief sought for in the
company petition in the interim order itself having the effect of disturbing the status quo as on the date of filing of the petition and that hence the
order of the Company Law Board should be set aside.
22. It is true that the judgments of the Apex court cited by the learned senior counsel contain such recitals and directions deprecating the practice
of granting the relief sought for in the main case in the interim order itself. this Court is of the considered view that the said question need not be
gone into at this stage before considering the sustainability of the impugned order of the Company Law Board in the teeth of its challenge on the
ground of violation of the fundamental principle of natural justice, namely the principle of audi alteram partem. In case this Court comes to the
conclusion that the order of the Company Law Board is obnoxious and cannot be sustained on the ground of violation of the above said principle
of natural justice and on the ground of failure to afford an opportunity of being heard, the other question regarding the presence of prima facie case
and the balance of convenience need not be gone into. In case this Court comes to the conclusion that there is no violation of the above said
principle of natural justice and the order of the Company Law Board is not vitiated on that ground, then only consideration of the question of
granting the relief sought for in the main case itself in the interim order and whether the discretion for the grant of interim order was properly
exercised, would arise. Therefore, let us now consider the challenge made to the impugned order of the Company Law Board on the ground that it
was passed in violation of the principles of natural justice without affording a reasonable opportunity of being heard.
23. It is obvious from the order of the Company Law Board that the Company Petition viz. C.P.No. 18 of 2012 came up for hearing before the
Company Law Board on 29.02.2012 on which date the appellant herein and his wife appeared and wanted time for filing counter not only
regarding the main prayer made in the company petition, but also regarding the interim relief. When such is the case, the proper course that could
have been adopted by the Company Law Board is to hear both sides as to the desirability of granting an ad-interim order, take a decision on the
spot as to whether such ad-interim relief could be granted and then adjourn the case to a future date for filing counter. On the other hand, when the
Company Law Board did not take a decision on the spot on the date of hearing and decided to pass an order on a future date, it ought to have
given an opportunity to the respondents therein, namely the appellant herein and his wife to file their objections in writing before the date fixed for
order and then passed order after giving an opportunity of being heard. The very approach made by the Company Law Board in this case seems
to be against the established principles of natural justice. When a party has filed a caveat informing the court or the authority that no interim order
should be passed without hearing him, then such a party is entitled to a notice in any emergent application moved for interim relief and if on the date
of first hearing such party seeks time for filing counter, the court/authority ought to grant such time and in the meanwhile provide for an interim relief
to maintain the status quo or to prevent loss or damage which cannot be compensated in money. Such an ad-interim relief should be granted on the
date of hearing itself in the presence of the party or the advocate opposing the petition or application after hearing oral objections regarding grant
of such ad interim order. What the Company Law Board has done in this case is totally against the said established principle. It did not pass any
ad-interim order on the date of hearing, namely 29.02.2012. On the other hand, the order came to be passed on 13.03.2012. The order itself has
been typed with the date 13.03.2012. Above the typewritten portion of the order, a handwritten note has been made to the effect that the
respondents in the company petition sought time for filing counter in the company petition, meaning that no prayer for filing counter regarding the
interim relief was sought for and that the arguments on both sides were heard regarding the interim relief. The correctness of the said observation
itself is disputed. The contention raised on behalf of the appellant that they wanted time for filing counter regarding the interim relief also is not
disputed in this appeal. What the Learned Counsel for the respondent would submit is that the impugned order is only an ad-interim order and the
appellant herein and his wife can file a counter and seek for raising or modification of the said interim order, which is impugned in this appeal. The
said stand itself will probablise the contention of the appellant that the appellant was not heard regarding the ad-interim order to be granted and
only a prayer seeking time for filing counter both in respect of the main relief and in respect of the interim relief was made. It is also obvious from
the fact that no ad-interim order was passed on the date of hearing and it was passed 12 days after the hearing date. The test of reasonableness
will show that during the said period of 12 days, opportunity could have been granted to the appellant herein and his wife to file their counter and
make their representation regarding the grant of interim relief, which the Company Law Board has not done. The Company Law Board ought to
have given an opportunity to the appellant herein to raise his objections either by way of filing a counter or by making oral submissions. this Court
is also convinced with the contention of the learned senior counsel for the appellant that, without hearing anything regarding the grant of interim
relief, the Company Law Board has passed the impugned order granting the interim reliefs which shall have the drastic effect. The said contention is
sound and sustainable.
24. For all the reasons stated above, this Court comes to the conclusion that the impugned order of the Company Law Board passed on
13.03.2012 in C.P.No. 18 of 2012 is vitiated because of the violation of the principles of natural justice and hence the same is liable to be set
aside. In view of the said finding regarding question No. 1, which goes to the root of the matter, consideration of the second question ""whether the
grant of the interim reliefs sought for by the petitioner in the company petition would amount to granting the main relief itself?"" need not be
considered and the same shall be left open to be considered by the Company Law Board by remitting the matter back to the Company Law
Board to decide the question of desirability of granting interim relief after affording an opportunity to the respondents therein and following the
principles of natural justice. In the result, the company appeal is allowed and the order of the Company Law Board made in C.P.No. 18 of 2012
passed in the attendance cum order sheet of the hearing of the Chennai Bench of the Company Law Board held on 29.02.2012 at 2.30 p.m stated
to be decided on 13.03.2012, is set aside. The Company Law Board shall consider the prayer for interim relief afresh after giving an opportunity
to the contesting respondents therein of being heard and if necessary after giving an opportunity to file a counter regarding the prayer for the grant
of interim relief. Consequently, connected M.P.No. 1 of 2012 is closed.
