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Uniworth Resorts Ltd. And Another v. Ashok Mittal And Others
Judgment Summary — Sanjib Banerjee, J.
Factual and Procedural Background
This opinion concerns an appeal from an order of the Company Law Board (CLB) allowing an application to amend a petition in C.P. No. 46 of 2006. The CLB's order, quoted in full in the opinion, allowed the petitioner to amend the petition, required the filing of an amended petition within one week and directed respondents to file replies within four weeks, with listed adjourned dates. The principal legal question raised was whether, in proceedings under sections 397 and 398 of the Companies Act, 1956, the Company Law Board may allow all amendments without assigning reasons for doing so.
The High Court examined the CLB order, the submissions recorded before the CLB, and authorities cited by the parties, and considered whether the CLB had provided adequate reasons for permitting the amendments. The High Court ultimately set aside the impugned order and remanded the matter to the Company Law Board for fresh consideration.
Legal Issues Presented
- Whether, on an application for amendment of the petition in proceedings under sections 397 and 398 of the Companies Act, 1956, the Company Law Board may permit all the amendments to be incorporated without assigning any reasons therefor.
- Whether the absence of reasons in the CLB's order gives rise to a question of law that can be taken up under section 10F of the Companies Act, 1956.
Arguments of the Parties
Appellants' Arguments
- The appellants relied on the decision in CIT v. Scindia Steam Navigation Co. Ltd. (1961) (paras 30–31) to contend that questions of law raised before the Tribunal but not mentioned in the order still fall within the scope of the order of reference, and therefore the omission in the CLB order indicated substantial questions of law had been raised and not decided.
- The appellants relied on Shah Babulal Khimji v. Jayaben D. Kania (1981) (para 120) to submit that an order allowing an amendment could be appealable; the court observed that section 100 of the Code of Civil Procedure was more apposite for comparison with section 10F of the Companies Act.
- The appellants relied on S.N. Mukherjee v. Union of India (1990) (paras 32 and 36) to argue that the requirement to furnish reasons is a facet of the principle of natural justice, and further invoked section 10E(5) of the Companies Act, 1956 (under which the CLB assumes jurisdiction) as incorporating the principles of natural justice.
Respondents' (petitioners before the CLB) Arguments
- The petitioners in the CLB proceedings submitted that the amendments dealt with questions of fact and that the Company Law Board was satisfied those questions needed to be answered; accordingly, the CLB's order allowing amendments was appropriate.
- They contended that the CLB had given reasons—albeit briefly—explaining that the new charges were necessary to deal with the disputes effectively and to avoid multiplicity of proceedings, and that by so recording the CLB had discharged its obligation to give reasons.
- The petitioners also relied on factual events before the CLB: respondents had obtained an order of status quo shortly after institution of the petition in June 2006 and the petitioners claimed a substantial reduction in their effective shareholding (from about half the paid-up capital to less than half a percent of an increased paid-up capital), which underlay the need for the amendments.
Table of Precedents Cited
| Precedent | Rule or Principle Cited For | Application by the Court |
|---|---|---|
| CIT v. Scindia Steam Navigation Co. Ltd., [1961] 42 ITR 589 : AIR 1961 SC 1633 | Proposition (paras 30–31) that matters urged before a tribunal, whether considered or not, are covered by the order of reference in a reference under section 66(1) of the Income-tax Act. | The appellants relied on the proposition to contend that questions of law were raised before the CLB but found no mention in the impugned order; the court recorded this reliance while assessing whether substantial questions of law were omitted from the CLB order. |
| Shah Babulal Khimji v. Jayaben D. Kania, (1981) 4 SCC 8 : AIR 1981 SC 1786 | Summary (para 120) as to when an order will be appealable under section 103 CPC (used by appellants to argue orders allowing amendments may be appealable). | The appellants invoked this authority to suggest appealability of an amendment order; the court observed for present purposes that section 100 CPC (relating to second appeals) is more analogous to section 10F of the Companies Act. |
| S.N. Mukherjee v. Union of India, (1990) 4 SCC 594 | Paragraphs 32 and 36: the requirement to furnish reasons is a facet of the principle of natural justice. | The appellants relied on this authority to insist the CLB should have given reasons; the court accepted that the duty to give reasons is a component of natural justice and is relevant to the CLB's obligation under section 10E(5) of the Companies Act. |
Court's Reasoning and Analysis
The court proceeded by closely examining the CLB's impugned order and the record of what transpired before the CLB. The CLB had recorded that it considered the amendment application, that legal submissions were made and considered, that a "plethora of case laws" had been relied upon, and that regulation 46 of the Company Law Board Regulations, 1991, was cited. The CLB allowed the amendment to "consider real controversies between the parties and to avoid multiplicity of litigation."
The High Court made the following analytical points (as expressly stated in the opinion):
- Distinction between conclusion and reasons: The phrase relied upon by the CLB was treated by the High Court as a conclusion (the "what") rather than reasons (the "why"). The court emphasised that reasons are the links or the explanation that lead to a conclusion and are necessary when permitting an amendment application.
- Inadequacy of mere recital: The CLB's recording that legal submissions and numerous cases were placed before it was not sufficient; the court held that if legal submissions are made they must be appreciated and reasons for accepting or rejecting them should appear in the order. Similarly, judgments cited must be either relied on or distinguished in the order if relevant.
- Abdication of decision-making: The High Court found that the CLB had "completely abdicated its jurisdiction" as the impugned order lacked any reference to facts, context, or the grounds urged in opposition and gave no explanation why such grounds were unmeritorious. The court warned that the order could serve as a generic "rubber stamp" unless reasons were provided.
- Natural justice and statutory context: The appellants' reliance on S.N. Mukherjee and on section 10E of the Companies Act (sub-section (5) incorporating principles of natural justice) was accepted as supporting the proposition that reasons are required; the High Court reiterated that furnishing reasons is a facet of natural justice applicable to the CLB's quasi-judicial function.
- Threshold nature of the proceeding: The court emphasised that the impugned order was made at the threshold where a petitioner must pass the "just and equitable" test, and the CLB's jurisdiction includes evaluating equity and context; this made the absence of reasons particularly problematic.
- Question of law: Because the CLB gave no reasons at all, the High Court held that a question of law arose that could be taken up under section 10F of the Companies Act, 1956.
On this basis the court concluded that the impugned order could not stand and directed that the CLB should hear the matter afresh and that, upon fresh consideration, any legal submissions and "plethora of cases" placed before it must be referred to and discussed in the order it passes.
Holding and Implications
Holding: The High Court set aside the impugned order of the Company Law Board and remanded the matter to the Company Law Board to be heard afresh, with directions that legal submissions and authorities relied upon be referred to and discussed in the new order.
Implications and immediate consequences:
- The Company Law Board must rehear the amendment application afresh and record reasons for its decision; mere recital that submissions and cases were placed before it is inadequate.
- The Company Law Board was directed to endeavour to dispose of the amendment application within six weeks from the date of deposit of an authenticated copy of the High Court's order.
- Both appeals and applications before the High Court were disposed of; there was no order as to costs.
- The High Court expressly stated that it did not go into the merits of the amendment application and that none of the allegations in the memorandum of appeal or the stay petition should be deemed admitted by the petitioners in the CLB proceedings.
- Urgent certified copies of the order were to be made available on compliance with formalities.
The opinion does not purport to lay down a new general precedent beyond the specific holding that the CLB's failure to state reasons in this instance rendered its order invalid; the direct effect is to require the CLB to give adequate reasons on fresh consideration.
Sanjib Banerjee, J.:— The principal question of law that has been urged is as to whether on an application for amendment of the petition in proceedings under sections 397 and 398 of the Companies Act, 1956, the Company Law Board may permit all the amendments to be incorporated without assigning any reason therefor. The order impugned in the company's appeal and in the appeal by the seventh respondent before the Company Law Board needs to be set out in its entirety:
“Heard, the parties on C.A Nos. 131 and 132 of 2007. Considering the contents of the amendment application and the legal submissions as well as plethora of case laws relied upon by the parties as well as regulation 46 of the Company Law Board Regulations, 1991, to consider real controversies between the parties and to avoid multiplicity of litigation I allow the petitioner to amend C.P No. 46 of 2006. The petitioner to file amended petition within a week's time. The respondents to file reply to the amended petition within four weeks thereafter. Adjourned to October 8, 2007, at 2.30 p.m and October 9, 2007 and October 10, 2007, at 2.30 p.m”
2. It appears on a plain reading of such order that the Company Law Board did, as it was obliged to, consider the contents of the amendment application. The order also records that legal submissions were made and that such legal submissions were also considered. The order also informs that a “plethora of case laws” was relied upon by the parties. This much, was recorded as to what transpired before the Company Law Board. As to the reasons for the order, regulation 46 of the Company Law Board Regulations, 1991, is cited and the amendment application has been allowed “to consider real controversies between the parties and to avoid multiplicity of litigation”. Without meaning any disrespect, that is the conclusion and not the reason. The reasons would be the links that would lead to such conclusion for such is a conclusion which is necessary for an amendment application to be allowed.
3. It appears from the nature of charges sought to be incorporated by way of amendment that the petitioners before the Company Law Board proceedings have been more hard done by the cryptic order than by the alleged machinations of the persons in control of the affairs of the company. But, the respondents cannot fall back on the merits of the amendments sought and the justification for such order being passed, without the Tribunal having assigned the reasons that it ought to have in support of its conclusion.
4. The appellants in the two matters have referred to the judgments reported at CIT v. Scindia Steam Navigation Co. Ltd., [1961] 42 ITR 589 : AIR 1961 SC 1633 and rely on paragraphs 30 and 31 of the report. In that case, the Supreme Court was considering a reference under section 66(1) of the Indian Income-tax Act, 1922 and the questions that can be considered in a reference. In the summary of the conclusion recorded at paragraph 31 of the report, it appears that if a matter was urged before the Tribunal (under the Income-tax Act) and such matter was considered or not considered, in either case it would be a matter covered by the order of reference. The appellants rely on such proposition in support of their contention that various questions of law were raised before the Company Law Board and such questions find no mention in the impugned order. In such questions having been raised, albeit their not finding reference in the order, there was a substantial question of law raised thereon.
5. The appellants next rely on the judgment reported at Shah Babulal Khimji v. Jayaben D. Kania, (1981) 4 SCC 8 : AIR 1981 SC 1786 and on paragraph 120 of the report. At paragraph 120, Justice Fazal Ali has summarised his conclusions as to when an appeal would lie under section 103 of the Code of Civil Procedure. The appellants rely on the first sub-paragraph to suggest that an order allowing an amendment would be an appealable order. However, for the purpose of the present proceedings, even though the Civil Procedure Code would not strictly apply, section 100 of the Code would be more apposite than section 103 as the questions of law that are required to be raised in an appeal under section 10F of the Companies Act, 1956, are somewhat similar to the questions of law required to be raised in a second appeal under the Code.
6. The necessity for a judicial order or a quasi-judicial order recording reasons and the extent of adequacy of reasons have been stressed upon by the petitioners by referring to the judgment reported at S.N Mukherjee v. Union Of India., (1990) 4 SCC 594. The paragraphs 32 and 36 of the report have been placed to suggest that the requirement for furnishing reasons is a facet of the principle of natural justice. To boot, section 10E of the Companies Act, 1956, under which the Company Law Board assumes jurisdiction, is referred to. Sub-section (5) of section 10E incorporates the principles of natural justice and, in any event, such principles would have applied even if there was no specific mention thereof.
7. The contesting respondents, the petitioners in the Company Law Board proceedings, submit that the amendments sought to be incorporated were on questions of fact and the Company Law Board was satisfied that such questions needed to be answered. The Company Law Board gave some reasons, it is submitted, that the new charges brought were necessary to be dealt with to effectually conclude the disputes between the parties. It is submitted by the petitioners in the. Company Law Board proceedings that in passing the order, however short, the obligation was discharged in that it was recorded that if new proceedings were to be founded by the Company Law Board the petitioners on the new charges, that would give rise to multiplicity of judicial proceedings which ought to be avoided.
8. The respondents refer to an order of status quo that was obtained by them shortly upon C.P No. 46 of 2006 having been instituted in June of 2006. The contesting respondents suggest that it is only upon the company's affidavit being furnished that they came to know that the status that they had urged as prevailing as on the date of institution of the proceedings had been sought to be altered. The petitioners in the Company Law Board proceedings submit that their original shareholding of about half the paid-up capital of the company was shown to have shrunk to less than a half per cent. of the subsequently increased paid-up capital of the company.
9. It will appear from the order, and without going into the other grounds of appeal, that protracted proceedings were had before the order came to be passed. It would not suffice for a Tribunal enjoying all the trappings of a court that the Company Law Board does, to merely record that legal submissions had been made before it and that diverse judgments had been cited. If legal submissions were made, they were required to be appreciated and reasons therefor ought to have appeared in the order. If judgments were cited, such of them as were relevant for deciding the matters in issue ought to have been referred to, discussed and relied upon or distinguished.
10. In passing the order under appeal, the Company Law Board has completely abdicated its jurisdiction, and obligation, as to the decision-making process. The order passed may as well be a rubber stamp prepared to be used in every case where the Company Law Board is of the opinion that the amendments prayed for should be allowed. There is no reference to any fact or the context in which the amendments were sought and allowed. There is no mention of what grounds were urged in opposition and why such grounds were unmeritorious. The Tribunal need not have expended pages over the matter but it was necessary to indicate why the order came to be passed.
11. Judicial orders of such nature need to meet the twin tests of “why” and “what”. It is the “why” that sustains the “what”. Reasons are the safeguard against the ipse dixit of the decision making process. They discuss how the judicial mind has been applied to the matter in issue and convey the nexus between the matters that have been considered and the conclusion based thereon. The justification and the reasonableness of a conclusion depend on the reasons given in support thereof. The order impugned has no element of “why” for the “what” therein to stand on.
12. It is also of some significance that the impugned order has been made at the threshold of the proceedings where a petitioner has to pass the just and equitable test before he can have a look in. The Company Law Board has inherited a jurisdiction that has a rich legacy. It has the authority, in such jurisdiction, to hold that a perfectly legal act may, in the context, be inequitable or that an apparently illegal act is justified, in the context or by necessity.
13. The order impugned does not show inadequacy of reasons, it has no reasons at all. And in giving no reasons in making the order, a question of law has arisen that can be taken up under section 10F of the Act.
14. The order impugned is set aside. The Company Law Board shall hear the matter afresh and, if legal submissions are made and “plethora of cases” are placed, they will be referred to and discussed in the order that may be passed upon the fresh consideration of the matter following this remand.
15. The Company Law Board should endeavour to dispose of the amendment application within a period of six weeks from the date of deposit of an authenticated copy of this order.
16. Both the appeals and applications are disposed of. There will be no order as to costs.
17. It is made clear that the merits of the amendment application have not been gone into and none of the allegations that find place in the memorandum of appeal or the stay petition should be deemed to have been admitted by the petitioners in the Company Law Board proceedings.
18. Urgent photostat certified copy of this order, if applied for, be made available to the parties concerned upon compliance with all requisite formalities.
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