Catalyst Trusteeship Limited & Anr. vs Mosavi Enterprises Private Limited & Ors.

[Oral Judgment: Justice Sharad Kumar Sharma, Member (Judicial)]

These are two company appeals, which arise out of Company Petition No. 66/241/HDB/2024. Though the said company appeals are in relation to, the orders passed in two different Interlocutory Applications, being IA No. 376/2024 and IA No. 375/2024, for the sake of convenience, they are being decided together. In Company Appeal (AT) (CH) No.87/2024, the Appellant, questions the propriety of the impugned orders passed on IA No. 376/2024 in the aforesaid company petition. By virtue of the Impugned Order, the application preferred under Rule 11 of the NCLT Rules of 2016 has been decided, and as a consequence of the decision thus rendered, the Ld. Adjudicating Authority, has ruled that, any decision which is to be taken on basis of the resolution taken by EGM on 17.12.2024, would be subject to final outcome of the company petition.

In the connected company appeal, being the Company Appeal (AT) (CH) No.88/2024, the decision which is under challenge is the order passed in IA No. 375/2024 preferred under Rule 11 of the NCLT rules of 2016. By the said order, the resolution which was passed by the EGM on 17.12.2024, appointing five new directors, has been directed to be kept in abeyance till 17.01.2025. It has further been directed that the Respondent No. 01, 02 & 03 to the said company petition may file their Counter Affidavit to the petition itself.

There are various multifaceted arguments which have been extended by the Ld. Senior Counsel for the Appellant, while putting a challenge to the Impugned Orders, contending thereof, that (a) the orders are outside the ambit of Section 59(3) of the Companies Act, and therefore not tenable.

We would consider the respective arguments raised above at a later stage. But looking from a legal perspective, we have to be conscious of the fact that, at this stage, we are exercising our Appellate jurisdiction, under Section 421 of the Companies Act, 2013. Though section 421 of the Companies Act, grants the right of appeal to ‘any aggrieved person’ against an ‘order’ of the Tribunal, the question to be answered would be, as to up to what extent, the principles enunciated under Rule 11 of the NCLT rules of 2016, could be expanded to make all types of orders including orders that are essentially interim in nature passed in proceedings under Sections 241, 242, 59, and 244 of the Companies Act, appealable under Section 421 of the Companies Act.

Rule 11 of the NCLT Rules of 2016, grants an inherent power to the Tribunal, to pass an appropriate order depending upon the facts and circumstances of the case before it. Rule 11 is extracted hereunder:-

If the implications of Rule 11 are taken into consideration, it only leaves the scope, open for the Tribunal which would have the power to pass an appropriate order, which may be necessary to meet the ends of justice and not to abuse the process of the Tribunal. Rule 11 of the NCLT Rules of 2016 can be splitted into three expressions for its proper appreciation

It has been argued by the Ld. Counsel for the Appellant that powers conferred under Rule 11 to the Tribunal happen to be the powers akin to, the powers granted to the civil courts under Order XXXIX Rule 1 & 2 of Civil Procedure Code in respect of grant of injunctions, where the parameters required to be applied for making an order will be the presence of a prima facie case, the balance of convenience and possibility of an irreparable injury and therefore while passing an interim order on an application filed under Rule 11 of NCLT Rules, Ld. Tribunal ought to have tested the case against these parameters.

It does not appear to be the intention of the legislature, that Rule 11 of NCLT Rules 2016, which enables passing of orders, as may be necessary to meet the ends of justice or to prevent an abuse of the process, will perform the same functions as that of Order XXXIX Rule 1 & 2 of C.P.C., Under Order XXXIX Rule 1 & 2 of C.P.C. the objective behind the provision for grant of an injunction in a pending suit, is to protect the subject of the lis, and that is what has been elucidated by the Judgment of the Hon’ble Apex Court , as reported in AIR 2004 8 Supreme Court Page 488 in the matter of Maharwal Khewaji Trust (REGD), Faridkot Versus Baldev Das, Para 10 of the said judgment provides that invariably, when there happens to be an intricate dispute both of fact and law between the parties, it is always the subject of the lis which has to be protected during the pendency of the litigation so, that in an event of any party succeeding ultimately in the litigation, he may not be deprived of his rights, which may be disturbed in the absence of injunction being granted during the pendency of the case before the competent court. Para 10 is extracted hereunder: -

As far as the controversy, as argued by the Ld. Counsel for the Appellant, in the instant company appeal under Section 421 of the Companies Act is concerned, it has to be seen by us, as to whether at all, the impugned order, which has been passed in the respective IAs; being IA No. 376/2024 and 375/2024, decides the material right of any of the parties to the proceedings. In our opinion, any order which is passed during the course of proceedings, when it does not decide or affect any material right of a party to the proceedings, that may not be made appealable, merely because of the fact, that the appellate provision uses the word ‘order’. The term ‘order’ in its interpretation, under the provisions of law, will be appealable only when, it decides or disturbs the lis or a right of a party and not otherwise. The aforesaid aspect has to be considered in relation to the directions issued by the concerned Impugned Order. As far as Company Appeal (AT) (CH) No.87/2024 is concerned, the following directions were issued in Para IX of the impugned order, which is extracted hereunder: -

If the direction given therein as extracted above is considered, it has only provided an arrangement and a precaution too, that as a consequence of the resolution of 17.12.2024, whatsoever future action is taken, that will abide by the outcome of the company petition. This nature of order is only in form of an interlocutory arrangement which has been made in exercise of discretionary powers under Rule 11 of NCLT Rules, during the pendency of the case and since it is not deciding a right of a party, rather protecting a right of a party during the pendency of the proceedings, it may not be misconstrued as to be a judgment, deciding a controversy and rights related thereto.

In these eventualities, the nature of the order which is under challenge takes the shape of an interlocutory order. Interlocutory order is an aspect which was considered by the Hon’ble Apex Court in a judgment Kshitish Chandra Bose Versus Commissioner of Ranchi as reported in AIR 1981 Supreme Court page 707, where it has been observed, that when an order, passed during the course of the proceedings, in effect, is not deciding a right, the same will not be an appealable order, like that of an order of remand, which was the subject matter in the said appeal, thus deciding in a definitive manner as to whether interlocutory orders would be appealable.

In the instant case too, it is only an action / set of actions which is contemplated in future, on basis of the Resolution passed on 17.12.2024 which has been sought to be ring fenced against by passing of the impugned order. Thus it is only a precautionary measure, which has been taken by the Impugned Order, and therefore, the argument extended by the Ld. Counsel for the Appellant, before this Appellate Tribunal that the respondents are proposing to hold 196th Board meeting on 30.12.2024 and the decisions taken therein are likely to affect the rights of the Appellants, it may not be derived as to be a reason to interfere in the Impugned Order, because any future decision to be taken, has been made as a subject matter of an outcome of the company petition. Accordingly, no orders as sought for by the Appellant can be passed based upon a premonition of the Appellant that certain actions prejudicial to him may be undertaken consequent to the impending 196^th Board meeting to be held on 30.12.2024 and the same will not be a reason to interfere with the interlocutory order.

The Ld. Counsel for the Appellant in the appeals has further submitted that, the principles of Order XXXIX Rule 1 & 2 of C.P.C., has to be applied for an order to be passed under Rule 11 of the NCLT Rules 2016 and accordingly the reasons for grant or denial of a relief as prayed for must be spelt out. For the said purpose, the Ld. Counsel for the Appellant has only referred to an excerpt of an impugned order which is the subject matter in Company Appeal (AT) (CH) No.88/2024, to project as if the order happens to have been passed without assigning reasons and for the aforesaid purpose he has drawn the attention of this Appellate Tribunal to the contents of concluding two lines of Para VII of the impugned order to show that his objections were not considered. This contention as raised by the Ld. Counsel for the Appellant may not be correct, because when an order is put to challenge, the order has to be read in its totality and not on piecemeal basis, to suit the purpose of the Appellant. If the contents of the following Para VIII & IX of the impugned order are taken into consideration, they show that the pleadings, which were raised by the Appellant in their objection to the application, preferred under Rule 11 of NCLT Rules 2016, have been taken into consideration and findings have been recorded, and it was only after such that the Ld. Tribunal has passed the Impugned Order. Hence it cannot be said that, the Ld. Tribunal has not considered the aspect of prima facie case of the parties to the proceedings. In fact, the finding which has been recorded runs contrary to the argument of the Ld. Counsel for the Appellant. The Ld. Adjudicating Authority did take care to deal with the defence taken on the application under Rule 11 of NCLT Rules, 2016 and after such, has drawn the conclusion in Para X & XI holding that based on the rival pleadings as presented, there is a serious dispute of question of facts and law, which are required to be considered at the stage when the company petitions are decided finally and that a detailed probe at the present stage was not required to be made, so as to draw an opinion on merits, on the dispute between the parties. It may be kept in mind that it is a settled preposition of law, that at the stage, when an interlocutory application is being considered, the courts have to be cautious that only a prima facie case is to be considered for either to grant or to deny an injunction, but no finding is required to be recorded with precision, on the merits, which may have an adverse bearing on the final adjudication. This precaution has rightly been taken by the Ld. Tribunal, while passing the Impugned Order. Hence, the contention of the Appellants that their plea was not considered runs contrary to the basic findings which had been recorded by the Ld. Tribunal in the Impugned Order.

The Ld. Counsel for the Appellant, Mr. TK Bhaskar, has argued that the nature of Impugned Order, which is subject matter of challenge does not fall to be within the scope under Section 59(3) of the Companies Act and for the said purpose he has drawn the attention of this Tribunal to, Sub-Section (3) in particular. He intends to argue is that the nature of dispute, which is sought to be resolved under Section 59 does not call for passing of any interlocutory order. He may not be correct in his interpretation because the Tribunal has been conferred with the powers of inherent jurisdiction under Rule 11 of NCLT Rules, and when Section 59 of Companies Act, 2013 in itself does not create any absolute bar for passing of an interim order or an interlocutory order during the pendency of the case. Therefore, the argument that the provisions under Section 59(3) do not contemplate conferring the power to pass an interlocutory order in a proceedings relating to Section 59 may not be acceptable.

The Ld. Senior Counsel for the Appellant, Mr. PH. Arvindh Pandian, has further contended that, the nature of the relief which has been granted was not even contemplated or prayed for, by the Respondent in the application preferred by the Respondent in the respective IAs which are subject matter of consideration. The relief that was sought is extracted hereunder:-

The relief which has been sought as extracted above, if it is taken into consideration and compared with the nature of the relief granted, it is clear that the relief granted is different from the relief sought for. However, it has to be taken into consideration that the relief sought for was in tune with the facts and circumstances as it prevailed on 14.12.2024. But owing to the fact of changed circumstances, after conduct of EGM on 17.12.2024, passing of certain resolutions therein and consequent induction of certain new directors into the Board of the company, the nature of relief sought for, was modulated by the Tribunal while exercising its inherent power, which is well within its scope of exercise of powers, directing thereby that the decision of the EGM of 17.12.2024 was kept at hold till 17.01.2025 only, leaving all the contentions to be addressed upon merits, at a later stage after the exchange of pleadings. The other impugned order too, which is being challenged in Company Appeal (AT) (CH) No.87/2024, takes the shape of being an order of an interlocutory nature, as it is only a temporary suspension of the resolution of 17.12.2024 till 17.01.2025, which would still be a scope and subject to be argued by the Appellant by filing of an appropriate application seeking vacation, modification or rectification of the said order in Company Appeal (AT) (CH) No.87/2024.

As already observed above, that in the light of the judgment of Maharwal Khewaji Trust (REGD), Faridkot (Supra), it has been consistently postulated by the Hon’ble Apex Court, as well as different High Courts, that subject of a lis has to be protected because if any action is permitted to be proceeded with during the pendency of a case, it may further complicate the controversy rather than resolving it.

Suspension of the Resolution passed on 17.12.2024 by the EGM till 17.01.2025, once again is not an order, which affects the merit of the case and it will not be an order which could be appealable under Section 421 of the Companies Act, since being only an interim arrangement made by the Tribunal, while exercising its inherent powers under Rule 11 of NCLT Rules 2016, which has to be read in distinction to the parameters prescribed under Order XXXIX Rule 1 & 2 of C.P.C.

The Ld. Counsel for the Appellant, has tried to venture into the merits of the matter with regards to the configuration of the shares, their shareholdings and as to what bearing will it have to the proceedings under Section 241 & 242 of the Companies Act. With due reverence at our command, the aspect of mismanagement and oppression and the aspect of Section 59, would still be a subject open, to be decided by the Ld. Tribunal on its own merit after the exchange of pleading. Accordingly, owing to what has been observed above, we are of the opinion that:-

Owing to, the nature of order which has been passed, we are of the view that:-

Thus, all future aspects which are to be considered when the petition is decided on merits, since are protected and are still a subject matter to be judicially scrutinized by the Tribunal. At this stage, we do not find that the Ld. Adjudicating Authority has erred at law, in exercising its inherent powers as conferred to it under Rule 11 of NCLT Rules 2016, while passing the Impugned Order. Thus, both the ‘Appeals’ lacks merit, and the same is accordingly, ‘dismissed’.

Accordingly, pending IAs if any are disposed of.