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Judgment
[Per: Justice Sharad Kumar Sharma;(Member Judicial)]
This is a Company Appeal preferred, by invoking the provisions contained under Section 421 of the Companies Act, 2013, challenging an order dated 29.09.2022 which has been passed under Section 213(b) of the Companies Act, 2013, by Ld NCLT, Bengaluru, directing thereof, the Central Government to conduct an investigation as against the Company/Appellant No.1 including its directors (Appellant No.2), as per the procedure prescribed under the aforesaid provision, after considering all the material documents, to be supplied by the petitioner to the proceedings, Respondent No. 1 herein and to take further necessary steps as per law, with regards to the investigation into the affairs of the said Company including its Directors, as expeditiously as possible.
The argument of the Learned Counsel for the Appellant as against the Impugned Order, dated 29.09.2022, as it was passed in CP No. 56/BBB/2021, is primarily on the ground that, the Impugned Order dated 29.09.2022, directing to conduct an investigation under Section 213(b) of the Companies Act, 2013, was an exparte order and that no notice was ever issued to the Appellants nor the Appellants were not hard by the learned NCLT.
The case of the Appellants is that, the investors by virtue of portraying themselves as to be creditors and by abusing the process of law, had resorted to the process contemplated under Section 213(b) of the Companies Act, 2013, with the intention to utilise the same as a recovery process Forum, which would stand vitiated as being driven by an ulterior motive. It is contended by the Appellant, before this Appellate Tribunal that the Impugned Order, has been procured for the purposes of drawing the proceedings against the Appellants, by misrepresenting that the Appellants too had participated in the proceedings and that, since the order is an exparte order, it calls for an interference and deserves to be quashed. It is further submitted by the Appellants that the Company Petition suffered from various vices because of which no action is required to be initiated against the Appellants/Respondent under Section 213 of the Companies Act, 2013.
The Learned Counsel for the Appellants has submitted that the Respondent were the investors in one of the real estate projects of the Appellant Company, that owing to the delayed funding and due to the pendency of litigations over the piece of land on which the project was supposed to be implemented, the project could not be implemented as per the promised time lines which cannot be termed as commission of fraud, that for the purposes of initiation of the proceedings under Section 213(b) of the Companies Act, 2013, that there has had to be satisfactory material placed on record, available before the Tribunal for passing of an order for conducting of an investigation under Section 213 of the Companies Act, 2013, and in the absence of such material being on record to be considered and in the absence of satisfaction recorded on such material by the Tribunal, no direction as such for conducting an investigation could be given in a perverse manner without even considering the gravamen of the grounds, which are required to be considered as per the provisions contained under Section 213 and particularly, that as contained under Section 213(b) of the Companies Act, 2013. In the Memorandum of Appeal, thus preferred by the Appellants, they have come up with the ground that the Impugned Order, is an exparte order, that neither they were heard nor they were served with any notice, and hence, the same deserves to be quashed. On the grounds that, the order is in violation of principles of natural justice and it violates the principles of audi alteram partem. The Learned Counsel for the Appellants has contended that, in the proceedings which were held before the Learned Tribunal, none had appeared on behalf of the Appellants and that, the order was passed without hearing them. For the said purpose, the Appellants have placed on record the copy of the order sheets, showing thereof, that on most of the days when the company petition was listed for hearing, none has appeared for them except for few days, that in the order sheet of 28.04.2022, one Ms. Jyoti Singh, was shown to have appeared on behalf of the Respondents/Appellants (herein), that Ms. Jyoti Singh, was never engaged by the Appellants, nor any vakaltanama was ever executed and filed by Ms. Jyoti Singh, on behalf of the Appellant and thus, the order happens to be an exparte order having been passed even without hearing the Appellants, which calls for an interference by this Appellate Tribunal.
In order to satisfy the aspect as to, whether at any point of time, the Appellant had engaged Ms. Jyoti Singh, there is nothing on record which could show, that she had filed any vakalat on behalf of the Appellant. But that in itself, will not suffice to establish conclusively the contention of the Appellants that they were not heard and not even served with notice and that the order was passed behind their back, especially in the light of the findings recorded in Para 4&5 of the Impugned Order that, the Appellants did have the knowledge and they were expected to effectively participate in the proceedings which they have not done.
The said argument of the Appellants that the order is an ex-parte order is being vehemently opposed by the Respondent contending thereof, that in fact the proceedings were held on merits, that it was rather the Appellants who were avoiding to participate effectively in the proceedings apprehending that, owing to the set of the allegations laid out in the Application, preferred under Section 213(b), grant of relief as prayed for, will be greatly prejudicial to their interest and that, they deliberately avoided to participate in the proceedings. She has further submitted, that when the appellants did not appear before the Tribunal, the Tribunal vide its order of 15.11.2021, had directed her, the Respondent herein, to serve the notice on the Appellants/Respondents by the Speed Post, that she had taken the necessary steps, but the notices were returned unserved and that faced with the situation, the Learned Tribunal had passed an order directing her, the Respondent herein to take steps for serving the Appellants/herein, i.e., opposite party to the proceedings before the NCLT by a substitutive mode of service through paper publication and that, the publication was carried in two newspapers i.e., Financial Express and Samyukta Karnataka on 26.04.2022, the copy of which was also placed on record before the Tribunal. It is a settled proposition of law, that when a party to the proceedings, despite of service of notice through the normal mode of service is deliberately fails to appear, the Tribunal should resort to the process of a substitutive mode of service so as to ensure service by way of publication and that once, the said mode is resorted to, there will be a deeming conclusion/inference, that the respondent has been served with the notices in the light of the provisions contained under Rule 20(2) of Order V of the Code of Civil Procedure, 1908. In view of the findings which have been recorded by the Learned Tribunal that, the notices were effectively served upon them i.e., appellants herein by way of a publication, and that thereafter only, the Tribunal has directed the “proceedings to be carried exparte” and in view of the fact that the said order of directing the proceedings to be carried exparte, against the Appellant remained intact and the same was never sought to be recalled and set aside in any proceedings drawn by the Appellant, the contention of the Appellant that the proceedings happens to be in violation of the settled principles of audi alteram parte, and that nobody should be condemned unheard is not acceptable by this Appellate Tribunal particularly, when a litigant to the proceedings despite having knowledge of the same avoids to participate in the proceedings. This is very much evident from the observation made by the Tribunal in Para-4 of the Impugned Order where it is observed that after institution of the proceedings before the Learned NCLT on 24.02.2021, notices were issued to the Appellants/Respondents by normal mode and that the Appellants were reported to be not residing at the given address and hence the notices could not be served, that the records show to the contrary which proves that, the Respondent/Petitioner herself, has several times contacted the opposite party to the proceedings the Appellant’s herein on the same address, they have discussed the possibilities to explore the terms of settlement with her and they have made numerous efforts by way of phone calls to allure the petitioner to enter into a settlement. The Learned Tribunal has further observed that it had to direct the Respondent/Petitioner to take steps by way of a substitutive mode of service as contemplated under Rule 20 Order V of the CPC which was complied by the Respondent/Petitioner. Thus, it cannot be said that, the direction, which has been given by the Impugned Order, for conducting an investigation under Section 213(b) of the Companies Act, 2013, happens to be an order, which is an exparte or suffers from vices of being an order, passed exparte without hearing the Appellant.
In the Memorandum of Appeal, which has been drawn by the Appellant and the finding which has been recorded in para-4 of the Impugned Order, about the efforts of exploration of terms of settlement, is not a fact which has been specifically denied by the Appellant except for the fact that, the Impugned Order happens to be exparte and suffers from the violation of principles of natural justice.
This Appellate Tribunal is of the view, adherence to that the principles of natural justice is an aspect, which has to be evaluated on differing yard sticks depending upon the facts and circumstances of each case. The term ‘notice’ under legal connotation means imparting the knowledge to the party, of an proceedings being taken up before a court of law. In the instant case, the knowledge is attributable to the Appellant in the light of the findings which has been recorded in para-4, coupled with the findings which has been recorded in Para-5 as regards the service of notice on the Appellants/Respondents by a publication. Hence, the ground taken by the Appellant that the order happens to be exparte will not be acceptable to this Appellate Tribunal. Further, since the Appellant had deliberately with a malicious intent at his own volition attempted not to appear before the Learned Tribunal, it cannot be said that the Impugned Order was passed exparte (or) having been passed without hearing the Appellant particularly when despite of several opportunities, being granted to him, he has deliberately avoided to appear before the Tribunal and to participate in the proceedings, apprehending the consequences, which may flow from the matters which were being considered by the Tribunal, made in its observations in the impugned order from para – 5 onwards, about the act of misconduct which, the Appellant was found to be involved. Now that, the order has already been issued under Section 213 (b) of the Companies Act, 2013, the same becomes the subject matter of investigation to be conducted by the Government of India. Further, the Impugned Order has been assailed on the solitary ground of being in violation of principle of natural justice, which is not being made out owing to the findings which are recorded in the Impugned Order. Besides since the consequential effect of the Impugned Order, would only result in carrying out of an investigation into the conduct of the Appellant, Company including its directors in its business operations based on a complaint, filed by the Respondent, normally, the courts/tribunals should keep their hands off in such process of investigation which has been directed under law to be carried against a party or person, so as to arrive at a conclusion about the veracity of the said allegations levelled by the Complainant. Since, the investigation is only a fact-finding stage, it does not require to be ventured into by this Appellate Forum, because all defences are still available to the Appellant, to be raised before the investigating agency as directed by the Impugned Order. Hence, while concluding, this Appellate Tribunal is of the considered view that the ground taken by the Appellant, that the proceeding happens to be in violation of the principles of natural justice is not made out from the records and from the findings which had been recorded in the Impugned Order about service of notice by a substitutive mode, no interference is required to be called for by this Appellate Tribunal in the Company Petition in question. Hence, the Appeal lacks merits and the same is dismissed.