Ozg Sarfaesi / DRT Lawyer
Ahmedabad | Pune |
Kolkata | Bangalore | Delhi | Mumbai
VoIP Text / Phone
# 09811415837-61-72-84-92-94
Website: http://sarfaesi.ozg.in
Email: debt@liaisoning.com
Many books were written on the subject of legal interpretation by the
Courts and we have so many precedents on the same. In my opinion, the subject
of interpretation is driven by the principle that the courts concerned will
ascertain the legislative intention of a particular legislation or a provision
and only in exceptional cases, the clear legislative intention is not
considered when the same is opposed to public policy/constitutional provisions
or the fundamental rights as enshrined in Part-III of Constitution of India.
Because, the concerned legislature is the law-making body though we say that
the judgment of a Constitutional Court becomes law unless overruled. The
legislative intention of a particular legislation is gathered from the wording
used, the objects, the title, the explanation clause etc. In my opinion, the
subject of interpretation is based on the simple logic and we have so many
judgments on the issue. Even today, when a case is represented before a
Constitutional Court, it is seen that the judgments on the issue of
interpretation are submitted though the subject is settled.
A proceeding under section 397/398 of the Companies Act, 1956 is
complicated in my opinion, but, the stakes in many petitions under section
397/398 of the Act is more. A minority shareholder in the Company may trouble
the clear majority in the Company though there is no illegality on the part of
the Company or the majority by abusing section 397/398 of the Companies Act,
1956. On the same lines, a majority may deny the legitimate corporate rights of
the minority shareholders and may rely on technicalities when the minority
shareholders approach the Board seeking relief under section 397/398 of the
Companies Act, 1956. Barring very few principles, the Courts have given very
good judgments on section 397/398 of the Companies Act, 1956 and many
principles are now settled. Despite the guidance from the Constitutional Courts
through precedents, many feel that the Company Law Board often relies on
technicalities while exercising powers under section 397/398 of the Companies
Act, 1956. There can be an agreement between the Company and an outsider which
is illegal, but, still, when the same illegal agreement is questioned by the
minority before the Board, then, the majority may show the restrictions under
section 402 of the Act and may rely on the principle that “disputed facts can
not be decided by the Company as it follows summary procedure”. The correct
interpretation of provisions dealing with oppression and mismanagement with the
ultimate object of protecting the rights of the minority or providing a relief
is so important in my opinion. I do personally feel that we need much more
clarity in the provisions dealing with oppression and mismanagement, but, I
don’t know as to how the proposed Company Bill addresses this. In my opinion,
it is unlikely to see the clarity on the provisions dealing with oppression and
mismanagement in the Companies Act, 1956 in the near future though we may be
able to have “National Company Law Tribunal” and “National Company Law
Appellate Tribunal”. When it is observed practically as to how minority
shareholders and even the majority are struggling for getting their disputes
resolved and also proceedings before the Company Law Board at times, then, it
is clear that the directions of the Hon’ble Supreme Court on the issue of
challenge to Companies (Amendment) Act, 2002 are to be implemented in letter
and spirit and finding loopholes and any dilution can not be tolerated.
High Court of Judicature at Bombay – Dr.Justice D.Y.Chandrachud – Company
Appeal No.51 of 2009 – between Ravi Kiran Agarwal & Others Vs. Moolchand
Shah S/o Mr. (Late) Sampat Raj & Others:
“13. Section 405 of the Act, deals with the power of the Company Law
Board to implead additional Respondents to an application under Sections 397 or
398. Under section 405, if the Managing Director or any Director or a Manager
of a company or any other person, has not been impleaded and such person
applies to be added as a Respondent, the Company Law Board is empowered to pass
an order added him as Respondent, if sufficient cause for doing so is
established to the satisfaction of the Board. The Company Law Board in the
present case inferred that the power to add or implead a party as a Respondent
to an Application under Sections 397 or 398 is to add only those parties who
are referred to in clause (d) and (e) of section 402. The Board applied the
interpretative tool of ejusdem generis. The principle of ejusdem generis would have
no application, where the Court is required to construe, two separate statutory
provisions which operate in different fields. Section 402 illustrates the
powers which can be exercised by the Company Law Board on an Application under
Sections 397 and 398. Section 402 is not an exhaustive catalogue of the powers
of the Board. Section 405 deals with the addition of parties. There is no
reason on justification for confining the words “any other person” under
Section 405 to those categories of persons who are elucidated in clause (e) of
the Section 402. As a matter of first principle, it would be impermissible to
do so. On an Application under Sections 397 and 398 the Board has, as already
noted earlier, wide powers to pass orders as it thinks fit to bring to an end
the matters of complained of and, under section 398(2), to even prevent the
matters complained of or apprehended. The exercise of those wide powers, may in
a given situation affect the interest of third parties. To hold that a third
party liable to be affected by an order under SECTION 397 and 398, would not be
entitled to be heard on the ground that, it does not fall within the
description of ‘a person’ in clause (e) of section 402 who has an agreement
with the company would be fundamentally violative of the basic postulate of
natural justice. Nothing, except a clear statutory provision to that effect
should lead the court to adopt such a construction. If Parliament intended to
contemplate the addition of only those persons who had Agreements with the
Company, there was nothing to prevent the addition of those words. The words
“any other person” in Section 405 are not restricted by a stipulation that such
person must have an Agreement with the Company. Hence, the words “any other
person” must be given their plain and natural meaning so as to include any
person whose interest would be affected by an order that is sought in the
application under SECTION 397 and 398. The Board misapplied the principle of
ejusdem generis. The principle of ejusdem generis is that when particular words
pertaining to a class category or genus are followed by general words, the
general words are construed as limited to things of the same kind as those
specified. The rule applies when i) The Statute contends an enumeration of specific
words; ii) The subject of enumeration constitutes a class or category; iii) The
class or category is not exhausted by the enumeration; iv) General terms follow
upon the enumeration; and v) there is no indication of a different legislative
intent. [G.P.Singh on the Principles of Statue Interpretation, 9th Edition page
420.] This principle can have no application in construing word “any other
person” in section 405 which operates in a field untrammeled by section 402.
14. The Company Law Board has in the present case diluted its finding
that the expression “any other person” under section 405 must be construed with
reference to section 402(e) by holding that occasions may arise to implead
other persons on the facts of each case. The Board noted that shareholders who
are not parties may apply on the apprehension that, any relief granted would
affect their interest or employees or creditors may also apply on the same
ground. The Board held that notwithstanding the ‘strict’ provisions of section
405, it may have to use it discretion in deciding on the basis of the facts of
each case, where the application for impleadment has shown sufficient cause to
be impleaded as a Respondent. The residual discretion which the Board assumes
to it, would itself indicate that the provisions of Section 405 cannot be
construed in the manner in which they were construed in the earlier part of the
judgment. The interpretation that has been placed by the Board on the
provisions of section 405 is erroneous and has to be disapproved. The power of
the Board under section 405 to implead any other person, is a wide power which
is conditioned, only by the satisfaction of the Board, that there is sufficient
cause for doing so. Where the relief that is sought in the application under Sections
397 or 398 is liable to affect the interest of a third party, an order of
impleadment would be warranted. The impleadment of the party may be considered
necessary, or in the facts of a case, proper in order to enable the Board to
render a full, final and complete adjudication of the dispute. By its very
nature, the power cannot be restricted to predefined categories and must be
exercised in order to advance the underlying purpose and object of the
provisions of Sections 397 and 398.”
“18. The Appeal before this Court arises under section 10F of the
COMPANIES ACT 1956 and is confined to a question of law. For the reasons
already indicated, this court has come to the conclusion that the
interpretation that has been by the Board on the provisions of section 405 is
erroneous. Having decided the question of law relating to the interpretation of
the section 405, it would be, but appropriate for this Court to remit the
proceedings back to the Company Law Board for a decision afresh, on the
application for impleadment. The Board is a primary fact finding authority and
should be left to determine the question of impleadment in the light of the
interpretation that has been placed by this Court on the provisions of section
405. Before concluding, it would be necessary to observe that in adverting to
the rival submissions, which have been urged on behalf of the parties in regard
to the effect of the MOU, this Court has had no occasion to render any finding
of fact on the effect of the MOU or on the entitlement of the Appellants
thereunder. In order to facilitate a fresh determination, the impugned order of
the Company Law Board dated 13th April 2009 is set aside.”
Ozg Sarfaesi / DRT Lawyer
Ahmedabad | Pune |
Kolkata | Bangalore | Delhi | Mumbai
VoIP Text / Phone
# 09811415837-61-72-84-92-94
Website: http://sarfaesi.ozg.in
Email: debt@liaisoning.com