KOWA SPINNING LIMITED Vs. KHANDWALA SECURITIES LTD

JUDGEMENT

(1.) APPELLANT company is engaged in manufacture of yam and related products. It appears that it struck a "bought out deal' with respondent pursuant to sponsorship agreement, dated 20. 10. 1994 whereby respondent purchased its 20. 8 lakhs equity shares on behalf of itself and some co-investors for a face value of Rs. 10 on the terms and conditions set out in the agreement. Later, differences cropped up between the two leading to filing of Company Petition No. 9/99 by respondent before Company Law Board under Sections 397 and 407 of the Companies Act. [cf. Khandwala Securities Limited and Ors. v. Kowa Spinning Limited and Ors. (2000) 1 Comp LJ 78 (CLB)]. The Board put appellant on notice and passed interim order, dated 25. 2. 1999 directing it to grant inspection of its records, list whereof was indicated and to make available copies of records/documents. The Board also granted appellant company time to file a reply to company petition upto (within ?) 20. 3. 1999. It seems that no reply was filed by the appellant and company petition was admitted to hearing on 26. 5. 1999.

(2.) APPELLANT feels aggrieved of interim order passed by the Board, dated 25. 2. 1999 and has filed this appeal under Section 10 of the Companies Act seeking its setting aside. The case set up is that Company Law Board had no jurisdiction to grant the interim order in the face of the provisions of Section 403 of Companies Act and when appellant had questioned the very maintainability of the company petition moved by respondent which was yet to be decided. It is also projected that respondent's company petition was essentially for enforcement of the sponsorship agreement executed between the parties for which separate remedy was available under the Companies Act which was not availed of by the respondent.

(3.) APPELLANT's counsel, Shri Choudhary, was at pains to canvass that respondent's company petition was not maintainable and passing of interim order by the Board was not, therefore, warranted unless the maintainability of the petition was decided one way or the other. He also laboured on interpreting terms of Section 403 to suggest that powers of the Board to grant interim relief were limited and that an interim order could be passed by it only for regulating the conduct of the company's affairs and grant of inspection of the appellant's records in the present case could not be said to be an order concerning the regulation of the conduct of appellant's affairs. He also alleged that Board had passed the interim order in disregard of the established principle for grant of such orders without recording its satisfaction whether respondent had established a prima facie case and whether any balance of convenience was on its side. He sought support from Dalpat Kumar v. Prahlad Singh AIR 1993 SC 276 ; United Commercial Bank v. Bank of India (1981) 2 SCC 766 and Kasturi (G.) v. N. Murali (1991) 1 Comp LJ 125 (Mad): (1992) 74 Comp Cas 661 (Mad ).