Union of India & ANR Vs. Swadeshi
Cotton Mills & ANR  INSC 163 (12 September 1978)
SEN, A.P. (J)
CITATION: 1978 AIR 1818 1979 SCR (1) 735 1978
SCC (4) 295
Practice and Procedure-Interference by the
Supreme Court against interlocutory orders is permissible under Art.
136 of the Constitution only when ends of
justice dominate and if public interest so dictates-Company Law Board inducting
additional Directors under s. 408(1) of the Companies Act-High Court cannot
stay the orders at the interlocutory stage unless there are good grounds to
STRIKE down the order. Benefit of reasonable doubt belongs to the specialised
The Company Law Board by its order dt. 17th
December, 1977 inducted several additional directors in addition to the
existing directors of the respondent company, under s.
408(1) of the Companies Act, 1956, since it
was of the opinion that the affairs of the company in question "are being
conducted in a manner which is prejudicial to the interest of the company and
to public interest". But the Delhi High Court passed an ad interim stay of
the said orders, while admitting the writ Petition.
Allowing the appeal by special leave, the
HELD: Where repercussions are incalculable
and the basis of the direction, though interlocutory, is obscure, the ends of
justice dominate and the Supreme Court may interfere, if public interest so
dictates under Art. 136 of the Constitution. [736B] (2) A company of
considerable financial dimensions and involved in operations using public
resources as investment naturally becomes the concern not merely of the Company
Law Board but also all of the economic process of the country.
The specialised body with responsibility to
watchdog corporate process is the Company Law Board. When it investigates and
reaches a definite conclusion and makes a consequential direction, it is
entitled to prima facie respect unless there are glaring circumstances to the
contrary. It may well be that the order of the Board may be vitiated by
infirmities, legal or other. It may also be that the reasoning of the Board and
the factual foundation for it is sound. In such situations acting at an interlocutory
stage, the benefit of reasonable doubt belongs to the specialised body. If
there are good grounds to strike down the order certainly the High Court has
jurisdiction to stay its operation. [737D-G]
CIVIL APPELLATE JURISDICTION: Civil Appeal
No. 1501 of 1978.
Appeal by Special Leave from the Judgment and
Order dated 18-1-1978 of the Delhi High Court in Civil Misc. Petition No.
1120-W of 1977 and 109/78 in Writ Petition No. 585/77.
Soli J. Sorabjee Addl. Sol. General, Girish
Chandra for the Appellant.
13-549 SCI/78 736 S. T. Desai, B. P.
Maheshwari and Suresh Sethi for Respondent No. 1.
A. K. Sen and Vineet Kumar for Respondent No.
ORDER An ad interim order of stay passed by
the High Court of Delhi has been challenged before us in this appeal. We should
have hesitated to interfere with an interlocutory order following the usual
practice in this Court. But, where repercussions are incalculable and the basis
of the direction; though interlocutory, is obscure, the ends of justice
dominate and we may interfere if public interest so dictates.
Here is an order of the Company Law Board
408(1) of the Companies Act, 1956, which
gives a wealth of facts and a variety of reasons to support an ultimate
direction which runs thus:
"Since all the three conditions referred
to in sub-section (1) of sec. 408 of the Companies Act, 1956, are established
on the facts and circumstances of the case, the Company Law Board hereby
appoint officers for three years, in addition to the existing directors of the
1. Shri B. M. Kaul, Member, Railway Board
(Retd.) 5- J-4 Jawahar Nagar, Jaipur.
2. Shri A. K. Mazumdar, Chief Secretary,
(Retd.) 26/2, Dover Road, Apartment No. 4,
3. Shri P. K. Choksi, Senior Partner, Price
Water house Pest & Co., B-4, Gillander House, Calcutta- 1.
4. Shri S. K. Mitra, President, Institute of
Cost & Works Accounts of India, 14-A/6 Western Extension Area, Karol Bagh,
5. Shri P. A. S. Rao, Formerly President of
the Institute of Company Secretaries of India, C-7/7, Vasant Vihar, New Delhi.
6. Shri M. C. Bhatt, Joint Secretary, Govt.
of India (Retd.) B-22, Defence Colony, New Delhi-24.
7. Shri Triloki Nath Sharma, Business
Executive, 247, Mohan Nagar, G. T. Road, Sahibabad, Ghaziabad (U.P.) 737 The
Company Law Board direct further under sub-section (6) of sec. 408 of the Act
that Shri B. M. Kaul will act as Chairman of the Board of Directors of the
In accordance with the order passed by the
Delhi High Court on 24th August, 1977, referred to hereinbefore the
implementation of this order will be subject to any order that may be passed by
the Delhi High Court in the matter pending before it." This order, which
inducted seven additional directors was based on the ground that the affairs of
the company in question "are being conducted in a manner which is
prejudicial to the interests of the company and to public interest." The
High Court, after hearing counsel on both sides, passed a laconic order that:
"We consider that the proper order to be
made, in view of the circumstances of the case, is to stay the operation of the
order of the Company Law Board, dated 17th December, 1977, except as regards
Shri P. K. Choksi, Shri S. K. Mitra and Shri P. A. Rao, and also to direct that
the said three gentlemen will not vote at the meetings of the Board of
Directors till the disposal of the writ petition. We order accordingly." A
company of considerable financial dimensions and involved in operations using
public resources as investment, naturally becomes the concern not merely of the
Company Law Board but also of the economic process of the country. The specialised
body with responsibility to watchdog corporate process, is the Company Law
Board. When it investigates and reaches a definite conclusion and makes a
consequential direction, it is entitled to prima facie respect unless there are
glaring circumstances to the contrary. We do not wish to make any observations
on the merits of the matter since the High Court is seized of the case. It may
well be that the order of the Board may be vitiated by infirmities, legal or
other. It may also be that the reasoning of the Board and the factual
foundation for it is sound. In such situations, acting at an interlocutory
stage, the benefit of reasonable doubt belongs to the specialised body. Of
course, as stated earlier, if there are good grounds to strike down the order,
certainly the High Court has jurisdiction to stay its operation. However, we
find nothing stated in the order itself indicating why the High Court prima
facie thought it necessary substantially to stay the operation of the Company
Law Board's order of induction of seven persons as directors. Nor have we any
light regarding the total eclipse of four directors and the partial eclipse of
the other three. Unfortunately, the inscrutable face of a sphinx does not go
well with the judicial process. Whatever might have been 738 the basis of the
High Court's order-we do not make any comments thereon-we are inclined to
nullify the interim stay. Our inclination is explained by the prefatory
observations we have earlier made in this order. To expatiate more may prejudice
one side or the other. To indicate this much is obligatory to explicate
There was some argument at the Bar about an
order under sec. 18AA of the Industries (Development and Regulation) Act, 1951,
and its impact upon the order impugned before us.
Maybe, by virtue of that appointment, the
entire company comes under the control of the authorised person appointed under
that provision. It is not for us to explore here the effect and import of the
order of the Central Government under section 18AA and we desist from doing so.
All that we need do and that we can do in the present appeal is to allow it so
that the Company Board's direction in regard to seven additional directors will
come into full force until the final decision of the High Court. We allow the
We may make it clear that the learned
Additional Solicitor General did assure the court that nothing which will
stultify the two writ petitions before the High Court will be done by the
Company Law Board or the Central Government. We hope the High Court will
dispose of the case very expeditiously.
S.R. Appeal allowed.