Supreme Court of India
PRANAB KUMAR PALversusM/S. LIZ. INVESTMENT PVT. LTD. AND ORS.
- Citation
- 2009 INSC 559
- Decided
- 20 April 2009
- Disposal
- Disposed off
- Bench
- ARIJIT PASAYAT
Holding
The Supreme Court held that the dispute should be decided afresh by the Company Law Board and did not express any opinion on the merits.
Summary
The petition filed by Liz Investment Pvt. Ltd. before the Company Law Board (CLB) alleged that the appellant, Pranab Kumar Pal, diverted a corporate opportunity and sought to restrain his resignation as a director. The CLB initially ordered the appointment of three directors by the petitioner and barred the appellant’s resignation, directing him to furnish security of Rs 2.85 crore. The appellant appealed to the Delhi High Court, which set aside the CLB order, affirmed his right to resign but imposed conditions including periodic statements and the security deposit, making his resignation effective only upon acceptance of the security by the CLB. The appellant contended that these conditions infringed his freedom of employment under Section 27 of the Indian Contract Act, read with Sections 14 and 41 of the Specific Relief Act. The Supreme Court, without expressing any view on the merits, directed the CLB to reconsider the matter afresh within three months and held that the High Court’s directions to deposit security would be subject to the CLB’s decision, thereby disposing of the appeal.
Issues considered
- Whether the High Court’s conditions, including the requirement of a security deposit, on the appellant’s resignation as director violate the freedom of employment under the Indian Contract Act and the Specific Relief Act.
- Whether the Company Law Board’s original order restraining the resignation and directing the appointment of directors is valid.
- Whether the Supreme Court may remand the dispute to the Company Law Board for fresh consideration.
Legislation cited
- Companies Act, 1956s. 235, s. 237, s. 398, s. 402, s. 403
- Indian Contract Act, 1872s. 27
- Specific Relief Act, 1963s. 14, s. 41
Subjects
corporate opportunitydirector resignationCompany Law Boardfreedom of employmentspecific reliefsecurity depositCompanies Actcontract lawappellate jurisdiction
Judgment
[2009] 6 S.C.R. 751
PRANAB KUMAR PAL A
v.
MIS. LIZ. INVESTMENT PVT. LTD. AND ORS.
(Civil Appeal No. 2654 of 2009)
APRIL 20, 2009
B
[DR. ARIJIT PASAYAT, V.S. SIRPURKAR AND ASOK
KUMAR_ GANGULY, JJ.]
Compani(Js Act, 1956 - ss. 398, 402, 403, 235 and 237
- Contract - Award of - By Tui Nordic to Across India - c
Petition alleging diversion of corporate opportunity by
appellant-Al - Direction by Company Law Board to
respondent no. 1 to nominate three Directors on Board of the
company and restrain appellant from resigning as Director -
,..... Order of High Court that appellant has right to resign subject
~
D
to several conditions - Direction to appellant to furnish
security with CLB - Pursuant thereto, resignation of appellant
- Clarification order that resignation of appellant to come into
force on the date of acceptance of security by CLB - Appeal
before Supreme Court - Appellant's case that said order E
antithetical to freedom of employment of individual - Held:
CLB to decide matters afresh - Directions to deposit security
subject to decision of CLB.
~ "
CIVIL APPELLATE JURISDICTION : Civil Appeal No.
2654 of 2009. F
From the Judgment & Order dated 05.12.2005 of the High
Court of Delhi at New Delhi, in Co. A (SB) No. 12 of 2005 and
Co. A (SB) No. 13 of 2005 and Order dated 23.01.2006 in C.A.
~ ~ No. 109 of 2006 in Co. A. (SB) No. 12 of 2005. G
C.A. Sundaram, Ritu Bhalla, Dhruv Dewan and Monark .
Gelhot (for Suresh A Shroff & Co.) for the Appellant(s).
751 H
752 SUPREME COURT REPORTS [2009] 6 S.C.R.
A Shyam Dewan, Arvind Kumar, E.C. Agrawala, Mahesh
Agarwal, Rishi Agrawala, Gaurav Goel and Amit Kr. Sharma
for the Respondent(s).
The Judgment of the Court was delivered by
B - DR. ARIJIT PASAYAT, J. 1. Lea·1e granted.
2. Challenge in this appeal is to the order passed by a
learned Single Judge of the Delhi High Court. By the impugned
Judgment the High Court held as follows:
c '
"1. In respect of this contract awarded by Tui-Nordic to
Across India, Across India shall file its statement of
account every. month giving the income/receipts and
expenditure on the said project.
D (2) It shall also give every three months, statement ....
indicating the progress in the said project
(3) Across-India and/or Mr. Pal shall jointly and severally
furnish security of Rs.2.85 crores with the CLB to its
E satisfaction, so that in the event the petition succeeds and
it is held that these appellants have made unlawful gains
at the cost of the company, the company is able to recover
the said loss without any further process. In such form such
a security is to be given is to be decided by the CLB.
-.
F (4) CLB would be entitled to put the appellant to such other
similar terms, as it thinks fit, in order to protect the rights
of the respondents herein."
3. By order dated 23.1.2006 certain clarifications were
G made.
4. Factual position as highlighted by the appellant is as
follows:
The Respondent No. I filed a Petition before the Company
H Law .Board under Sections 398, 402, 403, 235 and 237 of the
PRANAB KUMAR PAL v. LIZ. INVESTMENT PVT. 753
LTD. AND ORS. [DR. ARIJIT PASAYAT, J.]
Companies Act, 1956 (in short the 'Act') alleging inter alia, A
diversion of corporate opportunity by the appellant herein. The
Company Law Board vide its Order dated 09.06.2005 held that
it prima facie finds that a possible corporate opportunity had
be~n taken away from the Respondent No.I company and
thereafter directed that the Respondent No.I should nominate B
three Directors on the Board of Respondent No. 10 company
and that status quo be maintained. The Company Law Board
. .
further directed that the Petitioner should be restrained from
resigning as a Director of the Respondent No.2 company. The
appellant being aggrieved by the said Order filed an Appeal c
before the High Court being Co. A (SB) No. 12 of 2005 and
Respondent No.10 company filed an Appeal being Co. A.
No.(SB) 13 of 2005. After hearing, the High Court vide it
composite Order dated 05.12.2005 in Co. A No. (SB) No. 12
of 2005 and Co. A No.(SB) 13 of 2005 set aside the Order D
~
dated 09.06.2005 passed by the Company Law Board. The
• High Court has further held that the appellant has a right to
resign as a Director of the Respondent No.2 company.
However, several conditions have been imposed by the High
Court. Pursuant to the said Order, the appellant resigned on
E
12.1.2006. Thereafter the Respondent No.1 filed a Clarification
Application which was disposed of by the High Court vide the
impugned Order dated 23.01.2006, by holding that "it is also
-
•·'
~
informed that he has already resigned as a Director. It is made
clear that his resignation would come into force on the date
security is accepted by the CLB. This CA is disposed of " F
5. The appellant's stand is that he is gravely prejudiced by
the impugned orders dated 05.12.2005 and 23.01.2006 which
is completely antithetical to the freedom of employment of an
individual enshrined in Section 27 of the Indian Contract Act, G
... • 1872 (in short 'Contract Act') read with Section 14 and Section
41 of the Specific Relief Act, 1963 (in short 'Specific Relief
Act') in that it purports to fetter the same by the imposition of
conditions such as the provision of security.
H
754 SUPREME COURT REPORTS [2009] 6 S.C.R.
A 6. After hearing learned counsel for the parties we dispose
of the appeal with the following directions: -
(1) CLB shall decide the matters afresh within a period of
three months from today.
B (2) All issues placed before the parties shall be decided
by the CLB.
(3) The directions to deposit as given by the High Court ·~
will be subject to the decision of CLB.
c (4) The contempt proceedings shall remain in abeyance
till the decision is given by CLB.
7. We make it clear that we have not expressed any
opinion on merits because of the protection given by this Court.
D ....,
8. The appeal is accordingly disposed of.
N.J. Appeal disposed of.
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