Case: M/s. Soul Jewels &amp; Others Vs. M/s. Hanjer Biotech Energies P. Ltd. &amp; Others

R.F. Nariman, J. 1. Leave granted. 2. By our order dated 21.08.2017, we recorded that the arguments have been concluded and liberty granted to the parties to file written submissions. We have perused the written submissions so filed. 3. The order under appeal dated 14.2.2014 notices that by an order dated 29.10.2013, the Company Law Board had rejected the application for appointment of a special auditor. However, despite this order never having been challenged, a second order of the Company Law Board dated 31.01.2014 granted the interim relief of appointing a special auditor. The learned single Judge went on to find that in point of fact there are already three auditors and the only justification for appointing a special auditor found by the CLB order dated 31.1.2014 is that a contractual right existed under clauses of the SHA. Clause 5.2.3.2 makes it clear that the investor must reasonably believe that there is a material misstatement or irregularity in the financial statements of the Company for the investor to have the right to appoint a special auditor of its choice at the cost of the Company. As correctly stated by the learned single Judge, this contractual right has to be exercised reasonably and could not ever have been intended to reopen closed and settled matters. 4. Apart from this, the learned single Judge held: Mr. Chaglas charge is direct and pointed: this is nothing but an attempt to extract the buy-out price and enforce the SPA. It is an exercise in harassment pure and simple and is no more complicated than that. That there was a proposed buy-out is not in dispute. Hanjer Energies is today unable to fulfill its obligations under the SPA to buy out a part of IIFs stake. That Hanjer Energies is in financial straits is conceded; hence the CDR and the special investigative audit. IIF took a 26% stake in Hanjer Energies in 2009-2010 for L 250 crores. Three years later, in 2012, it agreed to sell 7% of its stake for L 157.5 crores. This had to be done because Hanjer Energies institutional lenders insisted on a majority stake being with the Furniturewala Group. A further infusion of L 57 crores has recently been made. But how does any of this give IIF the right to a special audit under the SSA, the SHA and the Articles? The impugned order does not say. Before Mr. Dwarkadas can get to his argument that the impugned order does not prejudice Hanjer Energies he must first show IIF has demonstrated an entitlement to such a relief, and that sufficient grounds have been made out. They have not; and the prejudice is certain. A fourth auditor with as sweeping a remit as the impugned order proposes can only hamper and hinder Hanjer Energies and, perhaps more importantly, the CDR itself. An auditor is a watchdog. Hanjer Energies has three. That is more than enough. What IIF wants is a bloodhound. That is uncalled for and unjustified; there are more than enough sentinels on Hanjer Energies ramparts.

Decision (1 = appeal accepted, 0 = rejected): 0

Explanation:
0[ds]Clause 5.2.3.2 makes it clear that the investor must reasonably believe that there is a material misstatement or irregularity in the financial statements of the Company for the investor to have the right to appoint a special auditor of its choice at the cost of the Company. As correctly stated by the learned single Judge, this contractual right has to be exercised reasonably and could not ever have been intended to reopen closed and settled matters4. Apart from this, the learned single Judge held:Mr. Chaglas charge is direct and pointed: this is nothing but an attempt to extract thet price and enforce the SPA. It is an exercise in harassment pure and simple and is no more complicated than that. That there was a proposedt is not in dispute. Hanjer Energies is today unable to fulfill its obligations under the SPA to buy out a part of IIFs stake. That Hanjer Energies is in financial straits is conceded; hence the CDR and the special investigative audit. IIF took a 26% stake in Hanjer Energies in0 for L 250 crores. Three years later, in 2012, it agreed to sell 7% of its stake for L 157.5 crores. This had to be done because Hanjer Energies institutional lenders insisted on a majority stake being with the Furniturewala Group. A further infusion of L 57 crores has recently been made. But how does any of this give IIF the right to a special audit under the SSA, the SHA and the Articles? The impugned order does not say. Before Mr. Dwarkadas can get to his argument that the impugned order does not prejudice Hanjer Energies he must first show IIF has demonstrated an entitlement to such a relief, and that sufficient grounds have been made out. They have not; and the prejudice is certain. A fourth auditor with as sweeping a remit as the impugned order proposes can only hamper and hinder Hanjer Energies and, perhaps more importantly, the CDR itself. An auditor is a watchdog. Hanjer Energies has three. That is more than enough. What IIF wants is a bloodhound. That is uncalled for and unjustified; there are more than enough sentinels on Hanjer Energies ramparts.