Interlocutory Orders Merge with Final Dismissal, Cannot Be Used Independently: NCLAT Bars Extraction of Stray Findings from Dismissed Company Petition [Read Order]

The Chennai Bench of National Company Law Appellate Tribunal (NCLAT) ruled that all interlocutory and docket orders merged with the final dismissal of a company petition and lost their independent legal effect. It applied the doctrine of merger to clarify that such orders meet their “judicial death” once the main petition is dismissed. The appeal was closed, holding that stray findings remain confined to the dismissed proceedings.

The Appellant, M. Sai Sudhakar & 2 Ors., challenged specific observations made in an order dated 28.11.2023, passed by the National Company Law Tribunal (NCLT). This NCLT order had dismissed a Company Petition (No. 433/241/HDB/2020) filed by the Respondents, Mantrawadi Nagachandrika & 4 Ors., which sought various reliefs including the cancellation of share allotments and removal of directors, alleging oppression.

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The Respondents filed Company Petition No. 433/241/HDB/2020 seeking eight reliefs, primarily including declaration of oppression, cancellation of share allotments dated 17.10.2020, declaration that transfer of 5,15,000 shares was illegal,rectification of members register, removal of certain directors, and declaration that board resolutions from 23.07.2020 were void.

During proceedings, the NCLT passed interlocutory and docket orders dated 01.08.2023 and 16.08.2023. The Company Petition was dismissed by order dated 28.11.2023, which remained unchallenged by the Respondent/Petitioner.

The Respondent/Petitioner attempted to interpret certain docket orders and observations in paragraph 24 of the impugned order as granting partial relief, particularly relief no.2, despite the dismissal. The Appellant challenged specific findings in paragraphs 11, 17, 18, 19, 21, 22, 23, and 24 of the impugned order, contending they were based on misreading of evidence and could not survive the dismissal of the main petition.

The Counsel for the Appellant, Anshuman Sharma, argued that the specific findings in paragraphs 11, 17, 18, 19, 21, 22, 23, and 24 of the impugned order dated 28.11.2023 were perverse and based on a misreading of the evidence. The Counsel also submitted that since Company Petition was dismissed, it operated as a denial of all reliefs in totality, and findings in the judgment could not be extracted and read independently in the context of docket orders.

Further, the Counsel stated that once main proceedings conclude on merits, all interlocutory orders merge with the final unchallenged order and cannot be retrieved for use in subsequent proceedings, particularly by the Respondent/Petitioner whose Company Petition had been dismissed and remained unchallenged, relying on the principle of merger.

On the other hand, the Counsel for the Respondent, Asad Hussain, argued that despite the overall dismissal of their Company Petition, certain interlocutory orders and observations within the final judgment, specifically in paragraph 24, amounted to a partial grant of relief, particularly concerning the cancellation of share allotments and asserted that these orders and observations survived the dismissal of the main petition.

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The Tribunal comprising Judicial Member, Justice Sharad Kumar Sharma and Technical Member, Jatindranath Swain, heard and reviewed the matter, rejected the respondent’s arguments.

The Tribunal, after considering the submissions made, held that once a main proceeding is dismissed on merits, all interlocutory orders passed during its pendency merge with the final order and cease to have independent existence and emphasized that the dismissal of the Company Petition in its entirety meant that no relief was granted to the Respondents.

The Tribunal stated that any stray findings or observations in the dismissal order could not be extracted to imply a partial grant of relief, especially when the dismissal itself remained unchallenged by the Respondents.

Further, the Tribunal clarified that the findings challenged by the Appellants were incidental to the NCLT's decision to dismiss the Company Petition and were confined to that adjudication. These findings could not be utilized against the Appellants in any collateral proceedings, such as contempt petitions, given that the Company Petition had been dismissed and that dismissal was not appealed by the Respondents.

“This Company Appeal would stand closed with an observation thereof that, all those findings, which have been made subject matter of challenge by the Appellant in the instant Company Appeal would be limited to be the finding restricted qua the relief, which has been sought in the Company Petition by the Respondent/Petitioner itself and it would be confined to be read only for the purposes of an adjudication made by the Ld. Tribunal in relation to the impugned judgment under challenge, i.e., 28.11.2023, and it will not be extended to be read for any collateral purposes as against the Appellant particularly when the Company Petition has been dismissed and the dismissal has not be challenged.”

Thus, NCLAT closed the Company Appeal, affirming that all findings challenged by the Appellants were limited to the context of the dismissed Company Petition and could not be extended for any other purpose against the Appellants.

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