SUPREME COURT
Press and Registration of
Books Act
[2004]
49 SCL 25 (sc)
SUPREME COURT OF
v.
Ramesh Chandra Agarwala
V.N.
Khare, CJ.
S.B.
Sinha and A.R. Lakshmanan, JJ.
Civil Appeal Nos. 4774-4778 of 1996
July 7,
2003
Section 5 of the Press and Registration of
Books Act, 1867, read with sections 9 and 151 of the Code of Civil Procedure,
1908 - Printing presses and newspapers - Rules as to publication of newspapers
- Appellant and respondent were partners in a firm running printing press -
There was dispute between parties to run and manage newspaper business -
Respondent filed declaration under Act which was cancelled - On writ, High
Court directed Appellate Board to dispose of matter in accordance with law -
However, subsequently, on review petition, High Court gave liberty to
respondent to file application for stay of inquiry by District Magistrate till
final outcome of civil litigation by parties - Whether when a disputed question
as regards right of one partner against other to file a declaration in terms of
Act had arisen for consideration, High Court was correct in issuing a
subsequent direction in review petition - Held, no - Whether orders of High
Court were absolutely contradictory to and inconsistent with each other and,
therefore, were to be set aside - Held, yes
Section 9 of the Code of Civil Procedure,
1908, read with sections 9 and 10 of the Companies Act, 1956 - Suits in general
- Courts to try all civil suits unless barred - Whether by provisions of
sections 9 and 10 of Companies Act jurisdiction of civil court has been ousted
- Held, no - Whether dispute involving rival claims of parties as to whether
one party has illegally been dispossessed by other or not is civil dispute and
civil court has jurisdiction to entertain suit involving such dispute - Held,
yes
The appellant was partner in a firm running a printing press. The
respondent No. 1, who was son of the appellant allegedly taking advantage of
ill-health of the appellant, took forcible possession of printing press.
The respondent No. 1 made declaration under section 5 before the
District Magistrate wherein he allegedly accepted the partnership of the firm
as owner of the newspaper. The District Magistrate cancelled the said
declaration under section 8B. The appeal filed by the respondent against that
order was dismissed by the Appellate Board. On writ, the order of the Appellate
Board as also that of the District Magistrate were quashed and the Appellate
Board was directed to consider the matter afresh. However, on a review
application by the respondent No. 1, the same Judge directed that the inquiry
by the District Magistrate should be deferred if an application was filed
before him till the final outcome of the civil litigation by the parties. The appellant
alleging his illegal dispossession from the printing press filed a suit for
eviction and permanent injunction. An application for grant of injunction in
terms of order XXXIX, rules 1 and 2 of the Code was filed praying to restrain
the respondent No. 1 from publishing the newspaper illegally and not to indulge
in false propaganda and/or to take forcible possession of the printing press.
Respondent No. 1 also filed a suit against the appellant praying for a
permanent injunction restraining the appellant from interfering with the
working of the press and not to take possession thereof. The First Additional
District and Sessions Judge disposed of applications and directed maintenance
of status quo by the parties. However, in his order relating to the application
filed for injunction by respondent No. 1, the Court directed the appellant, not
to interfere in the printing and publishing of the newspaper.
On appeals, the High Court allowed the appeal preferred by respondent
No. 1 and dismissed the appeal filed by the appellant holding that the suit for
temporary injunction was barred under section 10 of the Companies Act.
On appeal to the Supreme Court :
When a disputed question as regards the right of one partner against the
other to file a declaration in terms of the provisions of the Act had arisen
for consideration, the High Court was not correct in issuing a subsequent
direction in the review petition. Such a jurisdiction the High Court did not
have. The conflicting rights of the parties were required to be determined in
accordance with law by the statutory authority. Such a dispute should be
determined as expeditiously as possible inasmuch as the dispute involved rival
claims of the parties to the lis to run and manage newspaper business. In any event,
while directing the statutory authority to dispose of the matter in accordance
with law, it did not stand to any reason as to why a party to the lis was given
such liberty so as to file an application for stay of inquiry by the District
Magistrate till the disposal of the civil suit particularly when the High Court
itself was of the opinion that the suit was not maintainable. The orders of the
High Court were, thus, absolutely contradictory to and inconsistent with each
other and did not stand a moment’s scrutiny. The impugned order was, therefore,
set aside with a direction to the Appellate Board to hear out and dispose of
the appeal as expeditiously as possible but not later than three months from
the date of communication of this order. It would be open to the Appellate
Board to consider the question of adequately compensating the appellant on
monetary terms in the event it came to the conclusion that the appeal was
liable to be dismissed. [
A bare perusal of sections 9 and 10 of the Companies Act leaves no
manner of doubt that thereby the jurisdiction of the civil court has not been
ousted. The civil court, in the instant case, was concerned with the rival
claims of the parties as to whether one party had illegally been dispossessed
by the other or not. Such a suit, apart from the general law, would also be
maintainable in terms of section 6 of the Specific Relief Act, 1963. In such
matters, the Court would not be concerned even with the question as to
title/ownership of the property. [
In
The dispute between the parties was eminently a civil dispute and not a
dispute under the provisions of the Companies Act. Section 9 of the Code confers
jurisdiction upon the civil courts to determine all disputes of civil nature
unless the same are barred under a statute either expressly or by necessary
implication. Bar of jurisdiction of a civil court is not to be readily
inferred. A provision seeking to bar jurisdiction of civil court requires
strict interpretation. The Court, it is well-settled, would normally lean in
favour of construction, which would uphold retention of jurisdiction of the
civil court. The burden of proof in that behalf shall be on the party who
asserts that the civil court’s jurisdiction is ousted. [
In that view of the matter, the civil suit was maintainable.
Lallu Yeshwant Singh v. Rao Jagdish Singh AIR 1968 SC 620 [para 19],
Suvvari Sanyasi Apparao v. Bodderpalli Lakshminarayana [1962] Suppl. 1 SCR 8
[para 20], Sahebgouda v. Ogeppa 2003 (3) Supreme 13 [para 21], R. Prakasam v.
Sree Narayana Dharma Paripalana Yogam [1980] 50 Comp. Cas. 611 (Ker.) [para 22]
and Maharaja Exports v. Apparels Exports Promotional Council [1986] 60 Comp.
Cas. 353 (
Sunil Gupta, S.K. Gambhir, Shanti Bhushan, Dr. A.M. Singhvi, P.P. Rao,
R.C. Srivastava, TLV Iyer, Kailash Vasdev, P.D. Tyagi, Vivek Vishnoi, R.R.
Singh, N.K. Modi, Anil Sharma, Awnish Sinha, H.K. Puri, U. Hazarika, Ankur
Modi, Sanjay Kr. Pathak, B.B. Thakur, Ms. Shirin Khajuria (N.P.), Gaurab
Banerjee, Niraj Sharma, Ankur Modi, Syed Ali Ahmad, Syed Tanweer Ahmad, G.D.
Upadhyay, R.D. Upadhyay for
the Appearing Party.
S.B. Sinha, J. - These appeals involving identical questions
of law and facts were taken up for hearing together and are being disposed of
by this common judgment.
2. Civil
Appeal Nos. 4774-76 of 1996 arise out of the judgments and orders dated
12-3-1993 and 18-3-1993 passed by the Gwalior Bench of the Madhya Pradesh High
Court in Miscellaneous Petition Nos. 1654, 1727 and 1728 of 1991: wherein the
legality/validity of three orders passed on 29-5-1991 by the Press and
Registration Board purported to be in exercise of its jurisdiction under
section 8C of the Press and Registration of Books Act, 1867 (for short ‘the
Act’) were questioned by the Respondent No. 1 herein.
3. Civil
Appeal Nos. 4777-78 of 1996 arise out of the judgment and order dated 29-6-1991
passed by the Gwalior Bench of the Madhya Pradesh High Court arising out of
Misc. Appeal Nos. 60-61 of 1988.
4. Factual matrix of the matter, shortly stated
is as under :
Ramesh Chander Agarwal s/o late Dwarka Prasad
Agarwal, a partner of M/s. Dwarka Prasad Agarwal and Brothers allegedly upon
taking advantage of his father’s ill-health made an attempt to create a lease
in relation to the right to publish Dainik Bhaskar from
5. Ms.
Hemlata Agarwal, eldest daughter of late Dwarka Prasad Agarwal through his
second wife, was made a Joint Managing Director of Bhaskar Publications and
Allied Industries. Ramesh Chander Agarwal being intrigued thereby tried to
increase the equity shares of the company to such an extent that he gets
majority in the equity shares purported to be in total disregard and violation
of the provisions of the Companies Act, 1956. The said respondent also took
alleged forcible possession of the Printing Press on 3-7-1987 which had been
leased out by M/s. Dwarka Prasad Agarwal and Brothers (the Firm) to M/s.
Bhaskar Publications and Allied Industries Private Limited. Allegedly, late
Dwarka Prasad Agarwal and his two daughters were also physically assaulted by
the first respondent leading to initiation of a proceeding under section 145 of
the Code of Criminal Procedure. In the said proceedings, the Executive
Magistrate directed the police to open the locks put in the premises of the
printing press in presence of both the parties. However, late Dwarka Prasad
Agarwal was not permitted to run the said printing press.
6. Thereafter, Ramesh Chander Agarwal filed a
declaration before the District Magistrate,
7. By an order dated 6-6-1988, the District
Magistrate,
8. He in the meanwhile filed a writ petition
before the High Court for stay of the proceedings before the District
Magistrate. Although an order of stay was passed therein but before the same
could be communicated the aforementioned order dated 6-6-1988 was passed.
Ramesh Chander Agarwal, Respondent No. 1, then filed another writ petition
against the said order dated 6-6-1988 before the High Court but the same was
withdrawn on the ground that he had in the meanwhile availed alternative remedy
of filing an appeal against the same order. During the pendency of the said
appeal before the Board, yet another writ petition was filed by the first
respondent marked as Writ petition No. 798 of 1988 praying therein for quashing
of the order dated 6-6-1988 whereby the declarations were directed to be filed.
9. The said appeals filed by Ramesh Chander
Agarwal were dismissed by the Appellate Board on 29-5-1991 holding as under :
“(a) The document at the top portion is pasted
with thick opaque white paper slips from both sides, perhaps to cover up and
make unreasonable something which was written or printed under these slips;
(b) Below the seal of the Deputy Collector and
Executive Magistrate,
(c) The printed proforma of A1 is patently of
Annexure A-1, is only a
photocopy of the original, in the absence of which, the true effect of these
suspicious circumstances (a) to (c) cannot be correctly assessed. However, the
appellant admits that the photocopy of the declaration A-1 was presented by
Devinder Tiwari not personally by him (appellant). This Devinder Tiwari who,
according to the appellant, as a Director of the Company did not file any
letter of authority on behalf of the Company, or even from the appellant, to
explain why the declaration was not presented in person by the appellant.
** ** **
Nevertheless, there is no reason
to differ from the finding of the District Magistrate, that Shri S.C. Shukla
(Deputy Collector) Executive Magistrate, not being a District, Presidency or
Sub-Divisional Magistrate was not competent, in view of section 5(2) of the
Act, to entertain and authenticate the declaration dated 11-3-1985, filed by
the appellant.
For all the reasons aforesaid,
we would uphold the order dated 6-6-1988 of the District Magistrate,
10. A writ petition was filed by Ramesh Chander
Agarwal thereagainst. Similar writ petitions came to be filed in relation to
the orders passed in respect of other declarations.
11. By reason of the impugned order dated
12-3-1993, the order of the Appellate Board dated 29-5-1991 as also that of the
District Magistrate, Gwalior, dated 6-6-1988 were quashed and the Appellate
Board was directed to consider the matter afresh within a period of three
months. Strangely enough, however, the same learned Judge on a review application
filed by the first respondent herein by an order dated 18-3-1993 directed that
the inquiry by the District Magistrate should be deferred if an application is
filed before him till the final outcome of the civil litigations by the
parties.
12. Late Dwarka Prasad Agarwal, alleging his
alleged illegal dispossession from the printing press, filed a suit for
eviction and permanent injunction in the court of A.D.J., Gwalior, which was
registered as Suit No. 1-A of 1988. An application for grant of injunction in
terms of Order 39, Rules 1 and 2 of the Code of Civil Procedure was filed
wherein a prayer was made for grant of temporary injunction against respondent
No. 1 restraining him from publishing the newspaper illegally and furthermore
not to indulge in false propaganda and/or to take forcible possession of the
printing press. Respondent No. 1, Ramesh Chander Agarwal also filed a suit
against late Dwarka Prasad Agarwal praying therein for a permanent injunction
restraining him from interfering with the working of the press at
13. The First Additional District and Sessions
Judge before whom the matters were pending, disposed of both the applications
by a common order dated 28-5-1988. The court directed maintenance of status quo
by the parties and further directed that Ramesh Chander Agarwal would not
interfere with the working of late Dwarka Prasad Agarwal in the matter of
managing the affairs of the company. However, in his order relating to the
application filed for injunction in Suit No. 2-A of 1988 of respondent No. 1,
the court directed the original appellant, late Dwarka Prasad Agarwal not to
interfere in the printing and publishing of the newspaper Dainik Bhaskar from
Gwalior.
14. Both the
parties preferred appeals before the High Court against the said orders which
were marked as M.A. No. 60 of 1988 and M.A. No. 61 of 1988. The High Court
allowed the appeal preferred by Ramesh Chander Agarwal and dismissed Appeal No.
61 of 1988 filed by late Dwarka Prasad Agarwal holding that the suit for
temporary injunction was barred under section 10 of the Companies Act.
15. These
appeals were filed by Dwarka Prasad Agarwal (since deceased), questioning the
legality/correctness of the said orders.
16. The questions, in the aforementioned factual
backdrop, which arise for consideration in these appeals are :
(1) Whether the High Court was justified in issuing a
direction that its earlier direction contained in order dated 12-3-1993
directing the Appellate Board to dispose of the appeal within three months need
not be adhered to, if Ramesh Chander Agarwal files an application for stay of
the inquiry by the District Magistrate during the pendency of the civil suit ?
(2) Whether the civil court had any
jurisdiction to entertain the suit ?
Re : Question No. 1
17. At the
outset, we may observe that when a disputed question as regard the right of one
partner against the other to file a declaration in terms of the provisions of
the Act had arisen for consideration, the High Court was not correct in issuing
a subsequent direction in the review petition. Such a jurisdiction the High
Court did not have. The conflicting rights of the parties were required to be
determined in accordance with law by the statutory authority. Such a dispute,
it goes without saying, should be determined as expeditiously as possible
inasmuch as the dispute involved rival claims of the parties to the lis to run
and manage newspaper business. In any event, while directing the statutory
authority to dispose of the matter in accordance with law, it does not stand to
any reason as to why a party to the lis was given such liberty so as to file an
application for stay of inquiry by the District Magistrate till the disposal of
the civil suit particularly when the High Court itself was of the opinion that
the suit was not maintainable. We fail to see any reason as to why one party to
the lis should be given unfair advantage over another in the matter of
enforcement of statutory rights under the said Act. The orders of the High
Court are, thus, absolutely contradictory to and inconsistent with each other,
and do not stand a moment’s scrutiny. The impugned orders are, therefore, set
aside with a direction to the Appellate Board to hear out and dispose of the
appeal as expeditiously as possible but not later than three months from the
date of communication of this order. It would be open to the Appellate Board to
consider the question of adequately compensating the appellates herein on
monetary terms in the event it comes to the conclusion that the appeal was
liable to be dismissed.
Re :
Question No. 2
18. Sections 9 and 10 of the Companies Act are as
under :
“9. Act to
override memorandum, articles, etc.—Save as otherwise expressly provided in the
Act—
(a) the provisions of this Act shall have
effect notwithstanding anything to the contrary contained in the memorandum or
articles of a company, or in any agreement executed by it, or in any resolution
passed by the company in general meeting or by its Board of directors, whether
the same be registered, executed or passed, as the case may be, before or after
the commencement of this Act; and
(b) any provision contained in the memorandum,
articles, agreement or resolution aforesaid shall, to the extent to which it is
repugnant to the provisions of this Act, become or be void, as the case may be.
10.
Jurisdiction of Courts.—(1) The High Court having jurisdiction under this Act
shall be—
(a) the High Court having jurisdiction in
relation to the place at which the registered office of the company concerned
is situate, except to the extent to which jurisdiction has been conferred on
any District Court or District Courts subordinate to that High Court in
pursuance of sub-section (2); and
(b) where jurisdiction has been so conferred,
the District Court in regard to matters falling within the scope of the
jurisdiction conferred, in respect of companies having their registered offices
in the district.
(2) The Central Government may, by
notification in the Official Gazette and subject to such restrictions,
limitations and conditions as it thinks fit, empower any District Court to
exercise all or any of the jurisdiction conferred by this Act upon the Court,
not being the jurisdiction conferred—
(a) in
respect of companies generally, by sections 237, 391, 394, 395 and 397 to 407,
both inclusive;
(b) in respect of companies with a paid-up share
capital of not less than one lakh of rupees, by Part VII (sections 425 to 560)
and the other provisions of this Act relating to the winding up of companies.
(3) For the purposes of jurisdiction to wind
up companies, the expression ‘registered office’ means the place which has
longest been the registered office of the company during the six months
immediately preceding the presentation of the petition for winding up.”
A bare perusal of the aforementioned provisions leaves no manner of
doubt that thereby the jurisdiction of the civil court has not been ousted. The
civil court, in the instant case, was concerned with the rival claims of the
parties as to whether one party has illegally been dispossessed by the other or
not. Such a suit, apart from the general law, would also be maintainable in
terms of section 6 of the Specific Relief Act, 1963. In such matters the court
would not be concerned even with the question as to title/ownership of the
property.
19. In
20. In Suvvari Sanyasi Apparao v. Bodderpalli
Lakshminarayana [1962] Supp. 1 SCR 8, this Court upon considering the Press and
Registration of Books Act, 1867 observed that the matter relating to ownership
of the press is a matter of general law and the Court, thus, must follow that
law. It was observed that a declared keeper of the press is not necessarily the
owner thereof so as to be able to confer title to the press upon another.
21. The dispute between the parties was eminently
a civil dispute and not a dispute under the provisions of the Companies Act.
Section 9 of the Code of Civil Procedure confers jurisdiction upon the civil
courts to determine all dispute of civil nature unless the same is barred under
a statute either expressly or by necessary implication. Bar of jurisdiction of
a civil court is not to be readily inferred. A provision seeking to bar
jurisdiction of civil court requires strict interpretation. The court, it is
well-settled, would normally lean in favour of construction, which would uphold
retention of jurisdiction of the civil court. The burden of proof in this
behalf shall be on the party who asserts that the civil court’s jurisdiction is
ousted. [See Sahebgouda v. Ogeppa 2003 (3) Supreme 13. Even otherwise, the
civil court’s jurisdiction is not completely ousted under the Companies Act,
1956.
22. In R. Prakasam v. Sree Narayana Dharma
Paripalana Yogam [1980] 50 Comp. Cas. 611 (Ker.), it has been held that :
“. . . The purpose of section
2(11), read with section 10 is only to enable the shareholders to decide as to
which court they should approach for remedy, in respect of that particular
matter. It is difficult to construe the definition clause as one conferring
jurisdiction, exclusive or otherwise; and even section 10 refers only to ‘the
court having jurisdiction under this Act’, i.e., where such jurisdiction is
conferred by the Act, as under sections 107, 155, 163(2), 237, 397, 425, etc.
In other words, the conferment of jurisdiction on ‘the court’ is not under
section 10, but by other provisions of the Act like those enumerated above. If,
on the other hand, sections 2(11) and 10 are construed as not only nominating
the courts, but also conferring exclusive jurisdiction on them, the specific
provisions in the other sections conferring jurisdiction on the court to deal
with the matters covered by them will become redundant. It may be that where
the Act specifies the company court as the forum for complaint in respect of a
particular matter, the jurisdiction of the civil court would stand ousted to
that extent. This depends, as already noticed, on the language of the
particular provisions (like sections 107, 155, 397 and others) and not on
sections 2(11) and 10. . . .” (p. 621)
23. Yet again in Maharaja Exports v. Apparels
Exports Promotional Council [1986] 60 Comp. Cas. 353, the Delhi High Court held
:
“‘Under section 9 of the Code of
Civil Procedure, 1908, civil courts have jurisdiction to try all suits of a
civil nature excepting suits of which their cognizance is expressly or
impliedly barred. Unlike some statutes, the Companies Act does not contain any
express provision barring the jurisdiction of the ordinary civil courts in
matters covered by the provisions of the Act. In certain cases like winding-up
of companies, the jurisdiction of civil courts is impliedly barred.
Where a person objects to the
election of directors and claims a decree for a declaration that he was one of
the directors, there is no provision which bars the civil court either
expressly or by implication from trying such a suit.’
In the present suit also,
besides other reliefs, the plaintiff has sought a declaration that all the 27
members of the existing executive committee are not entitled to hold the
respective offices in view of the judgment of this court and further that the
18 members of the executive committee who have retired by rotation are not
entitled to continue in office as members of the executive committee. The
judgment, referred to above, fairly and squarely applies to the facts of the
present case and there is no reason to oust the jurisdiction of this court to
entertain the present suit. Under these circumstances, this issue is decided in
favour of the plaintiff and against the defendants.” (p. 361)
24. In that view of the matter, we are of the
opinion that the civil suit was maintainable. In any event, we fail to
understand and rather it is strange as to how the High Court while rejecting
relief to the original plaintiff (late Dwarka Prasad Agarwal), granted a
similar relief in favour of the first respondent herein.
25. The impugned orders are, therefore, set aside.
The matters are remitted to the
companies act
[2002]
37 SCL 183 (
High
Court of
v.
Reliance Industries Ltd.
R.
DAYAL AND PRABIR KUMAR SAMANTA, JJ.
F.M.A.T.
NO. 232 OF 1998
AND F.M.A. NO. 1634 OF 1998
FEBRUARY
27, 1998
Section 10, read with sections 2(11) and 84, of the Companies Act, 1956
and section 9 of the Code of Civil Procedure, 1908 - Court - Jurisdiction of -
Whether in respect of matters regarding which Act does not provide for
adjudication by Court, adjudicating authority can mean ‘court’ as defined by
section 2(11) - Held, no - Whether definition clause of section 10 can be given
interpretation that whenever there is a dispute relating to a company, it is
company court as defined in section 2(11) that will have jurisdiction - Held,
no - Whether ‘court’ as defined in section 2(11), read with section 10, has no
jurisdiction to decide subject-matter of suit concerning issue of duplicate
shares and as such jurisdiction of Civil Court vested under section 9 of Code of
Civil Procedure will not get ousted by Companies Act - Held, yes - Whether
where shares were sent from Calcutta to respondent-company at Bombay for
effecting transfer, a part of cause of action could be said to have arisen at
Calcutta - Held, yes
Section 53 of the Companies Act, 1956 - Service of documents - On
members of company - Whether where a document has been sent by registered post
and for some reason same has not been delivered to addressee, it could not be
said that company stands discharged from its obligation and no right remains
with addressee - Held, yes - Whether section 53 raises a presumption about
service of a document sent by registered post but that presumption is
rebuttable - Held, yes
The plaintiff purchased equity shares of the respondent-company and
thereafter sent the same to the company along with duly signed and stamped
transfer deeds with the request to transfer the same in the name of the
plaintiff. The company received the shares vide acknowledgement memo dated
4-8-1997 and intimated the plaintiff that the aforesaid shares had been duly
transferred in the name of the plaintiff and despatched to the address of the
plaintiff on 24-9-1997 under registered cover. However, the plaintiff did not
receive them back. The plaintiff prayed for a declaration that the plaintiff
was the lawful owner of 2,000 shares of the respondent-company and that the
company was bound to transfer the same or issue duplicate share certificates in
the name of the plaintiff. However, the City Civil Court rejected the
application on ground that the matter related to the loss of equity shares and
consequential reliefs and in view of the provisions of section 84 and the
provisions of the City Civil Courts Act, such type of matter was not triable in
the City Civil Court but was under the exclusive jurisdiction of the High
Court.
On appeal :
Nothing has been provided in the Act for adjudication of a dispute with
respect to issue of duplicate shares. Section 2(11) does not specify the powers
of the company court. It only defines the expression ‘the court’ occurring in
the statute, with reference to any matter relating to a company as meaning the
court having jurisdiction under the Act with respect to that matter as provided
in section 10. Section 10 specifies the court which has jurisdiction under the
Act. In respect of certain matters, with respect to which conditions specified
in clause (b) of section 10(1) are fulfilled, such court is the district court
of the district in which the registered office of the company is situate. But,
where no notification has been issued under sub-section (2), or in respect of
such matters as are not covered under clause (b), such Court is the High Court
having jurisdiction in relation to the place at which the registered office of
the company concerned is situate. To fall within the jurisdiction of ‘the
court’ as defined in section 2(11) read with section 10, the matter should be
such as is provided by the Act to be adjudicated by ‘the court’. In respect of
matters regarding which the Act does not provide for adjudication by the court,
the adjudicating authority cannot mean ‘the court’ as defined by section 2(11).
It is only where the Act provides for adjudication by ‘the court’, ‘the court’
would mean the court as defined in section 2(11). The definition clause cannot
be given the interpretation that whenever there is a dispute relating to a
company, it is the company court as defined in section 2(11), that will have
the jurisdiction.
Therefore, the ‘court’ as defined in section 2(11), read with section
10, does not have the jurisdiction to decide the subject-matter of the suit
concerning issue of duplicate shares and as such the jurisdiction of the Civil
Court vested under section 9 of the Code of Civil Procedure, 1908, would not
get ousted by the Companies Act.
The respondent also submitted, in the alternative, that the City Civil
Court, Calcutta, did not have the jurisdiction because all the defendants
resided or worked at Bombay, that is, outside the jurisdiction of the courts in
West Bengal and also because no part of the cause of action arose within West
Bengal. It was, no doubt, true that all the defendants resided or worked at
Section 53 raises a presumption about service of a document sent by
registered post but that presumption is rebuttable. As such where a document
has been sent by registered post, and for some reason the same has not been
delivered to the addressee, it cannot be said that the company stands
discharged from its obligation and no right remains with the addressee.
The question whether a part of the cause of action arose within the
jurisdiction of the court in West Bengal was to be determined with reference to
the allegations made in the plaint and if from the allegations so made, an
obligation arose in favour of the plaintiff and against the defendants, there
could be, no doubt, that a part of the cause of action for the reliefs claimed
had arisen within the jurisdiction of the court in West Bengal. Furthermore,
the presumption arises only where the registered post has been properly addressed.
That is a question which remains to be considered by the court. There is no
presumption that the registered post is properly addressed.
Therefore, a part of the cause of action arose within the jurisdiction
of the
Cases referred to
Asansol Electric Supply Co. v. Chunilal Daw 75 CWN 704 (
P.P. Banerjee and Tapas
Saha for the Applicant. P.C. Sen, Soumen Sen, Supratik Banerjee and S.K.
Samanta for the Respondent.
R. Dayal, J.—This
appeal is directed against the order dated 23-12-1997, passed by the City Civil
Court at Calcutta, rejecting the application filed by the plaintiff-appellant
under Order 39, rules 1 and 2 read with section 151 of the Code of Civil
Procedure, 1908 (‘the Code’) on the ground that the matter relates to loss of
equity shares and consequential reliefs and in view of the provisions of
section 84 of the Companies Act, 1956 (‘the Act’) and the provisions of the
City Civil Courts Act, particularly, item 10 of the First Schedule, such type
of matter is not triable in the City Civil Court but is under the exclusive
jurisdiction of this court, that is, the High Court.
2. We have heard Shri P.P. Banerjee, Advocate for
the appellant and Shri P.C. Sen, Advocate on behalf of the respondents, Shri
Banerjee submits that the Act does not provide for adjudication of the dispute
that has arisen between the parties and the jurisdiction of the City Civil
Court vested in it by section 9 of the Code is not ousted by any provision in
the Act. On the other hand, Shri Sen submits that a combined reading of sections
2(11), 10 and 84 of the Act would show that it is the Company Court that has
jurisdiction with respect to any matter relating to a company and since the
subject-matter of the suit relates to a company, it is the Company Court that
has the exclusive jurisdiction to deal with the matter.
In order to appreciate the controversy involved, it would be beneficial
to refer to the cause of action pleaded by the plaintiff-appellant in the civil
suit. The plaintiff has pleaded to have purchased 2,000 equity shares of
respondent No. 1-company in July, 1997, and thereafter to have sent the same
along with duly signed and stamped transfer deeds to respondent No. 2 with the
request to transfer the same in the name of the plaintiff and send back the
share certificates to its office. The defendant-company received the shares
through defendant No. 3 vide acknowledgement memo dated 4-8-1997, and intimated
the plaintiff through defendant No. 3 that the aforesaid shares had been duly
transferred in the name of the plaintiff and despatched to the address of the
plaintiff on 24-9-1997. The plaintiff enquired in the local post office whether
the registered cover alleged to have been addressed to the plaintiff, was lying
undelivered or returned but the postal authority informed that they had not
received any cover addressed to the plaintiff. Thereafter, the plaintiff, vide
letter dated 25-11-1997, intimated the matter to the defendants and requested
them to enquire into the matter from the post office from where the registered
cover had been posted. The plaintiff has further pleaded that it apprehends
that the shares have been lost either in transit or some persons of the
defendant-company having vested interest, after getting possession wrongfully,
were trying to make illicit gain in an unauthorised manner. The plaintiff has
prayed for a decree of declaration that the plaintiff is the lawful owner of
2,000 shares of defendant No. 1-company and that the defendants are bound to
transfer the same or issue duplicate share certificates in the name of the
plaintiff. Mandatory injunction is also sought directing the defendants to make
over the duly transferred 2,000 shares in the name of the plaintiff or to issue
duplicate share certificates to the plaintiff in respect of the shares. Even though
relief of declaration of title is sought, yet, having regard to the admission
that the company has transferred the shares in its books, the real dispute is
about the issue of duplicate shares.
3. Section 84(4) makes provision, inter alia, for
issue of a duplicate certificate as under :
“(4) Notwithstanding anything contained in the articles of association
of a company, the manner of issue or renewal of a certificate or issue of a
duplicate thereof, the form of a certificate (original or renewed) or of a
duplicate thereof, the particulars to be entered in the register of members or
in the register of renewed or duplicate certificates, the form of such
registers, the fee on payment of which, the terms and conditions, if any
(including terms and conditions as to evidence and indemnity and the payment of
out-of-pocket expenses incurred by a company in investigating evidence), on
which a certificate may be renewed or a duplicate thereof may be issued, shall
be such as may be prescribed.”
4. The expression ‘the court’ is defined in
section 2(11) as under :
“Definitions.—In this Act, unless the context
otherwise requires,—
(1) to (10)** ** **
(11) ‘the court’ means,—
(a) with
respect to any matter relating to a company (other than any offence against this
Act), the court having jurisdiction under this Act with respect to that matter
relating to that company, as provided in section 10;
(b) with
respect to any offence against this Act, the court of a magistrate of the first
class or, as the case may be, a presidency magistrate, having jurisdiction to
try such offence.”
5. Reference was also made during arguments to
rule 4(3) of the Companies (Issue of Share Certificates) Rules, 1960, which
reads as under :
“(3) No duplicate share certificate shall be issued in lieu of those
that are lost or destroyed, without the prior consent of the Board or without
payment of such fees, if any, not exceeding Rs. 2 and on such reasonable terms,
if any, as to evidence and indemnity and the payment of out-of-pocket expenses
incurred by the company in investigating evidence, as the board thinks fit.”
A perusal of the aforesaid legal provisions would show that as provided
by section 84(4), the manner of issue of duplicate share certificates may be
prescribed by rules and the manner has, in fact, been provided by rule 4(3) of
the Companies (Issue of Share Certificate) Rules. However, no machi-nery has
been provided in the Act for adjudication of a dispute with respect to issue of
duplicate shares. Section 2(11) does not specify the powers of the
“Section 2(11) is the definition section of the words ‘the court’.
Therefore, whenever the words ‘the court’ are mentioned in the provisions of
the Act, the same will mean the court having jurisdiction under the Act with
respect to that matter relating to a company as provided in section 10. Section
10 refers to the High Court as the court having jurisdiction under the Act. The
cumulative effect of section 2(11) and section 10 is that the expression ‘the
court’ occurring in any provision of the Act will mean the High Court. It does
not mean that in all matters the High Court will have jurisdiction and the Civil
Court will not have jurisdiction in respect of any matter relating to a
company.
In our view, on a proper construction of the provisions of section 2(11)
and section 10, it must be held that the Act does not altogether exclude the
Jurisdiction of the Civil Court.”
6. Reliance has, however, been placed on behalf
of the respondents on the decision rendered by a learned single Judge of this
Court in Hirendra Bhadra v. Triton Engg. Co. (P.) Ltd. [1975-76] 80 CWN 242,
where having regard to the controversy involved, it was held that the matters,
“which have been alleged against the petitioner are all matters under the
Companies Act and that being so, it is only the court it has been mentioned in
section 10 of the Act that has jurisdiction to entertain any suit”. As observed
earlier, it has already been held by a Division Bench of this Court, with which
we are in respectful agreement, that all matters under the Act are not within
the exclusive jurisdiction of the court mentioned in section 10.
7. We, therefore, hold that the ‘court’ as
defined in section 2(11), read with section 10, does not have the jurisdiction
to decide the subject-matter of the suit from which the present appeal has
arisen and as such the Jurisdiction of the Civil Court vested under section 9 of
the Code does not get ousted by the Act.
8. The learned counsel for the respondent also
submits, in the alternative, that the City Civil Court, Calcutta, does not have
the jurisdiction because all the defendants reside or work at Bombay, that is,
outside the jurisdiction of the courts in West Bengal and also because no part
of the cause of action arose within West Bengal. It is, no doubt, true that all
the defendants reside or work at Bombay. The question for decision, therefore,
is whether any part of the cause of action arose within West Bengal. The case
of the plaintiff is that the shares were sent by the plaintiff from Calcutta to
the defendants at Bombay for effecting transfer in the name of the plaintiff
and it was the duty of the defendants to send the same back to the plaintiff at
Calcutta and to deliver the same at Calcutta and since the defendants failed to
deliver the same at Calcutta, need arose for seeking the declaration prayed for
and a direction for issue of duplicate share certificates and so a part of the
cause of action for the reliefs sought by the plaintiff, particularly, the
issue of duplicate share certificates arose at Calcutta. In support of the
argument, reference has been made by the learned counsel to section 53 of the
Act which provides that a document may be served by a company on any member
thereof either personally, or by sending it by post to him to his registered
address, or if he has no registered address in India, to the address, if any,
within India supplied by him to the company for the giving of notices to him.
Sub-section (2)(a) of that section provides that where a document is sent by
post, service thereof of shall be deemed to be effected by properly addressing,
pre-paying and posting a letter containing the document, provided that where a
member has intimated to the company in advance that documents should be sent to
him under a certificate of posting or by registered post with or without
acknowledgement due and has deposited with the company a sum sufficient to defray
the expenses of doing so, service of the document shall not be deemed to be
effected unless it is sent in the manner intimated by the member. The learned
counsel submits that the duty of delivery the share certificates after
effecting the transfer was duly discharged by the defendant-company by sending
the same by registered post and since the registered cover was delivered to the
post office at Bombay, no part of the cause of action arose in West Bengal.
However, we are unable to persuade ourselves to agree with this submission.
Section 53 raises a presumption about service of a document sent by registered
post but that presumption is rebuttable. As such, where a document has been
sent by registered post, and for some reason the same has not been delivered to
the addressee, it cannot be said that the company, stood discharged from its
obligation and no right remained with the addressee. The question whether a
part of the cause of action arose within the jurisdiction of the court in West
Bengal is to be determined with reference to the allegations so made in the
plaint and if from the allegations so made, an obligation arises in favour of
the plaintiff and against the defendants, there can be, no doubt, that a part
of the cause of action for the reliefs claimed has arisen within the
jurisdiction of the court in West Bengal. Furthermore, the presumption arises
only where the registered post has been properly addressed. This is a question
which remains to be considered by the court. There is no presumption that the
registered post was properly addressed. Therefore, we are of the view that a
part of the cause of action arose within the Jurisdiction of the City Civil
Court, Calcutta, and, therefore, that court has the jurisdiction to deal with
the civil suit from which this appeal has arisen.
9. We make it clear that the question as to
territorial jurisdiction of the City Civil Court was raised by the learned
counsel for the respondents and both learned counsels wanted us to deal with
this question. It is for this reason that we have dealt with this question,
even though the question was not raised before the City Civil Court.
10. In the result, we allow the appeal, set aside the order of the City Civil Court and direct the City Civil Court to proceed to dispose of the injunction application expeditiously according to law. The parties shall maintain status quo with respect to the shares in question till the disposal of the injunction application. Parties shall appear before the Court on 16-3-1998. There shall no order as to costs.
andhra
pradesh high court
companies act
[2005] 59 scl 311 (ap)
HIGH COURT OF ANDHRA PRADESH
v.
M. Muralikrishna
N.V. Ramana, J.
C.A. No. 2 of 2004
September 10, 2004
Company Law Board
cannot be regarded as a ‘Court’
Section
10E of the Companies Act, 1956, read with section 10 of the Code of Civil
Procedure, 1908 - Company Law Board - Powers of - Whether though CLB has some
of trappings of a Court, yet given its taking into account its scope and,
functions, special jurisdiction conferred upon it and control of Central
Government over it, it cannot be regarded as a ‘Court’ - Held, yes - Whether,
therefore, proceedings before CLB though judicial in nature, they being only
for limited purpose, cannot be treated as a suit within generic meaning of term
‘suit’ - Held, yes - Appellants filed a suit before civil court alleging, inter
alia, interference by respondents with management and affairs of company -
During pendency of said suit, respondents filed petition before CLB alleging
acts of oppression and mismanagement in affairs of company by appellants and
sought relief - Appellants sought for stay of proceedings before CLB in view of
section 10 of Code - Whether power of looking into aspects of oppression and
mismanagement having been exclusively vested in CLB, it could not be said that
matter in issue before CLB was also directly and substantially issue in
previously instituted suit before civil court, warranting stay of proceedings
before CLB until proceedings in suit were concluded - Held, yes
Facts
Appellant No. 2 was managing director of appellant No. 1-company. The
case of the appellants was that the respondents made abortive attempts to
direct the funds of the company and also removed appellant No. 2 from the board
of directors. Accordingly, the appellants filed a suit in the civil court along
with interim applications to restrain the respondents from interfering with the
management of the company and functioning of appellant No. 2 as managing
director of company. The Trial Court, however, dismissed the interim
application. On appeal, the Appellate Court granted the interim injunction. The
High Court dismissed the revision filed by the respondents. While the suit
proceedings before the Trial Court were pending, the respondents filed a
petition before the Company Law Board under sections 111-A, 397, 398, 402 and
408, alleging acts of oppression and mismanagement in the affairs of the
company by the appellants and sought rectification of the register of members
of the company. The appellants then filed an application before the CLB to stay
the proceedings initiated by the respondents until the conclusion of the suit
proceedings before the civil court, having regard to the provisions of section
10 of the Code of Civil Procedure. The CLB, however, dismissed the application,
inter alia, holding that the provisions of section 10 of the Code were not
attracted as there was no substantial identity of the subject-matter before the
civil court and the subject-matter before it.
On appeal, the appellants contended, inter alia, that in the context of
section 10 of the Code, the CLB should be treated as a ‘Court’ and it need not
be a ‘civil court’ and that with the dismissal of the revision petition, the
proceedings before the CLB were required to be stayed.
Held
To constitute ‘Court’, the authority or
Tribunal so constituted, should have the trappings of a Judicial Tribunal,
i.e., power to give a decision or a definitive judgment, which has finality and
authoritativeness and its mere following of the procedure, which is of a legal
character, namely, to administer on oath, would not make it a ‘Court’, even if
the authority of the Tribunal is deemed to be ‘Court’ for limited and specific
purposes. [Para 14]
The Central Government established the
Company Law Board mainly to entrust most of its powers and functions under the
Act or other laws. The CLB is to function subject to the control of the Central
Government in all matters. Though the Bench created by the CLB and exercising
powers under section 10E(2) is deemed to be a civil court for the purposes of
section 195 and Chapter XXVI of the Code of Criminal Procedure, 1973 and every
proceeding before it is deemed to be a judicial proceeding within the meaning
of sections 193 and 228 of the Indian Penal Code and for the purpose of the
section 196 of that Code, yet given the fixed tenure of the chairman and
members of the CLB, the authority who appoints them, the powers and functions
of the Central Government which the CLB exercises being quasi-judicial in
nature, the limited powers [mentioned in sub-section (4C)], which the CLB
(Board) exercises, which are vested in the civil court, and the control which
the Central Government has over its functioning, the Board, can by no means be
regarded as a ‘Court’, and more so when the proceedings before the Board are
summary in nature, and without prejudice to the provisions of sub-sections (4C)
and (4D), under sub-section (5C) of section 10E, the Board is to exercise its
powers and discretion guided by the principles of natural justice and is
empowered to regulate its own procedure under sub-section (6) of section 10E.
That apart, rule 47 of the Companies (Court) Rules, 1959 clearly states that
the Bench created by the Board shall be deemed to be a Court for certain
purposes, namely, for the purpose of prosecution or punishment of a person who
disobeys any direction or order of such Bench. [Para 16]
Thus, though the Board has some of the
trappings of a ‘Court’, yet given the scope, functions, the special jurisdiction
conferred upon it, and control of the Central Government over it, it cannot be
regarded as a ‘Court’. Thus, the proceedings before the Board, though judicial
in the nature, they being only for the limited purposes, cannot be treated as a
suit within the generic meaning of the term ‘suit’. [Para 17]
From a reading of the provisions of section
10 of the Code, it would become amply clear that if the matter in issue is also
directly and substantially a issue in a previously instituted suit between the
same parties, then no Court shall proceed with the trial of the subsequent suit
filed before it. The jurisdiction in respect of the matters covered by sections
391, 394 and 395 in clause (a) and those relating to winding-up of the
companies under clause (b) is vested exclusively in the High Court, while the
jurisdiction in respect of the matters covered by sections 237 and 397 to 407,
both inclusive, is exclusively vested in the Board. There being a statutory bar
on the Central Government to confer jurisdiction on the civil court to
entertain the disputes enumerated in clauses (a) and (b) of section 10(2) the
civil court has no jurisdiction to try the matters referred to thereunder.
[Para 21]
The scope of the inquiry in the company
petition filed by the respondents before the Board in relation to the matters
alleged therein was entirely different and distinct from the scope of enquiry
in the suit previously instituted by the appellants before the civil court. The
proceedings before the Board had nothing to do with the proceedings in the suit
previously instituted by the appellants before the civil court.
The proceedings before both the forums were
independent and distinct of each other and were not identical even remotely.
The various reliefs sought for and the provisions under which such reliefs had
been sought for by the respondents before the Board, related to the
rectification of register of transfer, oppression and mismanagement, to
regulate the affairs of the company and to prevent mismanagement whereas in the
suit filed by the appellants, they sought injunctions against the respondents
for interfering with the management of the company. Under sections 397, 398 and
402, the members of a company are entitled to approach the Board against any
oppression or mismanagement, and if any such approach is made, the Board shall
look into the same. The power of looking into the aspects of oppression and
mismanagement having been exclusively vested in the Board, it could not be said
that the matter in issue before the Board was also directly and substantially
in issue in the previously instituted suit before the civil court, warranting
stay of the proceedings before the Board until the proceedings in the suit were
concluded. [Para 24]
The High Court had not expressed any
opinion on the merits of the matter, and merely confirmed the order of the
Appellate Court granting interim injunction on the basis of the prima facie
case, pending enquiry into the contentious issues. Be that, as it may, the
appellants in the guise of interim injunction granted by the Appellate Court,
as confirmed by the High Court in revision, could not seek to protect their
alleged acts of oppression and mismanagement for an indefinite period and
contend that the said revisions having been dismissed, the proceedings before
the Board could not be maintained, and more so when the relief of approaching
the Board against acts of oppression and mismanagement under sections 397 and
398 was provided to the members of the company and the respondents, in fact, having
approached the Board and in the proceedings before the Board, the appellants as
well as the respondents, having advanced elaborate arguments, and the arguments
on merits having been concluded, the order under appeal, did not warrant any
interference in exercise of the jurisdiction under section 10F. [Para 27]
The company appeal was, accordingly,
dismissed. [Para 28]
Cases referred to
Manohar Lal v. Seth Hiralal AIR 1962 SC 527 (para 7), Jain Hind Iron Mart
v. Tulsiram Bhagwandas AIR 1953 Bom. 117 (para 7), Sehgal Knitwears v. Shreshti
International AIR 2001 Punj. & Har. 160 (para 7), Sangram Singh v. Election
Tribunal AIR 1955 SC 425 (para 8), Pandurang Ramachandra Mandlik v. Shantibai
Ramachandra Ghatge AIR 1989 SC 2440 (para 9), Patel Roadways Ltd. v. Birla
Yamaha Ltd. [2000] 4 SCC 91 (para 9), Subramanyya v. Narasimha AIR 1972 AP 186
(para 9), P. Sarathy v. State Bank of India [2000] 5 SCC 455 (para 10), S.E.
Works v. R.J.V. Mills AIR 1981 Guj. 110 (para 11), Piyush Kanti Guha v. West
Bengal Pharmaceutical & Phytochemical Development Corpn. Ltd. AIR 1982 Cal.
94 (para 11), G. Bhavani Sankar v. B. Rajeswara Rao 1999 (6) ALT 374 (para 11),
Indian Bank v. M.S. Co-operative Marketing Federation Ltd. AIR 1998 SC 1952
(para 12), Kona Kanthamma v. Guntamukkala Srinivasa Rao 2002 (Suppl.) (2) ALD
849 (para 12), Shell Company of Australia v. Federal Commissioner of Taxation
1931 AC 275 (para 17) and Prakash Timbers v. Sushma Shingla AIR 1996 All. 262
(para 17).
T.L.N. Chari and L.V.V. Iyer for the Appellant. T. Surya Satish for the
Respondent.
Judgment
1. This
appeal under section 10F of the Companies Act, 1956 (for short ‘the Companies
Act’) is directed against the order dated 20-4-2004 passed by the Company Law
Board, Additional Principal Bench, Chennai, in C.A. No. 37 of 2004, refusing to
stay the proceedings in C.P. No. 25 of 2003, pending before it, until the
conclusion of the suit proceedings in O.S. No. 61 of 2002, pending on the file
of the XIII Junior Civil Judge, City Civil Court, Hyderabad.
2. The facts necessary for
disposing of this appeal, may briefly be stated, and they run thus :
3. Appellant
No. 1, namely M/s. RDF Power Projects Limited (hereinafter referred to as ‘the
company’), incorporated by Appellant No. 2 and the respondents, for
establishment of power generation plant by using municipal solid waste.
Appellant No. 2, it appears, was appointed as Managing Director of the company
vide resolution dated 27-12-1998 for a period of five years. While functioning
as such, he states that the respondents who made abortive attempts to divert
the funds of the company, were removed as Directors from the Board of the
Directors of the company. While so, on the basis of a resolution allegedly
passed on 3-1-2002, in the meeting convened by the respondents, Appellant No. 2
was removed as Managing Director of the company. In pursuance of the alleged
resolution, when the respondents tried to interfere with the management of the
company and made attempts to seize the records and books of account of the
company, Appellant No. 2 on his behalf and on behalf of the company, lodged
reports before the police against the respondents, and also a suit in O.S. No.
61 of 2002 accompanied with applications in I.A. Nos. 24 and 25 of 2002, on the
file of the VIII Junior Civil Judge, City Civil Court, Hyderabad, to restrain
the respondents from interfering with the management and functioning of
Appellant No. 2 as Managing Director of the company and also with its
management, except in accordance with law.
4. While
so, the Trial Court by common order dated 30-10-2002, dismissed the interim
applications. Against the said common order, Appellant Nos. 1 and 2 filed
appeals in C.M.A. Nos. 366 and 369 of 2002 on the file of the III Additional
Chief Judge, City Civil Court, Hyderabad. The Appellate Court, vide common
order dated 11-3-2003, while setting aside the orders passed by the Trial
Court, allowed the appeals, granting interim injunction as prayed for in the
interim applications. When the respondents against the order dated 11-3-2003
passed in C.M.A. No. 369 of 2002, filed revision in C.R.P. No. 2364 of 2003
under section 115 of the Code of Civil Procedure, 1908 (for short ‘the Code’)
before this Court, the same by order dated 17-7-2003 was dismissed, giving
liberty to file fresh revision under Article 227 of the Constitution of India.
Thereafter, the respondents filed two revisions before this Court under Article
227 of the Constitution of India in C.R.P. Nos. 3504 and 3460 of 2003 against
the common order dated 11-3-2003 passed by the Appellate Court in C.M.A. Nos.
366 and 369 of 2002, which by common order dated 19-2-2004, were dismissed.
5. While
the suit proceedings before the Civil Court were pending, the respondents filed
petition in C.P. No. 25 of 2003 before the Company Law Board under sections
111-A, 397, 398, 402 and 408 of the Companies Act, alleging acts of oppression
and mismanagement in the affairs of the company by the appellants, and sought
rectification of the register of members of the company. As the suit
proceedings were pending, the appellants, having regard to the provisions of
section 10 of the Code, filed an application in C.A. No. 37 of 2004 before the
Company Law Board, to stay the proceedings in C.P. No. 25 of 2003, initiated by
the respondents, until the conclusion of the suit proceedings before the Civil
Court. The Company Law Board, by order dated 20-4-2004, while refusing to grant
stay of the proceedings before it, dismissed the said application, inter alia, holding
that the provisions of section 10 of the Code are not attracted, for there is
no substantial identity of the subject-matter before the Civil Court and the
subject-matter before it. It is this order of the Company Law Board, which the
appellants have assailed in this Company Appeal, filed under section 10F of the
Companies Act.
6. Heard the learned
Counsel for the appellants and the learned Counsel for the respondents.
7. The
learned Counsel for the appellants submits that inasmuch as the field of controversy
between the matter in issue in the suit previously instituted before the Civil
Court by the appellants and the company petition subsequently filed before the
Company Law Board, is substantially the same, the Company Law Board, having
regard to the provisions of section 10 of the Code, ought to have stayed the
proceedings pending before it until the conclusion of the suit, and in support
of this submission, he placed strong reliance on the judgment of the Apex Court
in Manohar Lal v. Seth Hiralal AIR 1962 SC 527, High Court of Bombay in Jain
Hind Iron Mart v. Tulsiram Bhagwandas AIR 1953 Bom. 117 and also the judgment
of the Punjab and Haryana High Court in M/s. Sehgal Knitwears v. M/s. Shresthi
International AIR 2001 P&H 160.
8. He
submits that since Rule 6 of the Companies (Court) Rules, 1959 makes applicable
the provisions of the Code even to the proceedings under the Companies Act,
having regard to Rule 2(4) of the Rules, which defines ‘Code’ to mean the Code
of Civil Procedure, 1908, the provisions of section 10 of the Code should also
be made applicable to the proceedings even before the Company Law Board. In
support of his submission that the provisions of the Code should be interpreted
in a manner facilitating justice and its ends and not as an enactment for
imposing punishments and penalties, he placed reliance on the judgment of the
Apex Court in Sangram Singh v. Election Tribunal AIR 1955 SC 425.
9. He
further submitted that the term ‘suit’ is generic in nature, and it should
embrace all the proceedings before any authority or Court or forum, including
the proceedings before the Company Law Board, and as such, during the pendency
of the previously instituted suit before the Civil Court, the Company Law
Board, ought to have stayed the proceedings subsequently initiated before it.
In support of this submission, he placed reliance on the judgments of the Apex
Court in Pandurang Ramachandra Mandlik v. Shantibai Ramchandra Ghatge AIR 1989
SC 2440 and Patel Roadways Ltd. v. Birla Yamaha Ltd. 2000 (3) ALD 21
(SC)/[2000] 4 SCC 91 and judgment of this Court in Subramanyya v. Narasimha AIR
1972 AP 186.
10. In
the context of the provisions of section 10 of the Code, the learned Counsel
for the appellants submitted that the Company Law Board should be treated as a
“Court” and it need not be a “Civil Court”, for it has all the trappings of a
Court, and in support of this submission, he placed strong reliance on the
judgment of the Apex Court in P. Sarathy v. State Bank of India [2000] 5 SCC
455. Since in relation to the very subject-matter in the Company Petition filed
by the respondents subsequently before the Company Law Board, there is already
a previously instituted suit filed by the appellants before the Civil Court,
the learned Counsel for the appellants submitted that the Company Law Board has
no jurisdiction to proceed with the Company Petition, and in support of his
submission that a decree passed by a Court in whom jurisdiction is not
conferred would be a nullity, and such plea can be raised at any point of time,
even before and after passing of the decree, he placed reliance on the judgment
of the Apex Court in Kiran Singh v. Chaman Paswan. At any rate, he submits that
in view of the dismissal of C.R.P. Nos. 3504 and 3460 of 2003, filed by the
respondents against the common order dated 11-3-2003 passed by the Appellate
Court in C.M.A. Nos. 366 and 369 of 2002 granting interim injunction
restraining the respondents from interfering with the management of the
appellants, by common order dated 19-2-2004, the proceedings before the Company
Law Board, are required to be stayed.
11. On
the other hand, the learned Counsel appearing on behalf of the respondents
resisted the appeal and contended that there is no question of law to be
decided in the appeal. He contended that the suit previously filed by the
appellants before the Civil Court and the Company Petition filed by the
respondents before the Company Law Board, are for different reliefs, which are
distinct and independent of each other, and the matter in issue in the Company
Petition, filed by the respondents before the Company Law Board not being
directly and substantially in issue in the suit previously filed by the
appellants before the Civil Court, the provisions of section 10 of the Code are
not attracted, and the Company Law Board, was right in not staying the
proceedings in the Company Petition before it. In support of this contention,
he placed reliance on the judgments of the Gujarat, Calcutta and this Court in
S.E. Works v. R.J.V. Mills AIR 1981 Guj. 110, Piyush Kanti Guha v. West Bengal
Pharmaceutical and Phytochemical Development Corporation Ltd. AIR 1982 Cal. 94
and G. Bhavani Sankar v. B. Rajeswara Rao 1999(6) ALT 374.
12. He
contended that the proceedings in the Company Petition filed by the respondents
before the Company Law Board cannot be equated with that of the suit previously
instituted by the appellants before the Civil Court, and more so when the
proceedings before the Company Law Board, are summary in nature. In support of
this contention, he placed reliance on the judgments of the Apex Court in
Indian Bank v. M.S. Co-op. Marketing Fedn. Ltd. AIR 1998 SC 1952, and of this
Court in Kona Kanthamma v. Guntamukkala Srinivasa Rao 2002 Supp. (2) ALD 849.
He thus prayed for dismissal of the appeal.
13. In
the background of the arguments advanced, the questions of law that arise for
consideration in this appeal, are—
(1) Whether
the Company Law Board, constituted under section 10E of the Companies Act, for
the purposes of section 10 of the Code, should be equated and treated as a
Court ?
(2) Whether
the Company Petition, filed by the respondents before the Company Law Board,
should be equated and treated as that of a suit before the Civil Court ?
(3) Whether
the matter in issue in the Company Petition, filed by the respondents before
the Company Law Board is directly and substantially in issue in the suit
previously filed by the appellants before the Civil Court, or is identical,
attracting the provisions of section 10 of the Code, thereby warranting stay of
the proceedings in the Company Petition before the Company Law Board, until the
conclusion of the proceedings in the suit before the Civil Court ?
In re Point Nos. 1 and 2 :
14. Point
Nos. 1 and 2 are inter-related, and therefore, are dealt with together. Before
proceeding to consider whether the Company Law Board, constituted under section
10E of the Companies Act, by the Central Government, is a Court for the
purposes of section 10 of the Code, to wit, what are the essential ingredients
that constitute a Court may be noted. To constitute “Court”, the authority or
Tribunal, so constituted, should have the trappings of a judicial Tribunal,
power to give a decision or a definitive judgment, which has finality and
authoritativeness, and its mere following of the procedure, which is of a legal
character, namely to administer on oath, would not make it a “Court”, even if
the authority or Tribunal is deemed to be “Court” for limited and specific
purposes.
15. Part
I-A of the Companies Act deals with Board of Company Law Administration.
Section 10E of the Companies Act deals with the Constitution of Board of
Company Law Administration. In terms of sub-section (1) of section 10E of the
Companies Act, the Central Government by Official Gazette, may constitute the
Board of Company Law Administration, known as “Company Law Board” to exercise
and discharge such powers and functions conferred on the Central Government by
or under the Act or any other law as may be delegated to it by the Central
Government, by notification in the Official Gazette under the provisions of the
Act or any other law. Sub-section (2) of section 10E of the Companies Act
empowers the Central Government to appoint members to the Company Law Board, by
notification in the Official Gazette, not exceeding nine. The tenure of the
members and one of the members to be appointed as Chairman of the Company Law
Board does not exceed three years. For the purpose of sub-section (4B) of
section 10E of the Companies Act, the powers exercised and functions discharged
and the orders passed by the Benches authorized by the Company Law Board
thereunder, shall be deemed to be an order. Under sub-section (4C) of section
10E of the Companies Act, every Bench referred to in sub-section (4B) shall
have powers which are vested in a Court under the Code of Civil Procedure,
while trying a suit, in respect of the matters mentioned thereunder, which are
contained in Orders XI, XVI, XIII, XVIII, XVII and XIX of the Code, and under sub-section
(4D) of the Companies Act, every Bench shall be deemed to be a Civil Court for
the purposes of section 195 and Chapter XXVI of the Code of Criminal Procedure,
1973 and every proceeding before the Bench shall be deemed to be a judicial
proceeding within the meaning of sections 193 and 228 of the Indian Penal Code
and for the purpose of section 196 of that Code. Without prejudice to the
provisions of sub-sections (4C) and (4D) of the Companies Act, the Company Law
Board under sub-section (5) of section 10E of the Companies Act shall in the
exercise of its powers and discharge of its functions under the Act or any
other law be guided by the principles of natural justice and shall act
in its discretion, and under sub-section (6) of section 10E apart from the
provisions of sub-sections (1) to (5) thereof, the Company Law Board shall have
power to regulate its own procedure.
16. The
Company Law Board, it may be noted was established by the Central Government
vide G.S.R. No. 866, dated 1-2-1964 in pursuance of the Companies (Amendment)
Act, 1963. The Central Government established the Company Law Board mainly to
entrust most of its powers and functions under the Companies Act or other laws.
The Company Law Board is to function subject to the control of the Central
Government in all matters. Though the Bench created by the Board and exercising
powers under sub-section (2) of section 10E of the Companies Act, is deemed to
be a Civil Court for the purposes of section 195 and Chapter XXVI of the Code
of Criminal Procedure, which deal with prosecution for contempt of lawful
authority of public servants for offences against public justice and for
offences relating to documents given in evidence and the provisions as to
offences affecting the administration of justice, and every proceeding before
it is deemed to be a judicial proceeding within the meaning of sections 193
(punishment for false evidence) and 228 (intentional insult or interruption to
public servant sitting in judicial proceeding) of the Indian Penal Code and for
the purpose of section 196 of that Code, which deals with using evidence
knowing to be false, yet given the fixed tenure of the Chairman and members of
the Company Law Board, the authority who appoints them, the powers and
functions of the Central Government which the Company Law Board exercises being
quasi-judicial in nature, the limited powers [namely those mentioned in
sub-section (4C) relating to discovery and inspection of documents or other
material objects producible as evidence; enforcing the attendance of witnesses
and requiring the deposit of their expenses; compelling the production of
documents or other material objects producible as evidence and impounding the
same; examining witnesses on oath; granting adjournments and; reception of
evidence on affidavits], which the Company Law Board exercises, which are
vested in the Civil Court, and the control which the Central Government has
over its functioning, the Company Law Board, can by no means be regarded as a
“Court”, and more so when the proceedings before the Company Law Board are
summary in nature, and without prejudice to the provisions of sub-sections (4C)
and (4D), under sub-section (5C) of section 10E of the Companies Act, the
Company Law Board is to exercise its powers and discretion guided by the
principles of natural justice and is empowered to regulate its own procedure
under sub-section (6) of section 10E of the Companies Act. This apart, Rule 47
of the Companies (Court) Rules, 1959 clearly states that the Bench created by the
Board shall be deemed to be a Court for certain purposes, namely for the
purpose of prosecution or punishment of a person who disobeys any direction or
order of such Bench.
17. In
this regard, a reference be made to Shell Company of Australia v. Federal Commissioner
of Taxation 1931 AC 275, wherein it was observed that a body or Tribunal may be
constituted entrusting them work of judicial character, but they are not Courts
in the accepted sense though they may possess some of the trappings of the
Court. The Allahabad High Court, in Prakash Timbers v. Sushma Shingla AIR 1996
All. 262 quoting the above passage, observed the status of the Company Law
Board as follows:
“25. Broadly speaking, the Company Law Board has trappings of
a Court in the sense that it has to determine a matter placed before it
judicially, give fair opportunity of hearing to the parties who may be affected
by the order, to accept the evidence and also to order for inspection and
discovery of documents compel the attendance of the witnesses and in the last,
to pass a reasoned order which gives finality to its decision subject to the
right of appeal to a party under section 10F of the Act or such other legal
remedy which is available under law to a party.” (p. 269)
18. Observing
so, the Allahabad High Court, upon considering the scope, functions and special
jurisdiction conferred on the Company Law Board, concluded that the Company Law
Board can only be regarded as a Tribunal and not a Court. In that view of the
matter, it has to be held that though the Company Law Board has some of the
trappings of a “Court”, yet given the scope, functions, the special
jurisdiction conferred upon it, and the control of the Central Government over
it, it cannot be regarded as a ‘Court’, and reliance placed by the appellants
on the judgment of the Apex Court in P. Sarathy’s case (supra) which has been
made in the context of section 14 of the Limitation Act, 1963 holding that
Court within the meaning of the word “Court” occurring in section 14 of the
Limitation Act, need not be a Civil Court, will be of no avail to him. As a
consequence thereof, the proceedings before the Company Law Board, though
judicial in nature, they being only for limited purposes, cannot be treated as
a suit, within the generic meaning of the term “suit”, and as such, reliance
placed by the learned Counsel for the appellants on the judgments of the
various Courts in Pandurang Ramachandra Mandlik’s case (supra), Patel Roadways
Ltd.’s case (supra) and Subramanayya’s case (supra) are of no help to him.
There can be no quarrel on the argument advanced by the learned Counsel for the
appellants that the provisions of the Code have been designed to facilitate
justice and its ends and that it is not a penal enactment providing for
punishments and penalties. Reliance, in support of such an argument, was placed
on the judgment of the Apex Court in Sangram Singh’s case (supra), wherein the
Apex Court held as follows :
“. . . a code of procedure must be regarded as such. It is
procedure, something designed to facilitate justice and further its ends, not a
penal enactment for punishment and penalties; not a thing designed to trip
people up. Too technical a construction of sections that leaves no room for
reasonable elasticity of interpretation should therefore be guarded against
(provided always that justice is done to both sides) lest the very means
designed for the furtherance of justice be used to frustrate it.” (p. 429)
19. The
aforementioned observations, it is required to be noticed, were made by the Apex
Court in the context of a complaint and argument advanced that the principles
of natural justice were violated in the passing of the order assailed therein,
in that no opportunity of hearing was given before the order impugned therein
was passed, and not in the context of giving liberal meaning to the words
“Court” and “suit”. Therefore, the decision of the Apex Court in Sangram
Singh’s case (supra), will not be of any assistance to the appellants.
In re Point No. 3 :
20. Even
otherwise, it may be noticed whether the matter in issue in the Company
Petition, filed by the respondents before the Company Law Board, is directly
and substantially in issue in the previously instituted suit by the appellants
before the Civil Court, requiring stay of the proceedings before the Company
Law Tribunal in view of the provisions of section 10 of the Code. Before
proceeding to consider this point, it would be appropriate if a reference is
made to the provisions of section 10 of the Code dealing with stay and the
provisions of section 10 of the Companies Act, dealing with jurisdiction of
Courts.
Section 10 of the Code, reads thus :
“10. Stay of suit. - No Court shall proceed with the trial of
any suit in which the matter in issue is also directly and substantially in
issue in a previously instituted suit between the same parties, or between
parties under parties under whom they or any of them claim litigating under the
same title where such suit is pending in the same or any other Court in India
having jurisdiction to grant the relief claimed, or in any Court beyond the
limits of India established or continued by the Central Government and having
like jurisdiction, or before the Supreme Court.
Explanation. - The tendency of a suit in a foreign Court does
not preclude the Courts in India from trying a suit founded on the same cause
of action.”
Section 10 of the Companies Act, reads thus:
“10. Jurisdiction of Courts. - (1) The Court having
jurisdiction under this Act shall be—
(a) the
High Court having jurisdiction in relation to the place at which the registered
office of the company concerned is situate, except to the extent to which
jurisdiction has been conferred on any District Court or District Courts
subordinate to that High Court in pursuance of sub-section (2); and
(b) where
jurisdiction has been so conferred, the District Court in regard to matters
falling within the scope of the jurisdiction coffered, in respect of companies
having their registered offices in the district.
(2) The Central Government may, by notification in the Official Gazette
and subject to such restrictions, limitations and conditions as it thinks fit,
empower any District Court to exercise all or any of the jurisdiction conferred
by this Act upon the Court, not being the jurisdiction conferred—
(a) in respect of companies generally, by
sections 237, 391, 394, 395 and 397 to 407, both inclusive;
(b) in
respect of companies with a paid-up share capital of not less than one lakh of
rupees, by Part VII (Sections 425 to 560) and the other provisions of this Act
relating to the winding up of companies.
(3) For the purposes of jurisdiction to wind up companies, the
expression ‘registered office’ means the place which has longest been the
registered office of the company during the six months immediately preceding
the presentation of the petition for winding-up.”
21. From
a reading of the provisions of section 10 of the Code, it would become amply
clear that if the matter in issue is also directly and substantially in issue
in a previously instituted suit between the same parties, then no Court shall
proceed with the trial of the subsequent suit filed before it. And insofar as
the provisions of section 10 of the Companies Act, is concerned, under
sub-section (1)(a) thereof, the Court having jurisdiction shall be the High
Court in relation to the place at which the registered office of the company
concerned is situate, except to the extent to which jurisdiction has been
conferred on the District Court in terms of sub-section (2) by the Central
Government, by notification in the Official Gazette, and subject to such
restrictions, limitations and conditions as it thinks fit, the Central
Government may empower any District Court to exercise all or any of the
jurisdiction conferred by the Act upon the Court, not being the jurisdiction
conferred (a) in respect of companies generally by sections 237, 391, 394, 395
and 397 to 407, both inclusive, and in respect of those companies mentioned in
clause (b) of sub-section (2). It is thus clear that the Central Government, in
respect of matters covered by clauses (a) and (b) of sub-section (2) of section
10 of Companies Act, is precluded from conferring jurisdiction on the Civil
Court. The jurisdiction in respect of the matters covered by sections 391, 394
and 395 in clause (a) and those relating to winding up of the companies under
clause (b) is vested exclusively in the High Court, while the jurisdiction in
respect of the matters covered by sections 237 and 397 to 407, both inclusive,
is exclusively vested in the Company Law Board. There being a statutory bar on
the Central Government to confer jurisdiction on the Civil Court to entertain
the disputes enumerated in clauses (a) and (b) of sub-section (2) of section 10
of the Companies Act, the Civil Court has no jurisdiction to try the matters
referred to thereunder.
22. This
being the position, it may be noticed whether the matter in issue in the
Company Petition before the Company Law Board, is directly and substantially in
issue in the previously instituted suit in before the Civil Court, filed by
appellants, and to wit, it would be expedient, if the reliefs claimed by the
respondents and the appellants before the Company Law Board and the Civil
Court, is set out in a comparative tabular form :
|
Relief
sought by the appellants before the City Civil Court, Hyderabad, in OS. No.
61 of 2002, under Order XXXIX, Rules 1 and 2 read with section 151 of the
Code |
Relief
sought by the respondents before the Company Law Board Additional Principle
Bench, Chennai, in CP No. 25 of 2003, filed under sections 111A, 397, 398,
402 and 408 of the Companies Act. |
|
(1) |
(2) |
|
To direct the respondents not to interfere
with the management and functioning of the first petitioner/plaintiff, i.e., Mr.
M. Venkateswarlu as Managing Director of the second petitioner/plain- tiff
company, namely M/s. RDF Power Projects Limited, and; |
To
declare that the appointment of M. Venkateswarlu as null and void and
consequently direct him to refund all the monies drawn as remuneration and as
perquisites to the first respondent-company. |
|
To direct the
respondents not to interfere with the management of the second
petitioner/plaintiff company, except in accordance with law.- |
To declare that the Form No. 32 as stated
at Para C5 as null and void. |
|
|
To
declare that the appointment of fictitious persons as directors as stated in
Para C6 as null and void. |
|
|
To
set aside the allotment of shares made to M. Venkateswarlu (1,00,000 shares),
M. Durga (50,000 shares), G. Ravikumar Reddy (50,000 shares) and Prof. K.
Rajeshwar Rao (40,000 shares) and direct the 1st respondent-company to
rectify the register of members. |
|
|
To declare
that the Form No. 2 as stated at Para D-b as null and void. |
|
|
To
confirm the Form No. 2 as stated at Para C-D as valid and effective. |
|
|
To
appoint an independent Auditor to ascertain total amount siphoned off by the
Respondents 2-4 and surcharge them for fund diverted and utilized and for
money siphoned off from the company’s bank account, to the company with
interest payable at the rate of 18% per annum. |
|
|
To redraft
the balance-sheet as at 31-3-1999; 31-3-2000 and 31-3-2001 after getting
audited by an independent Auditor and verification and approved by the CLB. |
|
|
To
declare that all the violations as per section Nos. 58A, 70, 94, 97, 165,
159, 166, 210, 224, 225, 285, 309 and other violations done only by the
Respondents 2-7 with full knowledge; and |
|
|
To
work out a formula and mechanism to exit the company for the shareholders who
wish to quit being disgruntled with the current management, to maintain a
healthy atmosphere in the company. |
23. A
comparison of the reliefs sought by the appellants before the Civil Court and
the respondents before the Company Law B Board, reveals a marked difference. In
that, the appellants filed the suit before the Civil Court under Order XXXIX,
Rules 1 and 2, read with section 151 of the Code, alleging that the 2nd
appellant was appointed as Managing Director of the 1st appellant-company vide
resolution dated 27-12-1998, and that the respondents on the basis of an
alleged resolution dated 29-12-2001 are trying to interfere with management of
the 2nd appellant and affairs of the 1st appellant-company, and therefore, a
direction be given to the respondents not to interfere with the management and
functioning of the 2nd appellant/plaintiff, i.e. Mr. M. Venkateswarlu as
Managing Director of the 1st appellant/plaintiff company, namely M/s. RDF Power
Projects Ltd., and to direct the respondents not to interfere with the
management of the second petitioner/plaintiff company, except in accordance
with law. And whereas the respondents filed the Company Petition before the
Company Law Board under sections 111A, 397, 398, 402 and 408 read with section
151 of the Code, inter alia alleging acts of oppression and mismanagement in
the affairs of the 1st appellant-company by the 2nd appellant, namely
manipulation and fabrication of shareholding, misappropriation of funds,
contravention of the statutory provisions of the Companies Act, manipulation
and falsification of the annual returns of the company, the quantum of
investments made, and continuance of Appellant No. 2 and others as Managing
Director and Directors of the 1st appellant-company.
24. The
scope of enquiry in the Company Petition filed by the respondents before the
Company Law Board, in relation to the matters alleged therein, is entirely
different and distinct from the scope of enquiry in the suit previously
instiuted by the appellants before the Civil Court, which rests on the
resolution dated 29-12-2001. The proceedings before the Company Law Board, have
nothing to do with the proceedings in the suit previously instituted by the
appellants before the Civil Court. The proceedings before both the forums are
independent and distinct of each other and are not identical even remotely. In
that the various reliefs sought for and the provisions under which such reliefs
have been sought for by the respondents before the Company Law Board, relate to
the rectification of register on transfer, oppression and mismanagement, to
regulate the affairs of the company and to prevent mismanagement, and whereas
in the suit filed by the appellants, they sought injunction against the
respondents from interfering with the management of the company. It is required
to notice that under sections 397, 398 and 402 of the Companies Act, the
members of a company are entitled to approach the Company Law Board against any
oppression or mismanagement, and if any such approach is made, the Company Law
Board shall look into the same. The power of looking into the aspects of
oppression and mismanagement having been exclusively vested in the Company Law
Board, it cannot be said that the matter in issue before the Company Law Board
is also directly and substantially in issue in the previously instituted suit
before the Civil Court, warranting stay of the proceedings before the Company
Law Board until the proceedings in the suit are concluded. In this context, it
would suffice, if a reference is made to the judgment of the Calcutta High
Court in Piyush Kanti Guha’s case (supra), wherein in somewhat similar facts
situation, it was held thus :
“Where the main relief sought for in the company petition was
on the ground of oppression and framing of a scheme and appointment of
directors which was distinctly different from the relief asked for in the civil
suit restraining some directors nominated by the Government from functioning,
it was held that stay of the proceedings in the company petition could not be
granted under section 10.” (p. 95)
25. A
reference may also be made to the judgment of the Gujarat High Court in S.E.
Works’ case (supra), wherein the Court while considering the words “directly
and substantially in issue” appearing in section 10 of the Code held thus:
“. . .The key words in section 10 are ‘the matter in issue is
directly and substantially in issue’ in the previously instituted suit. The
words ‘directly and substantially in issue’ are used in contradistinction to
the words ‘incidentally or collaterally in issue’. That means that section 10
would apply only if there is identity of the matter in issue in both the suits
meaning thereby that the whole of the subject-matter in both the proceedings is
identical and not merely one of the many issues which arise for determination
in the two suits. That, however, does not mean that all the issues must be
identical, that is, the subject-matter need not be the same in every particular
case. . . . It is, however, a question of fact to be gathered from the
pleadings of the two suits as to whether the matter in issue in the
subsequently instituted suit is directly and substantially in issue in the
previously instituted suit. . . .” (p. 115)
26. Reliance
placed by the learned Counsel for the appellants on the judgments in Manohar
Lal’s case (supra), High Court of Bombay in Jain Hind Iron Mart’s case (supra)
and also the judgment of the Punjab and Haryana High Court in Sehgal Knitwear’s
case (supra) would not come to the rescue of the appellants inasmuch as in the
said cases, parallel suits were filed by the plaintiffs as well as defendants
in the Courts having jurisdiction, and in those circumstances, the Courts held
that the proceedings in the subsequently filed suits should be stayed until the
conclusion of the proceedings in the previously instituted suit. In that view
of the matter, it is held that the matter in issue before the Company Law Board
is not directly and substantially in issue in the suit previously instituted
before the Court, for staying the proceedings before the Company Law Board in
terms of section 10 of the Code until the conclusion of the suit proceedings in
the previously instituted suit.
27. The
contention of the appellants that in view of the order passed by this Court
dismissing the C.R.P. filed by the respondents, confirming the grant of interim
injunction by the Appellate Court, the respondents could not have maintained
the proceedings before the Company Law Board, cannot be accepted. It may be
noticed that the suit admittedly has been filed by the appellants taking the
plea that the 2nd appellant was appointed as Managing Director of the 1st
appellant-company, vide resolution dated 27-12-1998, and contending that all
the respondents colluded and tried to remove him by interfering with his
management and management of the affairs of the 1st appellant-company. The
respondents contended that the 2nd appellant was removed vide resolution dated
29-12-2001, and therefore, he cannot be continued as Managing Director of the
1st appellant-company. The Civil Court, vide order dated 30-10-2002 passed in
I.A. No. 24 of 2002, declined to grant interim injunction as prayed for.
However, in the appeal filed thereagainst by the appellants in C.M.A. No. 366
of 2002, the Appellate Court, vide order dated 11-3-2003, set aside the order
of the Civil Court, and granted interim injunction in favour of the appellants
as prayed for. Thereagainst, the respondents filed C.R.P. in 3504 of 2003, and
this Court by order dated 19-2-2004, dismissed the said C.R.P. inter alia
observing whether the resolution dated 29-12-2001 is valid or not and whether
Civil Court has jurisdiction, are all matters, which are required to be gone
into in detail after enquiry, during the trial rather than at the interlocutory
stage. It may be noticed that this Court had not expressed any opinion on the
merits of the matter, and merely confirmed the order of the Appellate Court
granting interim injucntion on the basis of prima facie case, pending enquiry
into the contentious issues. Be that as it may, the appellants in the guise of
interim injunction granted by the Appellate Court, as confirmed by this Court
in C.R.P. cannot seek to protect their alleged acts of oppression and mismanagement
for an indefinite period, and contend that the C.R.P. filed by the respondents
against the order of the Appellate Court granting interim injunction, having
been dismissed, the proceedings before the Company Law Board cannot be
maintained, and more so when the relief of approaching the Company Law Board
against acts of oppression and mismanagement under sections 397 and 398 of the
Companies Act, is provided to the members of the company and the respondents,
in fact, having approached the Company Law Board, and in the proceedings before
the Company Law Board, the appellants as well as the respondents, having
advanced elaborate arguments, and the arguments on merits having been
concluded, as is indicated in the order under appeal, I am of the considered opinion,
that the order under appeal, does not warrant any interference by this Court,
in exercise of its jurisdiction under section 10F of the Companies Act.
28. For
the foregoing reasons, the Company Appeal fails, and the same is accordingly
dismissed. No costs.
Supreme Court
companies
act
[2004]
54 scl 96 (sc)
Supreme Court of
National Organic Chemical
Industries Ltd.
v.
Miheer H.
Mafatlal
N.
Santosh Hegde, S.B. Sinha and A.K. Mathur, JJ.
Civil Appeal No. 4796 of 1997
July 21,
2004
Section 10, read with section 391, of the
Companies Act, 1956 - Courts - Jurisdiction of - MIL allotted certain shares to
appellant-company which was challenged by some members of MIL before City Civil
Court wherein MIL was directed to maintain status quo in respect of allotment
of shares - During currency of said interim order, MIL made rights issue which
doubled holding of appellant in MIL - Thereafter, MIL made an application
before company court for approving a scheme of amalgamation under section 391 -
Respondent No. 1 opposed said scheme and also challenged allotment of shares to
appellant contending that share allotted to appellant were in contravention of
injunction issued by civil court - Company judge while sanctioning said Scheme
of Amalgamation further held that allotment of shares to appellant was in
breach of injunction order of City Civil Court which was also confirmed by
appellate court - Whether question as to whether transfer of shares by MIL to
appellant was in contravention of interim order of injunction granted by City
Civil Court or not, was a matter to be decided by City Civil Court in pending
proceedings before it and it could not be decided in an alien proceedings
before company court - Held, yes - Whether courts below in impugned order had
gone far beyond their jurisdiction by giving findings as to validity of shares
acquired by appellant - Held, yes - Whether courts below violated basic
principles of natural justice in deciding an issue against appellant in
proceedings to which appellant was not even a party - Held, yes - Whether,
therefore, findings given by company court as affirmed by appellate court were
to be set aside - Held, yes
S. Ganesh, Sakesh Kumar and
Rameshwar Prasad Goyal for the Appellant. A.N. Haksar, U.A. Rana,
Madhup Singhal and Sadeep Kharel for the Respondent.
Judgment
N. Santosh Hegde, J. - CA
No. 4796/97 :
This appeal with permission of
this Court has been filed by the appellant against a judgment of the High Court
of Gujarat at Ahmedabad whereby a cross-objection filed in O.J. Appeal No. 16
of 1994 in Company Petition No. 22 of 1994 by Mafatlal Industries Limited (MIL)
the appellant in the connected appeal herein was dismissed, confirming certain
finding given by the learned company Judge in company petition No. 22 of 1994
in a petition seeking sanction of Amalgamation Petition under section 391 of
the Companies Act.
2. Brief facts necessary for the disposal of this appeal
are as follows :—
The appellant herein is a Public
Limited Company having its registered office in Mumbai. Certain shares of MIL
were allotted to the appellant. The allotment of the said shares was challenged
by 3 members of the MIL in 2 suits in City Civil Court, Ahmedabad being Suit
No. 3181 of 1987 and Suit No. 3182 of 1987. The appellant herein was not a
party in that suit. The plaintiff in that suit obtained an order of interim
injunction from the City Civil Court, Ahmedabad, inter alia directing MIL to
maintain status quo in respect of the allotment of shares, said order was made
on 27-6-1987. During the currency of the said interim order the MIL made a
Rights Issue which doubled the holding of the appellant herein bringing the
title holding of the appellant in MIL to about 3% of the total shareholding.
MIL made an application for approving a Scheme of Amalgamation before the
Company Court of the Gujarat High Court under section 391 of the Companies Act
in the month of November, 1994. It is seen from the record that the said Scheme
had received approval of more than 94% of shareholders of the MIL which is much
beyond the statutory requirement under the Companies Act. In the said petition
for approving the Amalgamation Scheme, the first respondent herein questioned
the allotment of shares by MIL to the appellant herein. Though, such allotment
was made very much earlier to the proposed Amalgamation Scheme. The contention
of the 1st respondent before the Company Court was that the shares allotted to
the appellant were, inter alia, in contravention of the injunction issued by
the City Civil Court. It is to be noted at this stage that the appellant was
not a party to the proceedings before the Company Judge, in the proceedings for
approval of the Scheme under section 391 of Companies Act. The learned company
Judge whose jurisdiction under sections 391 to 394 was limited to either
approving or not approving the Scheme filed before him for amalgamation, by his
order dated 14-11-1994 sanctioned the said scheme on Amalgamation, he also came
to the conclusion that even if the votes cast by the appellant were to be
excluded from consideration the proposed scheme had the support of the
requisite majority in the General Body of the MIL. Hence, the objection of the
1st respondent in regard to the proposed Scheme of Amalgamation was not
sustainable. However, the leaned Single Judge gave a finding that the allotment
of shares in favour of the appellant was in breach of the injunction order of
the City Civil Court.
3. Against the said order, the 1st
respondent herein and MIL filed original appeal (OJ No. 16 of 1994) and
cross-appeal before the Division Bench of the said High Court. Even in the said
appeal the appellant was not made a party. The Appellate Bench dismissed the
challenge of the 1st respondent for the grant of approval to the Amalgamation
Scheme but confirmed the findings of the trial court that the allotment of the
shares in favour of appellant by the MIL was in contravention of the injunction
order. The approval of the Scheme of Amalgamation has since become final.
4. In this appeal the appellant who is
directly affected by the findings of the learned company Judge as well as the
Appellate Court after obtaining permission to file SLP and leave to appeal is
challenging the said finding before us.
5. Learned Senior Counsel appearing
for the appellant herein raised the following contentions for our consideration
:—
1. In a sections 391-394 petition, the
company court could have only decided the question as to grant of sanction or
reject the Scheme of Amalgamation placed before it.
2. The Company Court could not have gone
into the question of title of individual shareholders in a proceedings under
sections 391-394.
3. In any event, in the present case, as a
Scheme was approved by well over 75% in value of the shareholders in the
General Body Meeting even after excluding the shareholding of the appellant the
issue of validity of allotment of shares to the appellant did not arise. Hence,
the Company Court could not have gone into the question of title of appellant’s
share in MIL.
4. Under the Companies Act a person could
assail the allotment of shares only by a petition for rectification under
section 155 of the Companies Act as it stood at the relevant time and no such
petition having been filed at that time, a challenge to the allotment of share
in favour of the appellant had become time-barred by December, 1990. Hence, it
was not open to the Company Court to go into the validity of the issuance of
the shares by the MIL in favour of the appellant.
6. At this stage, we must notice in
spite of service of notice through publication in newspapers, the respondent
has not chosen to appear and contest the case. We are also told that so far as
the allegation of violation of the injunction granted by the City Civil Court
is concerned, the same is being adjudicated in the said Court by initiating
contempt proceedings by the concerned parties and it is still pending.
7. Learned counsel for the appellant
in this appeal apart from the above recorded arguments, contends that the appellant
will be seriously affected by the findings recorded by the Company Court as
well as by the Appellate Court in regard to the violation of the injunction
order which in turn affects the title of the appellant over the shares held by
it in MIL. He submitted that the appellant has not been made a party either to
the suit, the Company Petition or in appeal and in spite of the same, adverse
order has been passed affecting its right. He also contends that the Company
Court had no jurisdiction whatsoever to have gone into the question of validity
of the transaction between the appellant MIL in an Amalgamation Proceedings
where the scope of enquiry is only to examine whether the statutorily required
members of the company have approved the scheme or not. It was pointed out from
the findings of the courts below that the scheme has been approved by more than
75% of the members of the MIL even excluding the voting strength of the
appellant.
8. Having heard the learned counsel
for the appellant in this appeal and the connected appeals we are satisfied
that the courts below in the impugned order have gone far beyond their
jurisdiction by giving findings as to the validity of shares acquired by the
appellant. Before the Company Court this issue did not arise at all
consequently, even before the Appellate Court this question did not arise. The
question whether the transfer of shares by the MIL to the appellant was in
contravention of the interim order of injunction granted by the City Civil
Court or not, is a matter to be decided by the City Civil Court in the pending
proceedings before it and it could not have been decided in an alien
proceedings before the Company Court. There was no statutory need to have
decided this issue while dealing with the application for approval of the
Scheme under section 391 of the Companies Act, indeed, that issue did not arise
before the Company Court. That apart basic principles of natural justice are
violated by the courts below in deciding an issue against the appellant in
proceedings to which the appellant was not even party. By this finding, the
appellant’s right to hold shares in the MIL gets affected and even the question
of violation of the terms of injunction on facts of this case, was not a matter
before these forums. Therefore, we are of the considered opinion that the
findings given by the Company Court as affirmed by the Appellate Court as to
the violation of the injunction order also as to the validity of the transfer
and the title of the appellant over the shares held by it in the MIL being
findings which are made beyond the jurisdiction of the courts below, we have no
hesitation in setting aside these findings. This issue as to the violation of
injunction order or any other issue pertaining to the validity of title of the
shares transferred in favour of the appellant by MIL is a matter if at all, to
be decided by the City Civil Court in the pending suits if it arises for
consideration. Therefore, we allow this appeal, set aside the findings impugned
in this appeal.
Civil Appeal
Nos. 4797 and 4798 of 1997
9. In view of the judgment rendered in C.A. No. 4796 of
1997, these appeals are also allowed.
COMPANIES ACT
[1998] 18 SCL 68 (KAR.)
Industrial Credit & Investment
Corpn. of India Ltd.
v.
H.V. Jayaram
M.P. CHINNAPPA, J.
CRIMINAL PETITION NOS. 240, 1485,
1548, 1848 AND 1849 OF 1996
JULY 28, 1998
Section 10 of the Companies
Act, 1956 - Courts - Jurisdiction of - Offences complained of were under
sections 39(2), 219(4) & 113(2) - Whether Court/Courts within whose
jurisdiction registered office of company is situated alone will have
territorial jurisdiction to try case and not the court within whose
jurisdiction complainant/shareholder is residing - Held, yes
FACTS
The complainants a permanent
resident of Bangalore and a shareholder of the petitioner-companies alleged
that the petitioner-companies had violated certain provisions of law in not
sending the share certificates duly transferred in his name, failed to send balance
sheet and memorandum of articles, etc., and thereby committed offences
punishable under sections 39(2), 219(4) and 113(2). The Magistrate had taken
cognizance of the offences in all the cases and directed to issue summons to
the petitioners. The petitioners approached the Court and made applications
under section 245 of the Code of Criminal Procedure to discharge the accused
persons on the ground that the said Court had no territorial jurisdiction to
try the cases as the registered offices of those companies were situated
outside the Karnataka State. The Magistrate after hearing both the parties
rejected the applications holding that the Court had territorial jurisdiction
to try the offences.
On petition under section 482 of
the Code of Criminal Procedure the companies sought to quash entire proceedings
since the court lacked territorial jurisdiction.
HELD
Admittedly, the registered offices of the petitioner-companies were not
located in Karnataka, muchless in Bangalore. On the other hand, the registered
office was either at Bombay or Gujarat.
In the instant case the complainant had not questioned the non-sending of
dividend warrant to him. But his complaint was in regard to not transferring
the shares within the stipulated time, not sending the memorandum of articles,
the balance sheet, etc.
In a case of this nature, the moment there is a failure on the part of
the company to comply with the request of the shareholders within the
stipulated time, the offence is deemed to have been committed. The said offence
is committed at the registered office of the company. It is a different
question if the company posts or sends the memorandum or article or balance
sheet or transfer certificate within the stipulated time, and if an addressee
does not receive it. It may not amount to an offence. Under these cases,
admittedly the request of the complainant was not carried out within the
prescribed time. Therefore, the offences were committed and those offence were
committed in the registered offices which were situated outside the territorial
jurisdiction of Karnataka and particularly at the registered office of the
company.
The modes are prescribed for
serving the document in section 53. They are either personally or by post.
Personally is possible only if the addressee is residing within the local area
where he can collect it directly from the office or the company can send
somebody and serve the same on the address. If it is not possible the other
mode is to send it by post. In the instant case admittedly the documents were
sent to the complainant by post as requested by him and he received the same at
Bangalore; however, the documents were posted after the due date. The offence
was thus deemed to have been committed Therefore, the cause of action arose
only where the head office was situated
If thousands of persons holding
shares and residing in different parts of this vast country, were to file
complaints in different courts where they are residing, against the company and
directors for the offences of not sending the dividend warrants, transfer of
share certificates or articles of association as requested by the members and
other offences as contemplated in the Act, the representatives of the company
and the directors who would be accused before the Court will have to attend the
Court in far off places spending money as well as time which will consequently
affect their valuable service to the company. It may not also be possible for
them to be present in various Courts simultaneously, resulting in issuance of
warrants by the Courts leading to disastrous consequences besides leading to
inconveniences and hardships to the directors of the company. Taking into
consideration all these facts the Supreme Court also held that the cause of
action arises for the shareholders to file the complaint before the Court
having jurisdiction over the place where the registered office is located.
In the instant case, the Special
Court for Economic Offences having jurisdiction over Karnataka State in
Bangalore did not have territorial jurisdiction to try the cases against the
companies and its directors where the registered office was situated beyond the
territory of Karnataka State, notwithstanding the fact that the complainant was
a permanent resident of Karnataka State. On the other hand, the Court/Courts
within whose jurisdiction the registered office of the company is situated,
will have territorial jurisdiction to try the case falling under the Act.
The magistrate was, therefore,
directed to return the complaints to the complainants to be presented to the
proper court.
Hanuman Prasad Gupta v. Hiralal
AIR 1971 SC 206, American Pipe Co. v. State of Uttar Pradesh AIR 1983 Cal. 186,
Upendra Kumar Joshi v. Manik Lal Chatterjee [1982] Comp. LJ Pat. 177 and Morgan
Stanley Mutual Fund v. Kartick Das [1994] 4 SCC 225.
Rangarajan, Prabhakaran, A.
Anandashetty, N. Rajashekar and
S.J. Sangvi for the Petitioners.
1. The brief facts leading to these cases are that the respondent/complainant
in all these cases lodged complaint before the learned Special Court for
Economic Offences in Karnataka, at Bangalore, on the allegation that the
petitioner-companies had violated certain provisions of law in not sending the
share certificates duly transferred in his name, failed to send balance sheet
and memorandum of articles, etc., and thereby committed offences punishable
under sections 39(2), 219(4) and 113(2) of the Companies Act, 1956 ('the Act').
The learned Magistrate has taken cognizance of the offences in all the cases
and directed to issue summons to the petitioners herein. In some cases, the
petitioners approached the Court and made applications under section 245 of the
Code of Criminal Procedure to discharge the accused persons on the ground that
the said Court has no territorial jurisdiction to try the cases as the
registered offices of those companies are situated outside the Karnataka State.
The learned Magistrate after hearing both the parties rejected the applications
holding that the Court had territorial jurisdiction to try the offences. As
against that order Criminal Petitions are filed. In other cases the petitioners
have not approached the Court below. On the other hand they questioned the
order passed by the learned Court issuing summons to them after taking
cognizance of the offences directly in this case.
2. The learned advocates appearing for the petitioner-companies have
specifically argued that the Spl. Court for Economic Offences at Bangalore, has
no territorial jurisdiction and therefore directing issue of notices to the
petitioners hereinafter taking cognizance on the complaint filed by the
respondent is contrary to the provisions of law. Since the Court lacks
territorial jurisdiction, the entire proceedings will have to be quashed on the
ground that the offence is said to have been committed by the company only
where the registered office is located. Admittedly, the registered offices of
the petitioner-companies are not located in Karnataka, muchless in Bangalore.
On the other hand, the registered office is either at Bombay or Gujarat as per
the addresses shown above. They further contended that cognizance taken by the
Court which is not vested with the power is illegal and therefore, all these
petitions deserve to be allowed.
3. Per contra, the respondent who is a shareholder and also a practising
advocate has strenuously argued that Special Court has jurisdiction as the
respondent is a permanent resident of Bangalore and the letters requesting the
company to transfer the shares and also to send memorandum of articles, balance
sheets, etc. were sent from Bangalore, to the addressee at Bombay and Gujarat
where the registered office of the companies situated, have not been complied
with, within the stipulated time and thereby the offences have been committed.
It is not the posting of the letter or the transfer of shares, etc. which will
decide the jurisdiction. On the other hand, where those articles were delivered
is the place which determines the territorial jurisdiction of the Court. As the
respondent received the delivery in Bangalore, the Spl. Court at Bangalore has
to try the case. On these grounds he submitted that the argument of the learned
counsel for the petitioners are liable to be rejected.
4. It may be mentioned that the learned counsel for the petitioners also
raised the question regarding limitation. Further, they contended there is
absence of mens rea not complying with the request of the respondent within the
stipulated time and therefore, no offence is committed. However, these two
questions depend on the finding of this Court on the territorial jurisdiction
of the Court. If the Court lacks territorial jurisdiction, then the orders will
have to be set aside the appropriate orders will have to be passed.
5. In view of the arguments the question that arises for consideration is
whether the Spl. Court for economic offences having jurisdiction over Karnataka
State established in Bangalore, has got territorial jurisdiction to try the
cases against the petitioners whose registered offices are admittedly situated
beyond the territory of Karnataka, notwithstanding the fact that the
complainant is a permanent resident of Bangalore.
6. Since common question is raised in all these cases after having heard
both sides, this order is passed. Retain a copy of this order in each file.
7. In support of his argument, the learned counsel for the petitioners
placed reliance on a decision reported in Hanuman Prasad Gupta v. Hiralal AIR
1971 SC 206, wherein their Lordships have held:
"A
dividend once declared is a debt payable by the company to its registered
shareholders.
Once a dividend warrant is posted
to the registered address of the shareholder, dividend is deemed to have been
paid within meaning of section 205. The section makes the failure to post
within the prescribed period and not the non-receipt of the warrant by the
shareholder an offence. Prima facie both the obligation to post the dividend
warrant and the failure to satisfy that obligation would occur at the place
where the obligation is to be performed and that would be the registered office
of the company and not the address at which the warrant is to be posted.
Payment in cash or the posting of a cheque or a warrant are equivalent and the
obligation to pay is discharged when either of them is done.
Where the power to pay dividend
by posting a cheque or a warrant as provided in section 205(5) is incorporated
in the Articles of Association of the company, it constitutes a contract
between a company and its members. [1915] 1 Ch. 881 & 1938 Ch. 708 Ref.
If under a contract, a promisee
prescribes the manner in which the promise is to be performed, the promisor can
perform the promise in the manner so prescribed. (See S. 50 of the Contract
Act.)
Once a mode of payment of
dividend is agreed to, namely, by posting a cheque or a warrant, the place
where such posting is to be done is the place of performance and also the place
of payment, as such performance in the manner agreed to is equivalent to
payment and results in the discharge of the obligation.
The common law rule that debtor
must seek the creditor has no application [1910] 2 K.B. 509 (1886) 3 TLR 182
Relied on.
When the company posts the dividend
warrant to the registered address of a shareholder, that being done at the
shareholder's request, the post office becomes the agent of the shareholder,
and the loss of a dividend warrant during transit thereafter is the risk of the
shareholder.
Since the obligation to post the
warrant arose at the registered office of the company, failure to discharge
that obligation also arose at the registered office of the company. Therefore,
the alleged offence must be held to have taken place at the place where the
company's registered office is situate and not where the dividend warrant, when
posted, would be received. AIR 1966 SC 1466 & (1846) 175 ER 128 & AIR
1925 Cal. 613. Ref.; AIR 1967 All. 135, Reversed."
This decision was cited before
the Court below and the Court has held that the decision came to be rendered
while dealing with section 205(5) of the Act wherein the learned Trial Court
differentiated holding that the said case before Their Lordships was under
section 205 and Their Lordships observed that once dividend warrant was posted
at the registered address of the shareholder, dividend is deemed to have been
paid. According to the Court below, under section 205(5), 'personal delivery'
is conspicuous in its absence in this section but under section 53 which
governs the mode of procedure in respect of transfer of shares seeking
memorandum of articles, etc., personal delivery is appearing in that section.
Therefore, the learned Court has held that the judgment of the Supreme Court is
not applicable to this case, wherein the learned Court has held as follows:
"Hence on the basis of power
of the company to pay the dividend by posting a cheque or a warrant provided in
section 205(5) the Hon'ble Supreme Court held that the place of commission of
offence was at the place of posting dividend warrant. The mode of delivery
referred to under section 113 is mentioned in section 53 namely personal
service or service by post. By virtue of section 205(5) the word 'paid in cash'
was equated to 'the word posting a cheque or a warrant'. But in section 113 the
word 'deliver' is equated to personal service or service by post, but the word
personal service is not equated to service by post as is done under section
205(5). Hence, the offence under section 113 can also be committed by not
personally serving the share certificate. If really personal service was not
contemplated and service only by post was contemplated, there was no necessity
to use the words 'either personally' in section 53 of the Act. Hence, it cannot
be said that section 113 and section 53 are similar to sections 207 and 205. On
this ground also the decision of the Hon'ble Supreme Court relied on by the
accused is not applicable to the facts of the case. Hence from the above
discussion, I hold that this Court has jurisdiction to try this case and I
answer the above point No. 1 in the negative and I proceed to pass the
following order.
The prayer of the accused for
dismissal of the complaint on the ground that this court has no jurisdiction to
try this case is rejected."
In the case before Their
Lordships question of the posting of dividend warrant as contemplated under
section 205(5) is involved. But the principle enunciated by Their Lordships is
squarely applicable to all the cases where the company is expected to comply
with certain provisions of law. It is no doubt true that the respondent has not
questioned the non-sending of dividend warrant to him in these cases. But his
complaint in these cases is in regard to not transferring the shares within the
stipulated time, not sending the memorandum of articles, the balance sheet,
etc. In the case before Their Lordships the complaint was filed at Meerut where
the addressee was residing but the registered office was situated in Delhi.
Under those circumstances. Supreme Court has held that the offence under
section 205 would occur at the place where the failure to discharge that
obligation arises, namely, the failure to post the dividend warrant within 42
days. Therefore, the venue of the offence would be Delhi and not Meerut. It is
further observed that the Court competent to try the offence would be that
Court within whose jurisdiction offence takes place, i.e., Delhi. This should
be so both in law and common sense, for, if held otherwise, the directors of companies
can be prosecuted at hundreds of places on an allegation by shareholders that
they have not received the warrant. That cannot be the intention of the
Legislature when it enacted section 207 of the Act and made failure to pay or
post a dividend warrant within 42 days from the declaration of the dividend an
offence. Being of that view, Their Lordships have held as quoted above.
8. In
a case of this nature, the moment there is a failure on the part of the company
to comply with the request of the shareholders within the stipulated time, the
offence is deemed to have been committed. The said offence is committed at the
registered office of the company. It is a different question if the company
posts or sends the memorandum of article or balance sheet or transfer
certificate within the stipulated time, and if an addressee does not receive
it, it may not amount to an offence. Under these cases, admittedly the request
of the complainant was not carried out within the prescribed time. Therefore,
the offences were committed and those offences were committed in the registered
offices which are situated outside the territorial jurisdiction of Karnataka
and particularly at the registered office of the company. Therefore, the place
where the offence is committed is within the jurisdiction of such Court where
the registered office is situated has territorial jurisdiction to try offence.
9. The respondent further had drawn my attention to the decisions in American
Pipe Co. v. State of Uttar Pradesh AIR 1983 Cal. 186 wherein it is held that jurisdiction of the Court in a
case of acceptance of contract by correspondence would be the place where the
acceptance had taken place. In this case the question of acceptance does not
arise. On the other hand, only a delivery of articles required by the
shareholder as stated above is the question involved. Rajasthan High Court in
J.K. Synthetics Ltd v. ITO [1987] 1 Comp. LJ 252 (Delhi) has held that in a
case of prosecution for the offences of supplying false information to the Income-
tax Department, the offence is said to have been committed in a place where the
false information is furnished. In that case, false estimate of advance tax was
submitted at Kanpur and the criminal proceedings were initiated at Delhi. The
Court has held that the Court within whose jurisdiction the false estimate was
submitted only had the jurisdiction and the offence not dependent on assessment
or penalty proceedings - the Court at Kanpur alone had jurisdiction and not the
Delhi Court.
10. The Patna
High Court in Upendra Kumar Joshi v. Manik Lal Chatterjee [1982] Comp.
LJ Pat. 177 held:
"Since section 207 of the Companies Act, 1956, makes the failure by
the company to post the dividend warrant to, and not the non-receipt thereof
by, the shareholder an offence, prima facie, both the obligations to post the
warrant and the failure to satisfy it would occur at the place where the
obligation is to be performed, and, as that obligation arises at the registered
office of the company and not at the address at which the warrant is to be
delivered, the alleged offence must be held to have taken place at the place
where the company's registered office was situate and hence the court at the
place and not the court where the dividend was to be received has jurisdiction
to try the offence.
Where, therefore, the complainant, a shareholder of the accused-company,
residing at Bhagalpur filed a complaint under sections 207 and 630 against the
company in the Bhagalpur court for failure to pay a dividend of Rs. 30, due to
him as per a declaration in August, 1975, of a dividend for the company's year
ending March, 1975, within forty-two days after the declaration under section
207, and the Magistrate dismissed the complaint, the High Court, on a revision
application:
Held, dismissing the application, that the alleged offence must hold to
have taken place at Calcutta where the company's registered office was
situate."
Though it is a case in regard to posting a dividend warrant, it is clear
from this decision also that the offence has already been committed at the
registered office before the same was sent, in other words, the company has
failed to perform its obligation to send the required particulars to the
shareholder which has made the offence punishable under the section. Therefore,
under those circumstances, the offence was committed at the place of the
registered office.
11. Their
Lordships of the Supreme Court in Morgan Stanley Mutual Fund v. Kartick Das
[1994] 4 SCC 225 while considering the sections 19 and 20 and order 39, rules
1, 3 and 5 - Constitution of India - Article 226 have held that venue
restriction need against adventurism by disgruntled litigants seeking
injunctions, damages, etc. against companies by filing suits far away from
their registered offices - suits should normally be filed where registered
office is situate and also must be filed well in time to enable issue of notice
to the company before passing any interim order. Such facts must be, considered
before issuing ex parte injunctions. It is also held that as far as India is
concerned the residence of the company is where the registered office is
located. Normally, a case should be filed only where the registered office of
the company is situate. There is an increasing tendency on the part of the
litigants to indulge in speculative and vexatious litigation and adventurism
which the for a seem readily to oblige. Such a tendency should be curbed.
Though it is pertaining to civil case, yet the object and purpose observed by
Their Lordships can also be made applicable to criminal cases. In the light of
this judgment and also the finding of the Court below the learned counsel for
the petitioner has drawn by attention to section 53 of the Act which reads:
"Service of documents on members by company- (1) A document may be
served by a company on any member thereof either personally, or by sending it
by post to him to his. registered address, or if he has no registered address
in India, to the address, if any, within India supplied by him to the company
for the giving of notices to him.
(2) Where a document is sent by post,—(a) service thereof shall be deemed
to be effected by properly addressing, prepaying and posting a letter
containing the document, provided that where a member has intimated to the
company in advance that documents should be sent to him under a certificate of
posting or by registered post with or without acknowledgement due and has
deposited with the company a sum sufficient to defray the expenses of doing so,
service of the document shall not be deemed to be effected unless it is sent in
the manner intimated by the member; and"
12. From a reading of this section it is clear that two modes are
prescribed for serving the document. They are either personally or by post. Personally
is possible only if the addressee is residing within the local area where he
can collect it directly from the office or the company can send somebody and
serve the same on the address. If it is not possible the other mode is to send
it by post. In this case admittedly the documents were sent to the respondent
by post as requested by him and he received the same at Bangalore. As indicated
earlier, the documents were posted after the due date. The offence is thus
deemed to have been committed. Therefore, the cause of action arose only where
the head office is situated. It is also necessary to refer to the commentary on
service by post in Rammaiah's 'Guide to the Companies Act', 14th edn. at page
449 which reads:
"It is not stated at which
post office or box the letter has to be posted. Presumably it has to be posted
at or near the place of the registered office of the company. The provisions in
the section will not be satisfied if the posting is made deliberately at any
far off place with a view to delay delivery."
13. In view of this, and taking into consideration the fact that if
thousands of persons holding shares and residing in different parts of this
vast country, were to file complaints in different courts where they are
residing, against the company and directors for the offences of not sending the
dividend warrants, transfer of share certificates or articles of association as
requested by the members and other offences as contemplated in the Act, the
representatives of the company and the directors who would be accused before
the Court will have to attend the Court in far off places spending money as
well as time which will consequently affect their valuable service to the
company. It may not be also possible for them to be present in various Courts
simultaneously, resulting in issuance of warrants by the Courts leading to
disastrous consequences besides leading to inconveniences and hardships to the
directors of the Company. Taking into consideration all these facts their
Lordships of the Supreme Court also held that the cause of action arises for
the shareholders to file the complaint before the court having jurisdiction
over the place where the registered office is located. The learned counsel for
the petitioners further submitted that the respondent himself has lodged a
large number of cases against these companies for various offences in the Court
below. This fact is not denied by the respondent. For the foregoing reasons, I
hold that the Special Court for Economic Offences having jurisdiction over
Karnataka State in Bangalore does not have territorial jurisdiction to try the
cases against the companies and its directors where the registered office is
situated beyond the territory of Karnataka State, notwithstanding the fact that
the complainant is a permanent resident of Karnataka State. On the other hand,
the Court/Courts within whose jurisdiction the registered office of the company
is situated, will have territorial jurisdiction to try the case falling under
the Act.
14. The learned counsel appearing for the petitioners also contended that
these petitions are barred by time and there was no mens rea for committing
these offences on the part of the petitioners, etc. These questions need not be
gone into when this Court has held hereinabove that the Court below has no
territorial jurisdiction to try the offences. Therefore, this question is left
open for the Court which has territorial jurisdiction to try the cases and
decide.
15. Having come to this conclusion, the next question that arises for
consideration is as to whether the complaints are to be dismissed. It is
clearly stipulated under section 201 of the Code of Criminal Procedure, 1973
which reads:
"Procedure by Magistrate not
competent to take cognizance of the case -If the complaint is made to a
Magistrate who is not competent to take cognizance of the offence, he shall—
(a) If the complaint is in writing, return it for presentation to the
proper Court with an endorsement to that effect;
(b) If the complaint is not in writing, direct
the complainant to the proper Court."
In view of this the Magistrate
will have to return the complaints to the complainant. In the result therefore,
I proceed to pass the following:
ORDER
All these petitions are allowed and
the impugned orders are set aside. The learned magistrate is directed to return
all the complaints to the complainant/respondent with necessary endorsements as
provided under section 201(a) of the Code of Criminal Procedure for
presentation to the proper Court.
Madras High Court
Companies Act
[2004]
51 scl 735 (mad.)
HIGH COURT OF
v.
Ashok R. Thakkar
A.K.
RAJAN, J.
APPLICATION
NO. 1176 OF 2001
and
C.S. (SR. NO. 5662) OF 2001
AUGUST
22, 2003
Where company has its residence outside
jurisdiction of
Court, fact that directors resides within jurisdiction of
Court does not mean that company is having its
‘residence’ within jurisdiction of Court
Section 10 of the Companies Act, 1956 - Courts - Jurisdiction of -
Whether for purpose of deciding jurisdiction of Court, residence of directors
cannot be equated to residence of company and, therefore, where company has its
residence outside jurisdiction of Court, fact that directors resides within
jurisdiction of Court does not mean that company is having its ‘residence’
within jurisdiction of Court - Held, yes - Whether allotment of shares creates
cause of action only at place where allotment was made and, therefore, suit can
be filed only in that Court which has territorial jurisdiction over place where
company resides, and residence of directors of company or of those persons who
have been allotted shares does not confer any jurisdiction - Held, yes
The
applicant, one of the shareholders of the defendant-company, filed a suit
praying, inter alia, for declaration that the allotment of shares made in
favour of the defendants/directors of company was null and void and for
permanent injunction restraining the defendants from alienating the properties
of the company. Registered office of the company and the suit property were
situated outside the territorial jurisdiction of the Court. The applicant filed
the instant application for grant of leave to sue the defendants on the ground
that cause of action for the suit had arisen within the jurisdiction of the
Court inasmuch as all the defendants were living or working for gain or having
their offices within the territorial jurisdiction of the Court.
Under
the Company Law, the legal fiction is that the property of the company is owned
only by the company and not by the shareholders or by the directors. Therefore,
the property belongs only to the company and the shareholders or the directors
have no right over the property. [Para 10]
In
the instant case, the company admittedly was having its registered office
outside the jurisdiction of the Court. It is an axiomatic principle that the
company resides where the registered office is situate. Therefore, the
defendant-company had its residence outside the jurisdiction of the Court. The
defendant Nos. 1 to 5 who were the directors of the company were residing
within the jurisdiction of the Court. The fact that the five directors resided
within the jurisdiction of the Court did not mean that the company was having
its ‘residence’ within the jurisdiction of the Court. The residence of the
directors cannot be equated to the residence of the company, since the
directors are not the owners of the property of the company. [Para 11]
The
cause of action for the filing of the suit was the act of allotment of shares.
Shares are allotted only where the company resides (i.e.,) where the registered
office is situated. Therefore, the cause of action relied upon by the applicant
had arisen outside the jurisdiction of the Court. Therefore, no part of cause
of action could be said to have arisen within the jurisdiction of the Court.
[Para 12]
Even
accepting the argument submitted by the applicant that the instant suit could
not be said to be the suit on land, insofar as it related to the declaratory
relief, yet there was also a prayer for permanent injunction not to alienate
the property of the company. The property was situated outside the jurisdiction
of the Court. Insofar as the prayer for injunction was concerned, it was a suit
on land. Inasmuch as the injunction prayer was a suit on land, the Court had no
territorial jurisdiction over the suit property. [Para 13]
The
dispute was only in respect of the allotment of shares which did not relate to
the land and such allotment created cause of action only at the place where
allotment was made. Therefore, the suit could be filed only in that Court which
had territorial jurisdiction over the place where the company resided. The
residence of the directors of the company or of those persons who had been
allotted the shares did not confer any jurisdiction. Therefore, the Court had
no jurisdiction to try the suit. Hence, leave to sue, as prayed for, could not
be granted. [Para 14]
Accordingly,
the application was dismissed. [Para 15]
Adcon
Electronics (P.) Ltd. v. Daulat [2001] 7 SCC 698 (para 5), Saleem Bhai v. State
of Maharashtra 2003 (I) CTC 186 (SC) (para 6) and R. Viswanathan v.
Rukn-ul-Mulk Syed Abdul Wajid AIR 1963 SC 1 (para 7).
S.W.
Kanagaraj for the Applicant. S. Raghavan for the Respondent.
Order
1. This application is for the grant
of leave to sue the defendants.
2. The suit prayers,
inter alia, are for declaration that the allotment of shares made in favour of
the defendants in the year 1979 are null and void; for declaration that the
nomination of the defendants 1 to 3 is null and void; for declaration that the
nominees of the plaintiff are duly elected in the annual general body meeting
held on 20-6-1998; for declaration that E.G.M. held on 25-11-1998 is null and
void; for permanent injunction restraining the defendants from alienating the
properties of the company.
3. The registered
office of the 10th respondent is at Noombal Village and the defendants 1 to 4
are its directors. It is stated in the affidavit filed in support of the
application that the cause of action for the suit had arisen within the
jurisdiction of this court and all the defendants are leaving or working for
gain or having their offices within the territorial jurisdiction of this court.
But the suit property situate outside the city of Channai and therefore this
application to leave to sue the defendants is filed.
4. This court issued
notice to the respondents in this application. A counter affidavit has been
filed by the respondents. In the counter it is contended that the relief prayed
for cannot be granted by this court. It is further stated that the plaint
schedule property belongs to the company and it is at Noombal Village which is
beyond the territorial jurisdiction of this court. Neither the defendants nor
the plaintiffs have any right, title or interest in the property. The allotment
of shares have been made in 1979 itself; but that does not give the cause of
action to file the suit in this court. The relief sought for in the plaint was
already claimed in C.P. 49 of 1987 before this court and in C.P. 81 of 1998
before the Company Law Board. All the contentions raised by the plaintiffs were
negatived by this court as well as by the Company Law Board. The order passed
by this court or by the Company Law Board did not provide any cause of action
to the plaintiffs and no suit can be filed on the basis of those orders.
5. Mr. Kanakaraj, the
learned counsel appearing for the applicants submitted that the suit is for
declaration that the allocation of shares is null and void. It is not a suit on
“land”. Since all the directors of the company are residing within the
jurisdiction of this court, this court has jurisdiction to try the suit. In
support of his contention the learned counsel for the applicants referred to
the judgment in Adcon Electronics (P.) Ltd. v. Daulat [2001] 7 SCC 698 where
the Supreme Court has held that under Clause 12 of the Letters Patent if prior
leave of the court has been obtained and the cause of action has arisen in part
within the local limits of original jurisdiction of the High Court, then the
High Court can decide the case. It was held in case that the suit “on land” is
a suit in which the relief claimed relates to title or delivery of possession
of land or immovable property.
6. The learned
counsel further submitted that whether the plaint is to be taken on file or is
to be rejected shall be determined only on the averments found in the plaint.
It cannot refer the written statement or any other arguments advanced by the
defendant. In support of his contention he relied upon the judgment of the
Supreme Court in Saleem Bhai v. State of Maharashtra 2003 (I) CTC 186 where the
Supreme Court has held that the plea taken by the defendant in the written
statement is wholly irrelevant and, therefore, the averments in the plaint
alone shall be taken into consideration for deciding the application for leave
to sue. Therefore, based on the averments contained in the plaint the leave
sought for shall be granted.
7. The learned
counsel for the respondents submitted that even according to the plaint, the
five individual directors of the company are said to be residing within the
jurisdiction of this court, but the company situate outside the jurisdiction of
this court. The residence of the directors is not the residence of the company
and that does not give or confer jurisdiction. He further submitted that the
prayer in the suit is to declare the allotment of shares of the company as
invalid; the situs of share is where the company situate. Therefore, the
alleged fraud in the allotment of shares occurred outside the jurisdiction of
this court. In support of his argument he relied upon the judgment of the
Supreme Court in R. Viswanathan v. Rukn-ul-Mulk Syed Abdul Wajid AIR 1963 SC 1
in which the Supreme Court has held that situs of shares of a company which are
movables may normally be the place where the registered office situate.
Therefore, the cause of action viz., the transfer of shares has occurred
outside the jurisdiction of this court. Hence, the suit cannot be filed on the
basis of part cause of action.
8. The learned
counsel appearing for the applicants relied that in the order in Company
Petition No. 49 of 1987 dated 20-3-1988 this Court has held that the purported
allotment of 60,000 shares with the directors themselves was for an illusory
consideration. Therefore this part cause of action arose within the
jurisdiction of this court and, hence, this suit can be filed in this court.
9. The learned counsel
for the respondents contended that the order of this court does not refer to
the allotment of shares in the present case (to Sukumaran and others). That was
with reference to the allotment of shares to one U.K. Rajah and that,
therefore, that finding, even assuming, is part cause of action, does not
confer jurisdiction for filing of this suit in this court.
10. As seen already,
this suit has been filed for certain declaration referred to above and also for
permanent injunction restraining the respondents from alienating the immovable
property of the company. This suit has been filed by one of the shareholders.
Though it is stated that he filed the suit on behalf of all the shares, it does
not appear that he has filed the suit in the representative capacity.
Therefore, this suit has been filed only in his individual capacity as one of
the shareholders. Under the Company Law, the legal fiction is that the property
of the company is owned only by the company and not by the shareholders or by
the directors. Therefore, the property belong only to the company and the
shareholders or the directors have no right over the property.
11. The company
admittedly is having its registered office outside the jurisdiction of this
court viz., in Noombal Village. It is an axiomatic principle that the company
resides where the registered office situate. Therefore the defendant company
has its residence outside the jurisdiction of this Court. The defendant Nos. 1
to 5 who are the directors of the company are residing within the jurisdiction
of this Court. The fact that the five directors resides within the jurisdiction
of this Court does not mean that the company is having its “residence” within
the jurisdiction of this Court. Suppose the directors happens to reside in a far
off place, if this argument is to be accepted, the suit can be filed in a far
off place which may even be outside the State. Therefore, this argument of the
learned counsel for the applicant is not acceptable. The residence of the
Directors cannot be equated to the residence of the company. Since the
directors are not the owners of the property of the company the jurisdiction on
the basis of the residence of owners of the movable property.
12. The cause of action
for the filing of the suit is the act of allotment of shares. For the reasons
stated above, the shares were allotted only where the company resided (i.e.,)
where the registered office situate. Therefore, the cause of action relied upon
by the applicant has arisen outside the jurisdiction of this Court. Therefore
no part of cause of action can be said to have arisen within the jurisdiction
of this Court.
13. Even accepting the
argument submitted by the counsel for the applicant that the present suit
cannot be said to be suit on land, insofar as it relates to the declaratory
relief, yet there is also a prayer for permanent injunction not to alienate the
property of the company. Admittedly that property situate in Noombal village,
outside the jurisdiction of this Court. Insofar as the prayer for injunction is
concerned, it is a suit on land. Even as per the decision relied upon by the
plaintiff in Adcon Electronics (P.) Ltd.’s case (supra) the Supreme Court has
clarified that under Clause 12 of the Letters Patent, the High Court, in
exercise of its ordinary original jurisdiction, will have power to receive, try
and determine the suits on land or other immovable property, if such property
is situated within the local limits of original jurisdiction of the High Court.
Only with respect to other matters, the immovable properties are not involved,
the part cause of action confers jurisdiction. Inasmuch as the injunction
prayer is a suit on land, this Court has no territorial jurisdiction over the
suit property.
14. The dispute is only
with respect to the allotment of shares which does not relate to the land and
such allotment create cause of action only at the place where allotment was
made. Therefore, the suit can be filed only in that Court which has territorial
jurisdiction over the place where the company resides. The residence of the
directors of the company or of those persons who have been allotted the shares
does not confer any jurisdiction. Therefore, this Court has no jurisdiction to
try the suit. Therefore leave to sue, as prayed for, cannot be granted.
15. Accordingly, the application is
dismissed.
Companies Act
[2004]
51 scl 191 (Kar.)
High
Court of Karnataka
Bank
N. Kumar, J.
Company Petition No. 173 of 2003
October
27, 2003
In respect to any matter relating to a foreign
company,
Court where foreign company’s principal place of
business is situated would have jurisdiction in respect
of any matter relating to such foreign company
Section 10, read with section 597, of the Companies Act, 1956 - Court -
Jurisdiction of - Whether in case of unregistered companies, that is, foreign
companies which carry on business in India, it is principal place of business
of such companies which is decisive factor to decide a domicile of such company
and High Court with a jurisdiction over such a principal place of business will
have jurisdiction in respect to any matter relating to that company - Held, yes
- Whether registered office of foreign company shall be deemed to be its
principal place of business in India - Held, yes - Whether merely because as a
statutory requirement documents are filed with Registrar of Delhi for
registering in terms of section 597(1), that does not mean that a foreign
company being registered in that office High Court of Delhi only has
jurisdiction over that company - Held, yes
The petitioner-foreign company
having its branch office at Bangalore had proposed to enter into a scheme of
arrangement, with the transferee-company. The board of directors of the petitioner-company
had approved the scheme of arrangement and it was also approved by the
shareholders and creditors. The petitioner-company had presented the instant
petition under sections 391 and 394 for sanctioning the scheme. However, the
Regional Director, Department of Company Affairs, on his appearance filed a
report contending that the petitioner was a registered company having its
registered office in the Sultanate of Oman and having a place of business in
India at Bangalore but it was registered with the Registrar of Companies, NCT
at Delhi under section 592, and, therefore, the petition filed by the
petitioner-company in the High Court of Karnataka was not maintainable as the
petition ought to have been filed before the High Court of Delhi. It was
further contended that the jurisdiction of the High Court is analogous to the
jurisdiction of the Registrar of Companies where the registered office of the
company is situated, i.e., where the company is registered and, therefore, it
was not correct to file the company petition by the transferor-company before
the High Court of Karnataka as the said company’s Indian office/business was
registered with the Registrar of Companies, NCT at Delhi.
A conjoint reading of the
provisions dealing with Court, company and the jurisdiction of the Court and
where the registered office of the company is to be situated, makes it very
clear that in deciding which Court has the jurisdiction over the company, what
is relevant is the place at which the registered office of the company is
situate. It is that Court where the registered office is situated which has the
jurisdiction in respect to any matter relating to a company. The law lays
stress on the place at which the registered office of the company is situated
and not where the company is registered. It is because the provisions of the
Act apply not only to the company registered under the Act, but they also apply
to certain legal entities which are not registered under the Act, but which are
deemed to be the companies. [Para 6]
For the purpose of registration
of a foreign company, Registrar means the Registrar having jurisdiction over
New Delhi and if they intend carrying on business at a place outside New Delhi
and have the principal place of business, in that context the documents
mentioned in section 597 shall be delivered to the Registrar of the State in
which the principal place of business of the company is situated.
In respect of foreign company
which is registered outside India, though it is expected to register that
company by filing necessary documents with the Registrar having jurisdiction
over New Delhi, the registered office of such company shall be deemed to be its
principal place of business in India. Insofar as foreign companies are
concerned, the Legislature has consciously made departure insofar as place of
registration and place of registered office is concerned. A registered office
of foreign company be situated in a State outside the place of registration of
the company, namely, New Delhi. Therefore, in respect of foreign companies,
though the registration takes place with Registrar having jurisdiction over New
Delhi, registered office can be situated outside the jurisdiction of New Delhi.
In view of the language employed in section 10 in finding out which Court has
jurisdiction in respect of any matter relating to the foreign companies, it is
that Court where its principal place of business is situated which has the
jurisdiction, because its principal place of business is deemed to be the
registered office of the foreign company. [Para 7]
Therefore, it is not the
registration of the company under the Act within the jurisdiction of a
particular Court which decides the jurisdiction of the Court to entertain in
respect of any matter relating to a company but it is the place where the
registered office is situated which decides the territorial jurisdiction of the
court to decide the matters relating to the company. Insofar as a foreign
company is concerned, it is the place where its principal place of business is
situated which is deemed in law to be its registered office which decides the
jurisdiction of the Court. In other words, the Court where the foreign
company’s principal place of business is situated would have jurisdiction in
respect of any matter relating to such foreign company. [Para 8]
Therefore, in the case of a
company registered under the Act it is the place where the registered office is
situated which will have jurisdiction to entertain the proceedings against such
company. In the case of unregistered companies, that is, the foreign companies
which carry on the business in India it is the principal place of business of
such companies which is the decisive factor to decide a domicile of such
company and High Court with a jurisdiction over such a principal place of
business will have jurisdiction to entertain the petition under the Act. Merely
because, as a statutory requirement the documents are filed with the Registrar
of Delhi for registering in terms of section 597(1), that does not mean that a
foreign company being registered in that office the High Court of Delhi only
has jurisdiction over the said company. If that argument were to be accepted in
respect of unregistered companies which are incorporated outside India, it is
only the Delhi High Court which would have a jurisdiction over all such foreign
companies. If that was the intention of the Legislature, the said intention
could have been made explicit by enacting a specific provision under the
Companies Act though Chapter XI deals exclusively with foreign companies. On
the contrary, section 600 categorically states that insofar as foreign
companies are concerned, the Registrar means the Registrar of Companies at
Delhi. The Registered Office means the principal place of business where that
company is situated and carries on business. It is the registered office which
decides the jurisdiction of any High Court to entertain the petition under the
Companies Act. If that is so as the principal place of business is the
registered office of a foreign company, the High Court within whose
jurisdiction such registered office/principal place of business is situated
would have jurisdiction to proceed under the Act in respect of such company.
Therefore, there was no substance in the points raised on behalf of Registrar
of Companies. The High Court of Karnataka had jurisdiction to entertain the
petition in view of the fact that the principal place of business of the
petitioner-company in India was at Bangalore. [Para 9]
In the scheme of amalgamation,
the interest of the shareholders, creditors, employees and public was fully
taken care of and their interest had been fully secured. 100 per cent of the
shareholders had approved the scheme of arrangement. The statutory requirement
as contemplated under section 391(2) had been complied with. The RBI had
granted permission to the petitioner-bank to carry on the business in India and
had also granted necessary permission for merger of the petitioner’s Bangalore
Branch with the transferee-company. The Bombay High Court (Panaji Bench)
sanctioning the scheme of amalgamation on a petition filed by the
transferee-company had held that all the statutory requirements had been
complied with and there was no legal impediment to according a sanction and
that the sanction was not only in the interest of shareholders, creditors of
the petitioner-bank, but was also in public interest. [Para 11]
The company petition was
allowed. [Para 12]
Frontier Bank Ltd., In re [1951]
21 Comp. Cas. 1 (Punj.) (para 8).
Naganand for the
Petitioner. Veerendra Sharma for the Respondent.
1. The petitioner is a Company
incorporated under the laws of Oman and having its designated office at Post
Box No. 134, Postal Code 112, Ruwi, Sultanate of Oman. The petitioner-company
set up a Branch Office at Bangalore vide licence No. (BG) No. 1/97-98 dated
March 16, 1998 issued by the Reserve Bank of India under section 22(1) of the
Banking Regulation Act, 1949 to carry on banking business in India. They have
no other branches or establishments in India except at Bangalore. The
authorised share capital of the petitioner-company as on March, 2003, is
7,50,00,000 Rial Omani equivalent to 922 crores 50 lakhs of Indian Rupees.
Issued, subscribed and paid up capital is 4 crores 9 lakhs 37,480 Rial Omani
equivalent to 603 crores 16 lakhs 10,040 Indian Rupees. The object of the
petitioner-company is to carry on commercial and investment banking business,
including the financing of trade and projects, etc. as set out in the
Memorandum of Association. The petitioner-company is carrying on business
through Bangalore Branch since 1998 which is situated at No. 29, Infantry Road,
Bangalore-1, which is the principal place of business of the petitioner-company
in India. The Company by name Centurion Bank Limited which hereinafter referred
to as a Transferee Company was incorporated on June 30, 1994, as Public Limited
Company under the provisions of the Companies Act, 1956, having its registered
office at Durga Nivas, Mahatma Gandhi Road, Panaji-403001, Goa. The Transferee
Company has built up key strength in retail banking, apart from offering a
range of corporate banking and treasury products. The management of the
Transferee Company believes that the Transferee Company can progress at a
faster rate with the infusion of additional capital. In line with this the
Transferee Company has proposed to enter into a Scheme of Arrangement, inter
alia which includes transfer of undertaking of the Bangalore Branch of the
petitioner-company by restructuring and recapitalisation of the Transferee
Company. The Board of Directors of the Transferee Company by a Resolution dated
23rd April, 2003, approved the proposal for restructuring and recapitalisation
of the Transferee Company. The Board of Directors of the Transferor Company
approved the draft Scheme of Arrangement vide Board Resolution dated 28-12-2002
a copy of which is produced as Annexure-A. The said Scheme of Arrangement,
inter alia provides for transfer and vesting of business of the Bangalore
Branch of the Transferor Company in the Transferee Company and a reorganisation
of the Equity Share Capital of the Transferee Company and recapitalisation of
the Transferee Company.
2. The petitioner-company presented an
application No. 453/2003 before this Court under sections 391 to 394 of the
Companies Act, 1951, requesting this Court to permit them to convene meetings
of shareholders and creditors of the petitioner-company. This Court by order
dated 9th July, 2003, granted the permission sought for. Accordingly the meeting
of the creditors of the petitioner-company was convened and held on 4th August,
2003, at Bangalore. The said meeting was attended by 311 persons and they
represented a debt of Rs. 76 crores 35 lakhs 44,884. Out of the same 310 ballot
papers representing 66 crores 84 lakhs 69,280-72, the value of debt has voted
in favour of the Scheme while one ballot representing Rs. 50,75,604 was found
to be against the Scheme of Arrangement. In other words, the Scheme of
Arrangement was approved by the creditors constituting 99.68 per cent in number
and representing about 99.24 per cent of the value of debts presented and
voted.
3. Similarly the meeting of the
shareholders was also convened on 19th August, 2003, at 5.00 p.m. at International
Hotel, Shatt Al Qurum, Muscat. Out of 36 shareholders 17 persons were present
representing 36 crores 18 lakhs 7,890 shares of whom all voted in favour of the
Scheme of Arrangement. In the other words, the scheme was approved by the
shareholders constituting 100 per cent of the value of the shares, out of 17
persons casting the ballots for 36 shareholders. It is submitted that there are
no investigation proceedings in addition to the proceedings under sections 235
to 251 of the Act of 1956. After the aforesaid meeting the chairman of the
Company has filed his report before this Court.
4. Thereafter the petitioner-company
has presented this petition under section 394 of the Companies Act for
sanctioning of the Scheme. After the Petition was admitted notice was ordered
to Regional Director, Department of Company Affairs, Southern Region, Chennai.
After service of notice he entered appearance and submitted a report. In the
said report it is contended that the petitioner is a registered company having
its registered office in the Sultanate of Oman and having a place of business
in India at Bangalore but it is registered with the Registrar of Companies,
National Capital Territory at Delhi, pursuant to section 592 of the Companies
Act, 1956 and he is looking after the compliance of various provisions of the
Companies Act, 1956 relating to Foreign Companies carrying on their business in
India and therefore the petition filed by the petitioner-company in this court
is not maintainable as the petition ought to have been filed before the High
Court of Delhi. It is further contended that the jurisdiction of this Court is
analogous to the jurisdiction of the Registrar of Companies where the
registered office of the company is situated, i.e., where the Company is
registered and therefore it is not correct to file the company petition by the
Transferor Company before this court as said company’s Indian Office/business
is registered with the Registrar of Companies, NCT at Delhi. It was further
submitted that if there are any legal or any other proceedings pending against
the Transferor Company, it will be known only to the Registrar of Companies,
NCT at Delhi, and not to Registrar of Companies at Bangalore. Therefore it was
submitted that a direction be issued to the petitioner-company to approach the
Delhi High Court and dispose of this petition accordingly.
5. In view of the aforesaid facts the points that arise for
my consideration is :
(1) Whether the High Court of Karnataka has
jurisdiction to entertain this petition under sections 391 to 394 of the Act of
a Foreign Company which is having its principal place of business at
Bangalore ?
(2) If this Court has got jurisdiction
whether a case for sanctioning of the Scheme has been made out ?
Learned counsel appearing for
the petitioner-company contended that in so far as company registered under the
Companies Act is concerned it is the High Court where the registered office of
the company is situate which has jurisdiction to entertain a petition under
sections 391 to 394 of the Act. In the case on hand, that is a company
registered in a country outside India which is carrying on the business in
India, it is High Court where the principal place where such company is
carrying on business which got jurisdiction to entertain the petition. As
admittedly, the principal place of business of the petitioner-company in India,
is at Bangalore, and therefore this Court has jurisdiction to entertain this
petition. The Registrar of Companies, Delhi and Haryana, where in terms of section
597(1) of the Companies Act, the papers and documents have been filed, it does
not amount to registering the company there. As such the contentions of the
respondent is without any substance. In support of his contentions he has
relied upon the provisions of the Act as well as several decisions which will
be referred to while discussing the said point. Learned counsel appearing for
the respondent contends that as under section 597(1) of the Companies Act as
documents of a Foreign Company is required to be delivered to the Registrar of
Companies at New Delhi which means the Registrar of Companies at New Delhi has
jurisdiction to entertain the petition under section 391. This Court has no
jurisdiction to entertain the petition.
6. In order to appreciate these
contentions it is necessary to have a look at some provisions of the Companies
Act which has a bearing on the subject. Section 2(11) defines the “Court” under
the Act. According to the said definition, the ‘Court’ means with respect to
any matter relating to a Company other than any offence against this Act, the
Court having jurisdiction under this Act with respect to the matter relating to
that company as provided under section 10. The word ‘company’ has been defined
under section 2(10) of the Act. According to the said definition the Company
means the Company as defined under section 3 of the Act. Section 3 in turn
defines a company, means a company formed and registered under this Act or an
existing company as defined in clause (ii). Then section 10 which deals with
the jurisdiction of Courts under the Act, which states that the Court having
jurisdiction under this Act shall be High Court having jurisdiction in relation
to the place at which the registered office of the company concerned is
situate, except to the extent to which jurisdiction has been conferred on any
District Court or District Courts subordinate to that High Court in pursuance
of sub-section (2) and sub-section (2) deals with the jurisdiction of the
District Courts. Section 13 of the Act deals with the requirement with respect
to memorandum which states that the memorandum of every company shall state the
State in which the registered office of the Company is to be situated.
Therefore a conjoint reading of the aforesaid provisions which deals with
Court, company and the jurisdiction of the Court and where the registered
office of the company is to be situated, makes it very clear that in deciding
which Court has the jurisdiction over the company, what is relevant is the
place at which the registered office of the company is situate. It is that
Court where the registered office is situate which has the jurisdiction in
respect to any matter relating to a company. What is to be noticed here is the
law lays stress on the place at which the registered office of the company is
situate and not where the company is registered. It is because the provisions
of the Companies Act applies not only to the company registered under the Act,
but they apply to certain legal entities which are not registered under the
Act, but which are deemed to be the companies. In fact, Part-X of the Act deals
with unregistered companies and Part-XI deals with companies incorporated
outside India.
7. In that background, now we have to
find out whether a company which is incorporated outside India, in other words,
a Foreign Company, in respect of any matter relating to such foreign company,
which Court in India would have jurisdiction. In that regard, Part-XI of the
Act which deals with company incorporated outside India is to be looked into.
Section 591 of the Act deals with application of sections 592 to 602 to a
Foreign Company which reads as under :
“(a) companies
incorporated outside India which, after the commencement of this Act, establish
a place of business within India; and
(b) companies
incorporated outside India which have, before the commencement of this Act,
established a place of business within India and continue to have an
established place of business within India at the commencement of this Act.
(2) Notwithstanding anything contained in sub-section (1), where not
less than fifty per cent, of the paid-up share capital (whether equity or
preference or partly equity and partly preference) of a company incorporated
outside India and having an established place of business in India, is held by
one or more citizens of India or by one or more bodies corporate incorporated
in India, or by one or more citizens of India and one or more bodies corporate
incorporated in India, whether singly or in the aggregate, such company shall
comply with such of the provisions of this Act as may be prescribed with regard
to the business carried on by it in India, as if it were a company incorporated
in India.” [Emphasis supplied]
Section 592 deals with documents
etc., to be delivered to the Registrar of Foreign Companies carrying on
business in India, which reads as under :
“Documents, etc., to be delivered to Registrar by foreign companies
(carrying on business in India).—(1) Foreign companies which, after the commencement
of this Act, establish a place of business within India shall, within (thirty
days) of the establishment of the place of business, deliver to the Registrar
for registration—
(a) a
certified copy of the charter, statutes, or memorandum and articles, of the
company or other instrument constituting or defining the constitution of the
company; and if the instrument is not in the English language, a certified
translation thereof;
(b) the full address of the registered or
principal office of the company;
(c) a
list of the directors and secretary of the company, containing the particulars
mentioned in sub-section (2);
(d) the
name and address or the names and addresses of some one or more persons
resident in India, authorised to accept on behalf of the company service of
process and any notices or other documents required to be served on the
company; and
(e) the
full address of the office of the company in India which is to be deemed its
principal place of business in India.
(2) The list referred to in clause (c) of
sub-section (1) shall contain the following particulars, that is to say:—
(a) with respect to each director
(i) in
the case of an individual, his present name and surname in full, any former
name or names and surname or surnames in full, his usual residential address,
his nationality, and if that nationality is not the nationality of origin, his
nationality of origin, and his business occupation, if any, or if he has no
business occupation but holds any other directorship or directorships, particulars
of that directorship or of some one of those directorships; and
(ii) in
the case of a body corporate, its corporate name and registered or principal
office; and the full name, address, nationality, and nationality of origin, if
different from that nationality of each of its directors;
(b) with respect to the secretary, or where
there are joint secretaries, with respect to each of them—
(i) in
the case of an individual, his present name and surname, any former name or names
and surname or surnames, and his usual residential address; and
(ii) in the case of a body corporate, its
corporate name and registered or principal office :
Provided that, where all the partners in a firm are joint secretaries of
the company, the name and principal office of the firm may be stated instead of
the particulars mentioned in clause (b) of this sub-section.
(3) Clauses
(2) and (3) of the Explanation to sub-section (1) of section 303 shall apply
for the purpose of the construction of references in sub-section (2) to present
and former names and surnames as they apply for the purposes of the
construction of such references in sub-section (1) of section 303.
(4) Foreign
companies, other than those mentioned in sub-section (1), shall if they have
not delivered to the Registrar before the commencement of this Act the
documents and particulars specified in sub-section (1) of section 277 of the
Indian Companies Act, 1913 (7 of 1913), continue to be subject to the
obligation to deliver those documents and particulars in accordance with that
Act.” [Emphasis supplied]
Section 597 deals with offices
where documents to be delivered which reads as under :
“Office where documents to be delivered.—(1) Any document which any
foreign company is required to deliver to the Registrar shall be delivered to
the Registrar having jurisdiction over New Delhi, and references to the
Registrar in this Part except in sub-section (2) shall be construed
accordingly.
(2) Any
such document as is referred to in sub-section (1) shall also be delivered to
the Registrar of the State in which the principal place of business of the
company is situate.
(3) If
any foreign company ceases to have a place of business in India, it shall
forthwith give notice of the fact to the Registrar, and as from the date on
which notice is to be given, the obligation of the company to deliver any
document to the Registrar shall cease, provided it has no other place of
business in India.”
Sub-section (4) of section 600
which is very relevant reads as under :
“(4) In applying the sections referred to in sub-sections (1), (2) and
(3) to a foreign company as aforesaid, references in those sections to the
Registrar shall be deemed to be references to the Registrar having jurisdiction
over New Delhi, and references to the registered office of the foreign company
shall be deemed to be references to its principal place of business in India.”
[Emphasis Supplied]
A reading of the aforesaid
provisions makes it very clear, in terms of section 591 of the Act, sections
592 to 602 of the Act applies to Foreign Companies which are incorporated
outside India which after commencement of this Act, establishes a place of
business within India. Section 592 deals with Foreign Companies who have
established a place of business in India, within thirty days from such
establishment shall deliver to the Registrar for registration of the documents
mentioned therein. Clause (b) of sub-section (1) of section 592 deals with full
address of the registered or principal office of the company. Section 597 of
the Act states that the documents enumerated in section 592 shall be delivered
to the Registrar having jurisdiction over New Delhi and reference to the
Registrar in this part shall be construed accordingly. In other words, when a foreign
company establishes business and wants to carry on business in India it shall
get itself registered in India by delivering copies mentioned in section 592(1)
to the Registrar having jurisdiction over New Delhi. Sub-section (2) of section
597 further makes it clear, in the event of such Foreign Company not carrying
on business at New Delhi or if it does not have a principal place of business
at New Delhi, then those documents mentioned in section 592 shall be delivered
to the Registrar of the State in which the principal place of business of the
company is situated. Therefore, for the purpose of registration of Foreign
Company, Registrar means the Registrar having jurisdiction over New Delhi and
if they intend carrying on business outside New Delhi and have the principal
place of business, in that context the documents mentioned in section 597 shall
be delivered to the Registrar of the State in which the principal place of
business of the company is situated. Sub-section (4) of section 600 makes it
abundantly clear that in applying the sections referred to in sub-sections (1),
(2) and (3) to a Foreign Company as aforesaid, references in those sections to
the Registrar shall be deemed to be references to the Registrar having
jurisdiction over New Delhi, and references to the registered office of the
Foreign Company shall be deemed to be references to its principal place of
business in India. Therefore, in respect of Foreign company which are
registered outside India, though they are expected to register those company by
filing necessary documents in the Registrar having jurisdiction over New Delhi,
the registered office of such company shall be deemed to be its principal place
of business in India. In so far as Foreign Companies are concerned, the
Legislature has consciously made departure in so far as place of registration
and place of registered office is concerned. A registered office of Foreign
company be situated in a State outside the place of registration of the
company, namely, New Delhi. Therefore, in respect of Foreign companies, though
the registration takes place at Registrar having jurisdiction over New Delhi,
registered office could be situated outside the jurisdiction of New Delhi. In
view of the language employed in section 10 in finding out which Court has
jurisdiction in respect of any matter relating to these foreign companies are
concerned, it is that Court where its principal place of business is situated
has the jurisdiction, because its principal place of business is deemed to be
the registered office of the foreign company. In this context it is useful to
refer to few judgments on the point which are rendered under the provisions of
the old Act.
8. In fact, dealing with the
contention Madras High Court in the case of Travancore National & Quilon
Bank, In re [1939] 9 Comp. Cas. 50 (sic) has held as under :
“The registration of the company is not for all purposes of itself
decisive. The question in each case is, where is it that the real business of the
company is carried on ? According of the answer to that question, the company’s
domicile must in the main be determined.”
The Punjab High
Court in the case of Frontier Bank Ltd., In re [1951] 21 Comp. Cas. 1 has held
thus :
“. . .The High Court at Punjab in India has jurisdiction under section
153 of the Indian Companies Act, 1913, to sanction a scheme of arrangement in
respect of a company whose registered office is in Pakistan and which has
complied with the requirements of section 277.” (p. 1)
Therefore, it is not the
registration of the Company under the Act within the jurisdiction of a
particular Court which decides the jurisdiction of the Court to entertain in
respect of any matter relating to a company but it is the place where the
registered office is situate which decides the territorial jurisdiction of the
Court to decide the matters relating to the company. Insofar as foreign company
is concerned it is the place where its principal place of business is situated
which is deemed in law to be its registered office which decides the
jurisdiction of the Court. In other words the Court where the foreign company’s
principal place of business is situated would have jurisdiction in respect of
any matter relating to such foreign company.
9. From the aforesaid Judgments and
the aforesaid provisions of the Companies Act it becomes clear that in the case
of a Company registered under the Companies Act where the registered office is
situate will have jurisdiction to entertain the proceeding against such company.
In the case of unregistered companies that is the Foreign Companies which carry
on the business in India it is the principal place of business of such
companies which is the decisive factor to decide a domicile of such company and
High Court with a jurisdiction over such a principal place of business will
have jurisdiction to entertain the petition under the Act. Merely because, as a
statutory requirement the documents are filed with the Registrar of Delhi for
registering in terms of section 597(1) of the Act, that does not mean that a
Foreign Company being registered in that office the High Court of Delhi only
has jurisdiction over the said company. If that arguments were to be accepted
in respect of an unregistered Companies which are incorporated outside India it
is only the Delhi High Court which will have a jurisdiction over all such
Foreign Companies. If that was the intention of the Legislature the said
intention could have been made explicit by enacting a specific provision under
the Companies Act though Chapter XI deals exclusively with Foreign Companies.
On the contrary section 600 of the Act categorically states that in so far as
Foreign Companies are concerned the Registrar means the Registrar of Companies
at Delhi. The Registered Office means the principal place of business where
that company is situated and carries on business. It is the registered office
which decides the jurisdiction of any High Court to entertain the Petition
under the Companies Act. If this is so as the principal place of business is
the Registered Office of a Foreign Company, the High Court within whose
jurisdiction such Registered Office/principal place of business is situate has
jurisdiction to proceed under the Act in respect of such company. In that view
of the matter, I do not find any substance in the points raised on behalf of
the respondent on behalf of Registrar of Companies. This Court has jurisdiction
to entertain the petition in view of the fact that the principal place of
business of the petitioner-company in India is at Bangalore.
10. In so far as sanctioning a scheme
proposed by the petitioner-company is concerned the proposed scheme provides
for adequate capital to the transferee company by the proposed amalgamation
which results in deployment of high quality management resources along with
enhanced risk management, corporate governance and customer service which in
turn also results in restoration of investor and depositors confidence in the
Transferee company and would strategically reposition the Transferee Company by
enhancing value for all the stakeholders. The said proposal also envisages
certain advantages to the Transferor company viz., an ability to service
non-resident Indians in Oman who hail from various parts of India rather than
from Bangalore alone owing to a wider network of branches as compared to a
single branch in Bangalore and expression of a long term commitment to invest
greater resources in India and promote trade and project finance from
international trade involving India and also to promote greater flow of
investments between India and the gulf region. On the Scheme becoming
affective, all staff and employees of the petitioner Bank relating to its
Bangalore Branch in service on the Effective Date who are willing shall be
deemed to have become staff and employees of Transferor Company from the
appointed date without any break in their service and on the basis of
continuity of service, and the terms and conditions of their employment with
the Transferor Company shall not be less favourable than those applicable to
them with reference to petitioner-Bank. Under the terms and conditions the net
worth of the Bangalore Branch of Bank Muscat after deducting therefrom cash and
cash equivalents, is Rs. 15 crores. Under the terms the petitioner-company has
to contribute a sum of Rs. 75 crores, as reduced by the grant of consideration
viz., 15 crores which is the net worth of the Bangalore Branch of the
petitioner-company to the Transferee Company by subscribing in cash equity
shares of the Transferee Company having face value of Re. 1 each of Transferee
Company at a premium of Rs. 3 per share. On receipt of the said contribution
the Transferee Company shall issue and allot to the shareholders of the
petitioner-company such number of equity shares but not exceeding 37.50 crores
Equity Shares in aggregate, of the face value of Re. 1 each at a premium of Rs.
3 per share and credited as fully paid up and equate the funds contributed by
existing principal shareholders in accordance with clause 14.1 of the Scheme
the interest of the shareholders of the petitioner-company unit at Bangalore is
taken care of with effect from the appointed date of debts of Assets and
Liabilities contingent or otherwise duties and obligations relating to
Bangalore Branch of the petitioner-company is on the—of the business on the
preceding the appointed day whether or not provided in the Books of Bank,
Muscat. All other liabilities relating to Bangalore which arises or accrues on
or before the appointed date or up-to the appointed date shall be deemed to be
liabilities and obligations of the Transferee Company.
11. All contracts, deeds, bonds and other
instruments entered into between the Bangalore Branch of the petitioner-company
with third party shall be fully binding on the Transferee Company as if the
same is executed by them in their favour.
12. Thus, a reading of the Scheme makes
it very clear that the interest of the shareholder, creditors, employees and
public is fully taken care of and their interest has been fully secured. 100
per cent of the shareholders have approved the scheme of arrangement. The
statutory requirement as contemplated under section 391(2) has been complied
with. The Reserve Bank of India has granted permission to the petitioner bank
to carry on the business in India and has also granted necessary permission for
merger of the petitioner’s Bangalore Branch with the Transferee Company by
letter dated 6th August, 2003. The Bombay High Court (Panaji Bench) sanctioning
the Scheme of Amalgamation on a Petition filed by the Transferee Company No. 9-
Co.P.No. 9 of 2003 by an order dated 5/12th September, 2003 has held that all
the statutory requirements have been complied with and there is no legal
impediment for according a sanction and the sanction is not only in the interest
of shareholders, creditors of the petitioner-Bank, but is also in public
interest. under the circumstances, in pursuance to the Public notice issued
notifying the hearing date which was duly published no shareholder, creditor or
any person has appeared before this Court opposing the Petition. I am of the
view that sanction sought for has to be accorded. Accordingly, I pass the
following order :
Company petition is allowed.
That the scheme of arrangement as at Annexure-A is hereby sanctioned so as to
be binding on the shareholders, and creditors of the petitioner and the
Transferee Company.
Office is directed to draw a
decree in Form No. 42.
[1998] 17 SCL 429 (BOM.)
Industrial Credit & Investment
Corpn. of India Ltd.
v.
Financial & Management
Services Ltd.
Y.S. JAHAG1RDAR, J.
COMPANY PETITION NO. 41 OP 1998
COMPANY APPLICATION WITH NO. 620 OF 1997
MARCH 26, 1998
Section 394, read with section
10, of the Companies Act, 1956-Amalgamation-Whether where transferor company
and transferee company are under jurisdiction of different Courts, there is
requirement that both companies should go to same Court for sanction of
scheme-Held, no-Whether, while sanctioning scheme put before Court at instance
of transferee company it is open to creditors of transferor company to agitate
their grievances-Held, no-Whether, however, it is essential that persons who
are adversely affected by scheme should have an opportunity to agitate their
grievances irrespective of fact whether they are members or creditors of
transferor or transferee company, but Such opportunity should be restricted
only to extent of safeguarding interest of such adversely affected person-Held,
yes-Whether persons who are intervenors who are neither shareholders, members
nor creditors of the transferee company which is before the Court, have no
locus to be heard; however, they will be entitled to agitate their claims and
grievances in the petition initiated by the transferor company, of which they
are the creditors-Whether provisions of section 394 as they stand, do not
contemplate a direction pertaining to creditors of company other than one at
whose instance petition is moved-Held, yes-Petition for sanction of scheme was
filed by transferee company in Bombay High Court as its registered office was
in Bombay-Transferor company filed petition in Calcutta High Court as its
registered office was in Calcutta-Creditors of transferor company as intervenors
in transferee company's petition sought modification of scheme insisting on a
clause to safeguard their dues-Whether no modification of scheme as accepted by
shareholders was warranted more so when scheme sufficiently took care of all
contingencies and substantial funds were available with transferee company to
satisfy any claim that might be made against transferee company-Held, yes
The petitioner, transferee
company, tiled petition before the Bombay High Court for sanction of
amalgamation scheme of transferor company and for declaration that the
scheme be binding on all classes of shareholders and debentureholders as well
as creditors of the petitioner company and transferor company. As per directors
of the Court meetings of shareholder, debenture-holders, etc., were held and
the scheme was passed by great majority. Transferor company filed similarly
petition before the Calcutta High Court which was pending. No opposition was
raised in the transferee company's petition except three intervenors, who were
all creditors of the transferor company. All the three intervenors did not
oppose the scheme but insisted upon a clause to safeguard their dues.
The petitioner contended that the creditors of the transferor company
could not put forth any claim before the Court in the present proceedings and
their claim or validity thereof, could not be gone into since they had no basis
to be heard in the matter initiated by transferee company.
The intervenors, on the other hand, contended that though they were
neither the shareholders nor the creditors of the transferee company, they were
entitled to know as to against whom they would proceed and who would be made
responsible for payment of their dues and, therefore, they had right to be
heard by the instant Court.
HELD
Since the transferee company having its registered office at Bombay, the
petition was moved in Bombay Court and the transferor company had its
registered office at Calcutta and hence, the petition at their instance was
filed in the High Court at Calcutta. Since initiation of proceedings for the
same scheme are in two different Courts whether a direction to club both the
proceedings is necessary was considered by this Court in the matter Bank of
India Ltd. v. Ahmedabad Mfg. & Calico Printing Co. Ltd. [1972] 42 Comp.
Cos. 211 and a safeguard is provided that the sanction shall operate only after
the necessary orders under section 394 are obtained by both the
transferor-company and the transferee-company.
The provisions of the Act do not make it obligatory that the scheme
though one and the same should be considered by anyone Court having
jurisdiction. The proceedings has to be governed by section 10 in so far as the
jurisdictional aspect is concerned. The resultant final order would obviously
be dependent on both transferor and the transferee company obtaining necessary
sanction from the Court of competent jurisdiction.
In view of the decision of the Supreme Court in the case of Miheer H.
Mafatlal v. Mafatlal Industries Ltd. AIR 1997 SC 506 his obvious that when the
company Court is called upon to sanction the scheme, though, the Court is not
to go by ipsi dixit of the majority of shareholders or the creditors, the Court
has to consider pros and cons of the scheme to find out whether it is fair,
just and reasonable and is not contrary to the provisions of the liability.
While honouring the majority expressed in the meeting and while finding out
whether the scheme is fair and reasonable, the Court exercising power under
sections 391 and 393 should be guided by the corporate and commercial wisdom of
the concerned parties. The jurisdiction that the Court has, is supervisory and
not an appellate. Therefore, the inquiry under sections 391 to 394 in the
present proceedings assumed very limited compass.
The scheme, as presented, had not been opposed in the present petition by
any of the shareholders or class of creditors. The condition as envisaged in
clause 21 for making the scheme operative had been complied with as stated by
the counsel for the petitioner including the contribution by way of infusion of
funds by ITC to the extent of Rs. 350 crores. Clause 3(a) of the scheme clearly
committed taking over all the debts, liabilities, duties and obligations of the
transferor company by the petitioner transferee company. Clause of the scheme
in fact also safeguarded the unknown transactor with the transferor company.
Clause 6 of the scheme also provided for continuance and initiation of
suits and actions for the dues of transferor company against the transferee
company. The financial stability of the petitioner company was not doubted and
hence, on the material as was placed before the Court, there was nothing to
warrant any additional directions and/or order while sanctioning the instant
scheme.
Section 391 speaks of a compromise or arrangement between company and its
creditors or class of them or between company and its members or any class of
it. The modalities of working out the arrangement and the procedure for the
same is provided thereafter. However, essentially it is an arrangement between
the company and its creditors and members. When the petition is by the
transferee company by the order directing them to call the meeting, such
meeting is essentially restricted to the shareholders of such company or the
class of creditors as may be directed The person who has no right to attend the
meeting of such company, who has obtained the orders, can possibly have no
right to hear in the petition initiated by such company. Section 394
contemplates that the compromise or the arrangement, as has been proposed, the
Court either by sanctioning such compromise or arrangement accepts the same in
toto or may provide for certain safeguards as provided in section 394. The
provisions as they stand, do not contemplate a direction pertaining to the
creditors of the company other than the one at whose instance the petition is
moved. Since the scheme is essentially an arrangement between the company and
its members and the shareholders and/or creditors or class of them, any person
not falling in this category, cannot possibly, under the provisions as they
stand, come before the Court when the sanction of such scheme or arrangement is
considered For the persons, who would be otherwise affected by the scheme,
sufficient safeguards procedural as well as remedial are provided in section 392 which provide that when the Court makes an
order sanctioning the arrangement or compromise under section 391, the Court
always has the power of carrying out such compromise or arrangement. The
enforcement of compromise and the directions as contemplated may also reserve
in the order of winding up at the instance of the person interested in the
affairs of the company.
The position emerging from the existing
provisions disentitling the persons, who are otherwise vitally affected by the
scheme of amalgamation, from participating inter se in the proceedings
initiated at the instance of transferor or transferee company needs to be
suitably remedied. It is an accepted fact that the scheme on its sanction is
one and the same. It is also an accepted fact that as observed in the case of
Telesound India Ltd., In re [1983] 53 Comp. Cos. 926 (Delhi) that when the
transferor company and the transferee company are under the jurisdiction of
different Courts, there is no requirement that both the companies should go to
the same Court for sanction of the scheme. It is essential that the persons who
are obviously affected by such scheme should have an option to agitate their
grievances irrespective of the fact whether they are members or creditors of
the transferor company or transferee company. This is more so, since the scheme
is one and the same. Such scheme since asked to be binding on all such persons,
there is no reason why these persons should not be afforded an opportunity of
hearing. Such opportunities must ordinarily be restricted not to question the
bona fides or correctness of the wisdom shown by the shareholders and the class
of shareholders or the creditors while sanctioning the scheme, but should be
restricted only to the extent of safeguarding the interest of such adversely
affected persons. It is not always that such adversely affected persons are
aware of niceties of law pertaining to the jurisdictional aspect. Wherever such
persons are located, they should be afforded reasonable opportunities of being
heard, at least, to the extent of safeguarding their dues.
Taking overall view of the entire
scheme of the sections, under the provisions of the Act, as they stand, the
persons who were intervenors, who were neither shareholders, members nor
creditors of the transferee company which is before the Court, had no locus to
be heard in the instant proceeding. However, they would be entitled to agitate
their claims and grievances in the petition initiated by the transferor company
of which they were the creditors in the High Court at Calcutta.
On merit, no modification in the
scheme, as accepted by the majority of the shareholders and to which no
objection was raised by the Regional Directors by filing affidavit was
warranted. The scheme sufficiently took care of all the contingencies including
the claims of the creditors. The contributions, as contemplated, having been
made, substantial funds were now available with the transferee company to
satisfy any claim that may be made against the transferee company. Hence, the
company petition deserved to be allowed in terms of prayer clause (a) with a
clarification that the scheme would bind the creditors of the transferor company
and other persons who were interested in the affairs of the transferor company
only upon appropriate orders being passed by the Calcutta High Court in that
behalf. The scheme would be operative only after the same would be granted and
to the extent, it was granted by the High Court at Calcutta. With this
modification, the company Petition was disposed of by the Court.
BY THE COURT
In the days when the concept of
locus has travelled much beyond its bounds its experienced by the Courts in
1973 and when the Courts have gone to the extent of permitting the workers to
be heard in the proceedings for winding up since they are considered as persons
vitally affected in the proceeding in the case of National Textile Workers
Union r. P.R. Ramakrishan AIR 1983 SC 75 there is no reason why there should
not be suitable amendments permitting the participation of persons who are to
be affected in the proceedings initiated either by transferor or transferee
company, at least, to the extent of safeguarding either their interest or for
providing modalities of safeguarding the same. If in a given case, Court
considering such a scheme is of the opinion that it lacks in safeguards, it
should be open to the Court even at the instance of a member or a creditor,
inter se, of transferor or transferee company irrespective of the fact as to
who had applied for the sanction, to provide for such safeguard. That, however,
requires necessary amendment to the main section and it is only hoped that
appropriate Authorities would consider desirability of remedying the situation.
CASES REFERRED TO
Bank of India Ltd. v. Ahmedabad
Mfg. & Calico Printing Co. Ltd [1972] 42 Comp. Cas. 211 (Bom.), Miheer H.
Mafatlal v. Mafatlal Industries Ltd. AIR 1997 SC 506, Ahmedabad Mfg. &
Calico Printing Co. Ltd v. Bank of India Ltd [1972] 42 Comp. Cas. 493 (Guj.),
Telesound India Ltd. In re [1983] 53 Comp. Cas. 926 (Delhi), Union of India v.
Asia Udyog (P.) Ltd. [1974] 44 Comp. Cas. 359 (Delhi) and National Textile
Worker's Union v. P.R. Ramakrishnan AIR 1983 SC 75.
Virendra V. Tulzapurkar and R.M. Kadam for the Petitioner. R.A.
Kapadia, F.E. Devitre, P.K. Samdani, B.B. Saraf, Basant Trilokani and Miss
Alpana Ghone for the Intervenor. H.K. Vardhan, Penal Counsel for
Regional Director Department of Company Affairs.
JUDGMENT
1. This petition under the provisions of sections 391 to 394 of the
Companies Act, 1956, ('the Act') is filed by the Industrial Credit and
Investment Corporation of India Ltd. ('the ICICI'), with a prayer to sanction
the arrangement as embodied in the scheme of amalgamation annexed at Exhibit
'E' to the petition and for declaration that the said scheme be binding on the
parties concerned including equity shareholders, convertible debenture-holders,
9.3 per cent redeemable preference shareholders and 9.5 per cent redeemable
preference shareholders and creditors of the petitioner-company and all classes
of shareholders and creditors of transferor Company.
2. The
transferor Company, as referred to in the prayer, is ITC Classic Finance Ltd.
3. It is alleged in the petition that the board of directors of the
petitioner- company approved the scheme on 1-12-1997. Company Application No.
620 of 1997 was filed on 4-12-1997 to convene for equity shareholders,
convertible debentureholders, etc. and on 5-12-1997, necessary directions were
given by this Court to convene the meeting. Accordingly, the meeting of the
shareholders, debentureholders, etc. was held on 12-1 -1998 and the result of
the meeting, as borne out by the petitioner, can be summarised as follows:
"(a) Meeting of the Equity Shareholders
896. Equity
Shareholders holding 28,90,05,433. Equity Shares attended and voted.
762.
Shareholders holding 28,88,95,632. Equity Shares voted in favour of the Scheme.
45. Equity
Shareholders holding 69,026. Equity Shares voted against the Scheme.
The votes of
89 'Equity Shareholders holding 40,775. Equity Shares were invalid.
(b) Meeting of the Convertible Debentureholders
39.
Convertible Debentureholders holding Rs. 9,63,834 in value of Convertible Debentures
attended and voted.
31.
Convertible Debentureholders holding Rs. 9,63,736 Convertible Debentures in
value voted in favour.
3
.Convertible Debentureholders holding 98 Convertible Debentures voted against
the Scheme.
(c) Meeting of 9.3% Redeemable Preference
Shareholders
4.
Shareholders holding 6.50 Crores shares attended and voted. All voted in favour
of the Scheme.
(d) Meeting of 9.5% Redeemable Preference
Shareholders
5.
Shareholders holding 6.20 Crores attended and voted.
All voted in
favour of the Scheme."
The chairman of the meeting filed
his report on 13-1-1998. On the same date, the present petition is filed. After
the advertisement in the newspapers as directed by this Court, certain
requisitions from the office of the Regional Director were raised which were
satisfied by the petitioner.
4. In the present proceedings when the petition came up for hearing, no affidavit is filed opposing the scheme from the office of the Regional Director. As a matter of fact, none of the shareholders or debentureholders or creditors have filed any affidavit opposing the scheme. However, three intervenors have appeared in the proceedings and prayed for being heard in the matter. One is an intervention on behalf of Standard Chartered Bank by way of an affidavit through its Constituted Attorney one Patamada Jappoo appanna. Affidavit claims that the intervenor-Bank is the creditor of transferor company viz. ITC Finance Limited and has to recover from the transferor Company a sum of Rs. 26,76,53,329.22. It is alleged in the affidavit that to secure due repayment of the dues of the Bank, the Bank was opposing the amalgamation'. At the time of hearing, it was made clear by Mr. Kapadia, the learned counsel for the Bank, that though the affidavit is styled as opposing the scheme proposed, the Bank, is interested in securing and safeguarding the amounts due to them from the transferor Company and since the scheme proposes the arrangement to be binding on the creditors of transferor Company also, the present Company Application for intervention is filed. The application, as submitted by Mr. Kapadia, is essentially aimed at securing and safeguarding the repayment of the Bank as is allegedly due from the transferor Company. The second intervention is on behalf of the Financial & Management Services Limited. The said Financial Institution is also creditor of the transferor Company and is interested in securing their dues.
5. The third intervention is on behalf of Bombay Electric Supply and Transport Undertaking (BEST). The intervention is filed as a result of notice received from the petitioner-Company to the said Undertaking intimating them about the pendency of the present petition and intention of the present petitioner to proceed with the scheme of amalgamation. It was also intimated to the BEST Undertaking by the letter dated 27-1-1998 written by the present petitioner that if the said Undertaking is interested in opposing the petition then they should send to the Advocates of the petitioner a notice in that behalf. It appears that as a result of this intimation, the present intervention is filed.
6. At the time of hearing, Miss Ghone appearing for the said intervenor- BEST, has also made it clear as is done on behalf of the other creditors of the transferor Company that the BEST Undertaking is not really concerned with the merits and demerits of the scheme of amalgamation, but it is only in interested in (sic) safeguarding their dues. Mr. Tulzapurkar, the learned counsel for the petitioner, has stated that the letter is already addressed to the BEST explaining that the claim of BEST as borne out by the records shall be satisfied by the petitioner-company.
7. In
view of these interventions at the behest of the creditors of transferor
Company, the issue arose as to whether while sanctioning the scheme put before
the Court at the instance of the transferee Company viz., ICICI and while
considering the merits and demerits of the scheme it is open to the creditors
of the transferor company to agitate their grievances in the present Company
Petition, the matter was examined in that context as also in the light of the
scheme as put forth along with the petition.
8. Mr.
Tulzapurkar, the learned counsel for the petitioner, has submitted and rightly
so, that none of the intervenors have seriously opposed to the scheme of the
amalgamation. However, all that they want to secure is repayment to them and
that issue is totally beyond the jurisdiction of this Court. Since the
creditors of the transferor Company cannot put forth any claim before this
Court in the present proceedings and their claim or validity thereof, cannot be
gone into since they have no locus to be heard in the matter initiated by
transferee Company in the Court which had jurisdiction to entertain the
application only at the behest of transferee Company since their registered
office is at Bombay.
9. Mr.
Tulzapurkar has relied on number of authorities which will be referred to
hereafter to put forth the proposition that the creditors of transferor company
have no right to be heard in the present petition and if that be so, the
present arrangement which is essentially between the petitioner and their
shareholders and the creditors has been almost unanimously accepted by all the
concerned parties and hence, this Court exercising jurisdiction under the
provisions of the Companies Act, cannot sit in appeal as an appellate authority
to scrutinise the wish of the majority of the shareholders and the creditors,
but must honour the said majority subject, of course, to the directions that
are contemplated under section 394.
10. Mr.
Kapadia, Mr. Samdani and Miss Ghone for the intervenors have pointed out that
in all this process the persons whose interest is required to be safeguarded
and the interest which would really be adversely affected, would be the
creditors of the transferor Company who are entitled to know as to against whom
they should proceed and who should be made responsible for payment of their
dues since they cannot be left in the lurch and should not be made to run after
the company which would not be after amalgamation, financially sound to bear
and satisfy their claims. Therefore, to the extent to secure and safeguard the
dues payable to them by transferor Company, they have right to be heard even in
this proceeding though they are neither the shareholders nor the creditors of
the transferee Company. The learned counsel has also vehemently submitted that
the scheme being one as approved by the directors of the transferee Company as
also the transferor Company, it is essential that the transferee Company be
made to accept their outstandings and dues and should be made to abide to a
condition of taking over their liabilities and, therefore, to safeguard that
the creditors of transferor Company should be heard in the proceeding.
11. The
Counsels for the intervenors, however, have not indicated that the present
petitioner would be financially unable to satisfy their claims but insist on a clause
to safeguard their dues and further state that the factory whether they have
right to appear in the petition moved or pending at the instance of transferor
Company of which they are the creditors, is not relevant. It may be that they
have a right to be heard in both the forums but they being vitally interested
in the arrangement on the scheme of amalgamation they should be heard in the
proceeding and clause safeguarding the interest of the creditors of the
transferor company should also be incorporated in the scheme while sanctioning
the same.
12. Before
I deal with the submissions and refer to the various authorities cited at the
bar, it needs to be mentioned that it is common ground that the application at
the instance of transferor Company which is ITC Classic Finance for sanction of
this very scheme is already filed and is pending in the High Court at Calcutta.
It is also common ground that, at least, two of the intervenors barring the
BEST Undertaking, have already appeared in the proceedings and have put forth
their claim against the transferor Company and the scheme of amalgamation in
the context of their claims against the said Company.
13. To
appreciate the submissions, firstly, it is necessary to refer to section 10 of
the Act indicating jurisdiction of the Court. Section 10 which is relevant for
our purpose, reads as follows:
"Jurisdiction of Courts—(1) The Court having
jurisdiction under this Act shall be—
(a) the High Court having jurisdiction in relation to the place at which
the registered office of the company concerned is situate, except to the extent
to which jurisdiction has been conferred on any District Court or District
Courts subordinate to that High Court in pursuance of sub-section (2);
and"
Thus, since the transferee company is having its registered office at
Bombay, the petition is moved in this Court and the transferor Company has its
registered office at Calcutta and hence, the petition at their instance is
filed in the High Court at Calcutta. Since initiation of proceedings for the
same scheme are in two different Courts whether a direction to club both the
proceedings is necessary was considered by this Court in the matter Bank of
India Ltd. v. Ahmedabad Mfg. & Calico Printing Co. Ltd [1972] 42 Comp. Cas.
211 and a safeguard is provided that the sanction shall operate only after the
necessary orders under section 394 are obtained by both the transferor Company
and the transferee Company. The provisions of the Act do not make it obligatory
that the scheme though one and the same should be considered by anyone Court
having jurisdiction. The proceedings have to be governed by section 10 in so
far as the jurisdictional aspect is concerned. The resultant final order would
obviously be dependent on both transferor and transferee Company obtaining
necessary sanction from the Court of competent jurisdiction.
14. It
is necessary first to appreciate the scope of inquiry by this Court exercising
jurisdiction under sections 391 and 393. The Apex Court while dealing with this
issue, has crystallised with precision the scope of the inquiry under these
sections. Mr. Tulzapurkar has rightly placed reliance on the said ruling in the
matter of Miheer H. Mafatlal v. Mafatlal Industries Ltd. AIR 1997 SC 506. On
considering the said judgment and the ratio as laid down therein, it is obvious
when the Company Court is called upon to sanction the scheme, though, the Court
is not to go by, ipsi dixit of the majority of shareholders or the creditors,
the Court has to consider pros and cons of the scheme to find out whether it is
fair, just and reasonable and is not contrary to the provisions of the
liability. While honouring the majority expressed in the meeting and while
finding out whether the scheme is fair and reasonable, the Court exercising
power under sections 391 and 393 should be guided by the corporate and
commercial wisdom of the concerned parties. The jurisdiction that the Court
has, is supervisory and not an appellate. The Apex Court has observed in the
judgment (supra) as follows:
"The Court acts like an umpire in a game of cricket who has to see
that both the teams play their game according to the rules and do not overstep
the limits. But subject to that how best the game is to be played is left to
the players and not to the umpire. The propriety and the merits of the
compromise or arrangement have to be judged by the parties who as sui juris
with their open eyes and fully informed about the pros and cons of the Scheme
arrive at their own reasoned judgment and agree to be bound by such compromise
or arrangement. The Court cannot, undertake the exercise of scrutinising the
scheme placed for its sanction with a view to finding out whether a better
scheme could have been adopted by the parties."
Considering in the light of the observations as indicated by the Apex
Court, the inquiry in the present proceedings assumed very limited compass.
15. The
scheme, as presented, has not been opposed in the present petition by any of
the shareholders or class of creditors. The condition as envisaged in clause 21
for making the scheme operative has been complied with as stated by the counsel
for the petitioner including the contribution by way of infusion of funds by
ITC to the extent of Rs. 350 Crores. I have examined the scheme clause-wise.
Clause 3(a) of the scheme clearly commits taking over all the debts,
liabilities, duties and obligations of the transferor Company by the petitioner
transferee Company. Clause 8 of the scheme in fact also safeguards the unknown transaction with the transferor
Company by providing as follows:
"The transfer of the said
Assets and the said Liabilities of the Transferor Company to the Transferee
Company and the continuance of all the contracts or proceedings by or against
the Transferee Company shall not affect any contract or proceedings relating to
the said Assets or the said Liabilities already incurred by the Transferor
Company on or before 1st December 1997."
16. Clause 6 of the scheme also provides for continuance and initiation of
suits and actions for the dues of transferor Company against the transferee
Company. The financial stability of the petitioner Company is not doubted and
hence, the material as is placed before the Court, there is nothing to warrant
any additional directions and/or order while sanctioning the present scheme.
17. However, in the light of the prayer in the petition to the effect 'that
the Arrangement as embodied to the Scheme of Amalgamation being Exhibit 'E' to
the Petition be sanctioned by Hon'ble Court so as to be binding on all parties
concerned including the Equity Shareholders, Convertible Debentureholders, 9.3
per cent Redeemable Preference Shareholders and 9.5 per cent Redeemable
Preference Shareholders and Creditors of the petitioner Company and all classes
of Shareholders and Creditors of the Transferor Company'. Whether it is
necessary to hear the intervenors on the question of sanctioning the scheme
will have to be considered in the light of submissions of the counsels.
18. Section 391 speaks of a compromise or arrangement between Company and its
creditors or class of them or between Company and its members or any class of
it. The modalities of working out the arrangement and the procedure for the
same is provided thereafter. However, essentially it is an arrangement between
the Company and its creditors and members. When the petition is by the
transferee Company by the order directing them to call the meeting, such
meeting is essentially restricted to the shareholders of such Company or the
class of creditors as may be directed. The person who has no right to attend
the meeting of such Company, who has obtained the orders, can possibly have no
right to hear in the petition initiated by such Company. Section 394
contemplates that the compromise or the arrangement, as has been proposed, the
Court either by sanctioning such compromise or arrangement, accepts the same in
toto or may provide for certain safeguards as provided in section 394. The
provisions, as they stand, do not contemplate a direction pertaining to the
creditors of the Company other than the one at whose instance the petition is
moved. Since the scheme is essentially an arrangement between the Company and
its members and the shareholders and/or creditors or class of them, any person
not falling in this category, cannot possibly, under the provisions as they
stand, come before the Court when the sanction of such scheme or arrangement is
considered. For the persons, who would be otherwise affected by the scheme,
sufficient safeguards procedural as well as remedial are provided in section 392
which provide that when the Court makes an order sanctioning the arrangement or
compromise under section 391, the Court always has the power of carrying out
such compromise or arrangement. The enforcement of compromise and the
directions as contemplated may also reserve in the order of winding up at the
instance of the person interested in the affairs of the Company.
19. While considering identical issue, Gujarat High Court in the case of Ahmedabad
Mfg. & Calico Printing Co. Ltd. v. Bank of India Ltd [1972] 42 Comp. Cas.
493 has observed as follows:—
"...After examining the scheme from the point of view of the
petitioner, that is the transferee company, it must be said, without the least
fear of being contradicted, that the scheme of amalgamation by which a huge sum
of Rs. 14.70 crores with its accumulated interest would be available to the
petitioner, both for its expansion as well as for its liquid finances, would
undoubtedly be a scheme which is such as a man of business applying its
commercial judgment, from his own narrow personal angle, would approve. This
Court is not concerned with examining the scheme from the point of view of the
members of the transferor company. That aspect must have been examined by the
Bombay High Court, while sanctioning the scheme, at the request of the
transferor company. I would, therefore, conclude by saying that, from the point
of view of the transferee company, the scheme is such a man of business would
readily approve." (p. 499)
20. This
question also came up for consideration in the context of an application made
by transferee Company before the Delhi High Court in the matter of Telesound
India Ltd. In re [1983] 53 Comp. Cas. 926. The landlord styling himself as a
creditor of the transferor Company sought to intervene in the petition. The
question that was posed was as follows:—
"Whether the creditors of a transferor-company, and any other
persons having interest in the transferor-company, or interested in its
business assets or any contract with it, other than the members of it, were
entitled to vote on a scheme for its amalgamation with another, by virtue of
the fact that on amalgamation, their interest may in some way be affected, in
that on amalgamation they would all be compelled to deal, in substitution of
the transferee-company, with the amalgamated company, and in the case of
formation of a new company on amalgamation of two companies with a new
entity?... (p. 938)"
While dealing with this question, the learned Judge of the Delhi High
Court held that the arrangement in the nature of amalgamation is a result of an
agreement between amalgamating Company and its members as well as corresponding agreement between the
transferee company and its members and there is, therefore, no provision for
participation of persons other than the members of two companies to vote on an
arrangement of amalgamation proposed between a company and its members. The
learned Judge has observed in his judgment as follows:—
"... a number of safeguards
have been provided, notably by the provisions of sections 392 and 394A, an
anomaly appears to exist in the Act inasmuch as the creditors of the
transferor-company which is being amalgamated, were not entitled as of right at
any stage to participate in the process of the consideration or the sanction of
any compromise or arrangement proposed between the company and its members,
which may eventually result in the amalgamation of the company by its
absorption in the other or by merger of the two to create the third. There is
no provision of notice to the creditors of any such proceedings at any stage,
either prior to the making of the order, or subsequent thereto, except in so
far as the creditors may have notice of it by public advertisement, although
the creditors of a company, which is sought to be merged in any other, and
completely absorbed in the transferee-company would, by the process of
amalgamation, be compelled to deal with and become the creditors of another
company, whether the existing company or a new company, that may come into
existence, even though the creditors or some of them may have had no dealings
with such new entity and may have, therefore, no confidence in its
management.... (p. 939)"
The learned Judge who has delivered
this judgment in the case of Telesound India Ltd. (supra), also had an
opportunity to deal with this issue in the case of Union of lndia v Asia Udyog
(P.) Ltd. [1974J44 Comp. Cas. 359 and I wish to quote the observations of the
learned Judge with a concurrence and complete agreement with view expressed
therein since I am also of the opinion that the position emerging from the
existing provisions disentitling the persons, who are otherwise vitally
affected by the scheme of amalgamation, from participating inter se in the
proceedings initiated at the instance of transferor or transferee company needs
to be suitably remedied. It is an accepted fact that the scheme on its sanction
is one and the same. It is also an accepted fact that as observed in the case
of Telesound India Ltd. (supra) that when the transferor company and the
transferee company are under the jurisdiction of different Courts, there is no
requirement that both the Companies should go to the same Court for sanction of
the Scheme. It is essential that the persons who are adversely affected by such
scheme should have an option to agitate their grievances irrespective of the
fact whether they are members or creditors of the transferor company or
transferee company. This is more so, since the scheme is one and the same. Such
scheme since asked to be binding on all such persons, there is no reason why
these persons should not be afforded an opportunity of hearing. I must hasten
to add that such opportunities must ordinarily be restricted not to question
the bona fides or correctness of the wisdom shown by the shareholders and the
class of shareholders or the creditors while sanctioning the scheme, but should
be restricted only to the extent of safeguarding the interest of such adversely
affected persons. It is not always that such adversely affected persons are
aware of niceties of law pertaining to the jurisdictional aspect. Wherever such
persons are located, they should be afforded reasonable opportunities of being
heard, at least, to the extent of safeguarding their dues. I am making these
observations in the context of amalgamation of companies and the creditors of
transferor company. The learned Judge, in the case of Asia Udyog (P.) Ltd.
(supra), has observed as follows, which I quote with full approval and
concurrence.
"Although the provisions
contained in Chapter V of the Act of 1956, inter alia, with regard to
compromise or arrangement and reconstruction of companies are a considerable
improvement on the corresponding provisions in the Act of 1913, and a number of
safeguards have been provided notably by the provisions of sections 392 and
394A, an anomaly still appears to exist in the Act inasmuch as the creditors of
the company which is being amalgamated are not entitled as of right at any
stage to participate in the process of the consideration or the sanction of any
compromise or arrangement proposed between a company and its members which may
result in the amalgamation of the company by its absorption in the other or by
the merger of the two to create a third and there is no provision for a notice
to the creditors of any such proceedings at any stage either prior to the
making of the order or subsequent thereto except in so far as the creditors may
have notice of it by public advertisement, although the creditors of a company
which is sought to be merged in any other and be completely absorbed in the
transferee-company would in a sense be adversely affected by the amalgamation
because the creditors have dealt with the transferor-company and may have done
so because they had confidence in its management and would by the process of
amalgamation be compelled to deal with and become the creditors of another
company whether an existing company or a new company that may come into
existence even though the creditors or some of them may have had no dealing
with such new entity and may have, therefore, no confidence in its management.
The appropriate authorities should consider the desirability of remedying the
situation, inter alia, by incorporating a provision which may entitle the
creditors of the company concerned to be suitably associated with the
proceedings so as to better secure the interests of the creditors." (p.
361)
It has to be mentioned here with
some anxiety that though such a view is expressed in a judgment delivered as
back as on 19-12-1973, no wheels seem to have moved in that direction. In the
days when the concept of locus has travelled much beyond its bounds as
experienced by the Courts in 1973 and when the Courts have gone to the extent
of permitting the workers to be heard in the proceedings for winding up since
they are considered as persons vitally affected in the proceeding in the case
of National Textile Workers Union v. P.R. Ramakrishnan AIR 1983 SC 75 there is
no reason why there should not be suitable amendments permitting the
participation of persons who are to be affected in the proceedings initiated
either by transferor or transferee company, at least, to the extent of
safeguarding either their interest or for providing modalities of safeguarding
the same. If in a given case, Court considering such a scheme, is of the
opinion that it lacks in such safeguards, it should be open to the Court even
at the instance of a member or a creditor, inter se, of transferor or transferee
company irrespective of the fact as to who has applied for the sanction, to
provide for such safeguard. That, however, requires necessary amendment to the
main section and it is only hoped that appropriate authorities would consider
desirability of remedying the situation. I am only reiterating the hope and
opinion as expressed by the Delhi High Court as back as in 1973.
21. Taking overall view of the entire scheme of the sections, it is
apparently clear that under the said provisions of the Act, as they stand, the
persons who are intervenors who are neither shareholders, members nor creditors
of the transferee company which is before the Court, have no locus to be heard
in the present proceeding. However, they will be entitled to agitate their
claims and grievances in the petition initiated by the transferor company, of
which they are the creditors in the High Court at Calcutta. About the merits of
the scheme, I have already adverted in the foregoing paragraphs of the
judgment. No modification in the scheme, as accepted by the majority of the
shareholders and to which no objection is raised by the Regional Directors by
filing affidavit, is warranted. The scheme sufficiently takes care of all the
contingencies including the claims of the creditors. The contribution, as
contemplated having been made, substantial funds, are now available with the
transferee company to satisfy any claim that may be made against the transferee
company. Hence, the Company Petition deserves to be allowed in terms of prayer
clause (a) with a clarification that the scheme shall bind the creditors of the
transferor company and other persons who are interested in the affairs of the
transferor company only upon appropriate orders being passed by the Calcutta
High Court in that behalf. The scheme shall become operative only after the
same is granted and to the extent, it is granted by the High Court at Calcutta.
22. With this
modification, the Company Petition is disposed of. However, there shall be no
order as to costs.
In view of
the disposal of the Company Petition, the Company Application is also disposed
of as infructuous.
COMPANIES ACT
[1998] 15 SCL 72 (RAJ.)
HIGH COURT OF RAJASTHAN
v.
State of Rajasthan
M.G. MUKHERJI. CJ.
SB CRIMINAL MISC. PETITION NO.
818 OF 1995
SEPTEMBER 1, 1997
Section 63, read with
section 10, of the Companies Act, 1956 - Prospectus -Criminal liability for
mis-statement - On basis of prospectus delivered at Jaipur, complainant applied
for shares and paid money at Jaipur- Company's registered office was at Bombay
- Prospectus assured allotment of debenture on preferential basis to applicant
- Debentures, however, not allotted but amount was refunded consequent upon
orders of consumer protection forum - Complaint was filed at Jaipur for
mis-statement in prospectus - Trial court took cognizance and issued summons -
Whether Jaipur court had jurisdiction to entertain complaint - Held, yes -
Whether order taking cognizance of complaint could not be interfered with at
initial stage since magistrate has power to cancel cognizance under section 204
of Code of Criminal Procedure, 1973 - Held, yes - Whether issue as to
limitation for filing complaint could not be adjudicated in instant proceedings
to quash complaint which has to be considered at trial stage - Held, yes
FACTS
On an invitation by the accused
company, respondent No. 2, a shareholder of an associate company of accused
applied for twenty debentures and paid required application money at Jaipur.
But the certificates were not delivered to her within three months from the
date of allotment. On application, the Consumer Court passed an ex parte order
against company for effecting refund of the application money to her.
Accordingly, money was refunded to her. But she filed an application under
section 63 on ground that the company and its directors acted against their own
prospectus and thus made a wrong statement that they would allot debentures to
each applicant who would apply in preferential quota. The Court took cognizance
for the offence and issued summons.
On petition to quash the
proceedings the accused person submitted that the complaint filed was barred by
limitation and the Court had no territorial jurisdiction.
HELD
The
registered office of the company was situated at Bombay and the accused persons
were residing at Bombay and the disputed prospectus was published and printed
at Bombay, but the said document was delivered at Jaipur and an offer was
invited on the basis of this prospectus at Jaipur. The complainant respondent
applied and paid money to the bankers of the accused at Jaipur for allotment of
debentures at Jaipur on the basis of the prospectus delivered to her at Jaipur
and the debentures were required to be delivered to her at Jaipur as per terms
of the prospectus. Thus the entire cause of action in the instant case arose at
Jaipur and as per sections 179 and 181(4) of the Code of Criminal Procedure
the. trial of offence of misrepresentation should be taken at the Court of
Jaipur only and in no other Court.
It was not very clear as to whether the prospectus issued after the
commencement of the Act includes any untrue statement and as such the accused
persons who authorised the issue of the prospectus could be taken to be guilty
of an offence punishable with imprisonment for a term which may extend to two
years, or with fine which may extend to five thousand rupees, or with both. If
the accused persons, however, prove that the statement was immaterial or that
they had reasonable ground to believe, and did up to the time of the issue of
the prospectus believe, that the statement was true, they could evade criminal
liability for the mis-statements so accruing in prospectus.
Taking cognizance of an offence at the initial stage is altogether
different from cancelling the order of taking such cognizance at a subsequent
stage. At the later stage, the magistrate may consider the case from an angle
of the accused who, after putting in appearance before the court may bring such
facts to the notice of the court as may justify the cancellation of the order
of taking cognizance of the case by him. Section 204 of the Code of Criminal
Procedure gives such powers to the magistrate and it is, therefore, always
proper for an accused to put up his grievance against an order summoning him as
an accused before the magistrate in the first instance. Therefore, in such
circumstances the accused should not rush to the High Court. Therefore, no case
had been made out for quashing of the proceedings pending against the accused
under section 63.
The question of limitation would be considered at the time of the trial
itself. Since the question of consideration of limitation would involve
question of taking of evidence the matter was left at the discretion of the
trial court at the appropriate stage.
CASES REFERRED TO
N. Panhasarathy v. Controller of
Capital Issues AIR 1991 SC 1420, K. Salwant Singh v. Stale of Punjab AIR 1960
SC 266, Mobarik AH A hmed v. Slate of Bombay AIR 1957 SC 857, State of
Rajasthan v. Swaika Properties [1985] 3 SCC 217 (Raj.), Vatsa Industries Ltd.
v. Shankerlal Saraf[ 1996] 87 Comp. Cas. 918/9 SCL 130 (SC), Poonani Chand
Kolhari v. Rajasthan Tube Mfg. Co. Ltd. [1996] 87 Comp. Cas. 842/9 SCL 132
(Raj.), Ranbaxy Laboratories Ltd. v. Smt. Indra Kala [1997] 88 Comp. Cas. 348
(Raj.) and PC. Wadhwav. S.C. Bhatia [1995] Suppl. (4) SCC 244.
R.K. Yadav and H.P. Singh for the Petitioner. P.K.
Khetan for the
Respondent.
ORDER
1. The
petitioners are the directors of Larsen & Toubro Ltd. incorporated under the
Indian Companies Act, 1913. They came out with a public issue of 2,06,66,664 -
12.5 per cent Fully Convertible Secured Debenture of Rs 300 each and invited
the general public to subscribe in their public issut vide their prospectus
dated 5-9-1989. The salient features of the issue art as under :—
a. The debentures are fully secured
convertible
b. Each debenture is
automatically convertible into five shares of fact value of Rs. 10. The balance
amount of the debentures shall be adjusted in premium account.
c. The shareholder of
Reliance Industries Ltd., L & T Ltd. and R.P.L are entitled for applying in
a separate quota of preferential offer reserved for such shareholders.
d. All applicants in this
category will be allotted debentures but the number of debentures to be
allotted would depend upon avail ability and as may be decided by the Board of
Directors in consultation with the stock exchange at Bombay.
2. Respondent
No. 2 is a shareholder of Reliance Industries Ltd. On an invitation of offer
being sent to her by the said company L & T, she in terms of the prospectus
applied for allotment of ten debentures and a sum of Rs. 750 was paid to the
accused petitioners. As she had a member of folios in Reliance Industries Ltd.,
she offered for allotment of debentures for filing two separate applications
and thus she applied for allotment of twenty debentures and paid application
money of Rs. 1,500. The company under the provisions of Companies Act, 1956
('the Act') was duty bound to deliver her debenture certificate within three
months from the date of allotment. But the company did not bother to send her
the allotted debentures for the reasons best known to the accused persons. She
wrote more than twenty letters and requested the company to deliver her debenture
certificates. As per acknowledgement slip delivered by Post Office, it is
manifestly clear that her requests were received by the company but they did
not choose to reply her again for the reasons best known to the accused
persons. She had no choice but to file a consumer complaint before the learned
District Forum, Jaipur. The Forum served the notice upon the company along with
a copy of the complaint. The company, however, did not choose to reply before
the Forum. The Forum had under these circumstances, no option but to pass an ex
parte order against the company for effecting refund of the application money
to her. This time the company was prompt enough and instead of sending her the
allotted debentures and the interest of the debentures due to her, delivered
two demand drafts of Rs. 1,523 each, payable by Bank of Baroda, Jaipur, as per
order of the Consumer Forum. The moment she received the demand drafts after
9-2-1995, she was shocked to know that the accused company had acted against
the terms of the prospectus issued by itself, namely 'all applicants in this
category will be allotted debentures'. Thus she filed a complaint before the
learned Special Judge, Economic Offence, Rajasthan, Jaipur and along with her
complaint she deposited the two demand drafts delivered by the accused
petitioners to her in the court itself and a complaint was made to the effect
that the company and its directors, the present petitioners, acted against
their own prospectus and thus made a wrong statement in their prospectus that
they would allot debentures to each applicant who would apply in preferential
quota. The court after recording her statements on oath, was pleased to take
cognizance against the accused company and its directors for the offence
covered by section 63 of the Act. After receiving the summons of the court, the
learned advocate of the accused appeared before the court and an application
for permanent exemption regarding appearance was filed, which was not objected
to by the respondents and thereafter they are enjoying the immunity from
attending the court. An application to recall the order of the learned trial
Court was also submitted by the accused as regards taking cognizance. After
arguments the court was pleased to dismiss the application on the basis of a
judgment of the Supreme Court in N. Parthasarathy v. Controller of Capital
Issues AIR 1991 SC 1420, and the accused petitioners with the sole object to
delay the trial, filed the present revisional application before this Court.
3. The petitioners contended that the impugned order dated 20-4-1995 passed by the Special Judge, Economic Offences, Rajasthan, Jaipur, by which the court passed an order taking cognizance, is barred by the law of limitation. The complainant filed her complaint on 15-3-1995 while as per the prospectus of the company the terms of payment was as under :—
|
i. |
On application |
Rs. 75
per debenture |
|
ii. |
On allotment |
Rs. 75
per debenture |
|
iii. |
On first call |
Rs. 75 per debenture, and |
|
iv. |
On final call |
Rs. 75 per debenture. |
It was submitted by the
petitioners that after allotment of shares the first call money was payable by
30-4-1990 and the final call money was payable by 30-9-1990. The fact that
respondent No. 2 did not get her shares had already been within her knowledge
because the aforesaid dates were already given in the prospectus and by that
date the time had already passed away. When the company sent back the amount
then the complainant-respondent No. 2 got the knowledge that she had not been
allotted shares, is an incredible argument. If the said date is taken to be the
date of knowledge, apparently the complaint is within limitation. In the memo
of complaint, respondent No. 2 did not say anywhere as to when the company sent
her money back and on that day she got the knowledge that the company had not
allotted shares to her and hence from that date of getting such knowledge the
complaint is within the period of limitation. The accused petitioners submitted
that the stand taken by the complainant's lawyer that it was within her
knowledge from the date she actually received the money, is clearly an
afterthought. It was further submitted by the petitioners that it was clearly
mentioned in the prospectus itself under heading 'Debenture Certificates' that
'in case the company issues letter of allotment, the relative debenture
certificate will be delivered within three months from the date of allotment or
within such period of time (not exceeding nine months) as may be allowed by the
Company Law Board.' Further under the heading 'Disposal of applications and
application money' it was given out that the time when such applications were
to be rejected or allotments were to be made was within ten weeks from the date
of closing of the subscription list in accordance with the provisions of
section 73 of the Act. It was further submitted by the accused petitioners that
the complainant now submits that she got the knowledge of non-allotment when
she received her amount back after the decision of her complaint by the
District Forum. It is submitted that this argument cannot be accepted because
the subscription closed on 9-10-1989 and the maximum period could be nine
months after lapse of ten weeks from 9-10-1989 which comes approximately in the
month of September 1990, but she filed her complaint in the year 1995. Hence,
the limitation period had already been crossed and hence the order taking
cognizance is barred by limitation. Referring to the provisions of section 63
it was submitted by the accused petitioners that in the prospectus issued by
the company on 5-9-1984 no untrue statement was given or published.
Preferential debentures were allotted to the applicants but unfortunately the
complainant could not get her debentures only either by mistake or
because of huge number of applications or because of the reason that the
processing of applications was done by the Registrar to the issue Reliance
Consultancy Services Ltd. which later on ceased to be the company's registrars.
However, it appears that at the time of processing large volume of
applications, the complainant's application seem to have been missing and
therefore, the allotment of debentures were not made to her. Since the
application was missing the company had to wait for the claim from the
applicant for refund or allotment of debentures and as afterwards as soon as
the company received the copy of judgment of the District Forum, the company
complying with the same immediately sent the refund of application money as
prayed for by the complainant. It was further submitted that if the complainant
did not get her debentures, then only because of this reason it could not be
said that the company gave a false or untrue statement punishable under section
63. The court below wrongly interpreted the provisions and passed the impugned
order by way of taking cognizance and they prayed for quashing of the same.
4. The
respondents, however, contended that the provisions of Chapter 36 of the Code
of Criminal Procedure, 1973 ('the Code'). Regarding limitation was not
application by virtue of the provisions of Economic Offences (Inapplicability
of Limitation) Act, 1974 being Act No. 12 of 1974. According to the respondent
No. 2 even otherwise the question of limitation is not applicable in this
matter on the basis of section A69(b) of the Code of Criminal Procedure.
Section 469(6) is as follows :—
"Where the commission of the offence was not known to the person
aggrieved by the offence or to any police officer, the first day on which such
offence comes to the knowledge of such person or to any police officer
whichever is earlier."
The respondent No. 2 contended that she know that the accused petitioners
never intended to obey their own prospectus only from the fact that the accused
petitioners acted against their own prospectus and instead of delivering her
allotted debenture certificates, delivered her the demand drafts of the
application money with interest. Thus, the fact was disclosed to her on receipt
of the demand drafts dated 9-2-1995 only.
5. As
regards the question of want of territorial jurisdiction of the present court,
raised by the accused petitioners, it was contended by the complainant
respondent that she applied for allotment of debentures of accused company at
Jaipur believing that said company will follow the prospectus issued by itself.
The application money was collected by the accused company at Jaipur itself and
the accused persons were duty bound to deliver her the debentures at Jaipur
only. She applied on the basis of prospectus issued by accused company
delivered at her residential address and thus, according to her the cause of
action arose at Jaipur only. The Supreme Court while delivering a judgment in
the matter of K. Satwant Singh v. State of Punjab AIR 1960 SC 266, was pleased
to hold that misrepresentation made at Simla where accused paid money at Lahore
at his request and there was mere posting of cheques at Kolhapur and in such a
situation it could not be considered that delivery of cheques were made to the
accused at Kolhapur. No part of the offence of cheating was committed outside
India, as was reported in the aforesaid decision. In another case, where the
accused was residing at Karachi and by way of telephone and through quite a
number of letters he was able to convince the respondents for making a payment
for supply of rice to be delivered by the accused at Bombay, but ultimately the
accused never supplied the rice to respondents nor his money was refunded and a
criminal case was filed against the accused and the learned trial court found
that the accused was guilty of offence covered by section 420 of the Indian
Penal Code, 1860. The Supreme Court ultimately was pleased to pass a detailed
order on the subject and as per the reported decision in Mobarik AH Ahmed v.
State of Bombay AIR 1957 SC 857 observed as follows :—
"....These
representations were made to the complainant at Bombay, notwithstanding that
the appellant was making the representations from Karachi..." (p. 858)
The decision is quite clear that where the representation was made
through the trunk/telephone, the statement of appellant at the Karachi end of
the telephone becomes a representation to the complainant only when it reaches
cognizance of the complainant at the Bombay end, and this aspect has not been
disputed. In the present case, though the registered office of the company is
situated at Bombay and the accused persons were residing at Bombay and the
disputed prospectus was published and printed at Bombay, but the said document
was delivered at Jaipur and an offer was invited on the basis of this
prospectus at Jaipur. The complainant respondent applied and paid money to the
bankers of the accused at Jaipur for allotment of debentures at Jaipur on the
basis of the prospectus delivered to her at Jaipur and the debentures were
required to be delivered to her at Jaipur as per the terms of the prospectus.
Thus the entire cause of action in this case arose at Jaipur and as per
sections 179 and 181(4) of the Code, the trial of the offence of misrepresentation
should be taken at the court of Jaipur only and in no other court. The
respondent No. 2 wanted to draw my attention to the fact that the learned trial
court of the Special Judge, Economic Offence, has territorial jurisdiction in
respect of the entire Rajasthan. As was held in State of Rajasthan v. Swaika
Properties [1985] 3 SCC 217, this court has territorial jurisdiction to try the
like offences. In the said case the Supreme Court was pleased to hold that the
dispute of such a nature can be dealt with under the provisions of the Code of
Civil Procedure or the Code of Criminal Procedure but not in accordance with
the provisions of section 10 of the Act.
6. In another matter regarding the Companies Act, where there was a dispute of forfeiture of shares by the accused company, the criminal prosecution was launched against the company and its director in the court of the learned Judicial Magistrate (Economic Offence), Rajasthan Jaipur. After rejection of the application under section 482 of the Code by this High Court, the matter was taken to the Supreme Court by the company on the point of territorial jurisdiction by virtue of the provisions of section 10 of the Act and an additional prayer was made before the Supreme Court that the prosecution must be transferred to the court where the registered office of the accused company is situated. The Supreme Court delivered judgment by rejecting the application filed by the accused company and was pleased to hold that the Magistrate Court of Jaipur had territorial jurisdiction to prosecute the accused company and its directors for the offences regarding Companies Act. This judgment of Supreme Court is reported in Vatsa Industries Ltd. v. Shankerlal Saraf [1986] 87 Comp. Cas.918/9 SCL 130. This type of dispute was taken up by this High Court in the matter of Poonam Chand Kothari v. Rajas than Tube Mfg. Ltd. [1996] Comp. Cas. 842/9 SCL 132, where Hon'ble Mr. Justice V.K. Singhal was pleased to hold that the provisions of section 10 are not applicable between the company and the shareholder regarding the individual rights of a shareholder. Another dispute of a similar type was decided by Hon'ble Mr. Justice M.A.A. Khan in respect of two applications of Ranbaxy Laboratories Ltd. The said judgment is reported in Ranbaxy Laboratories Ltd. v. Smt. Indra Kala [1997] 88 Comp. Cas. 348 (Raj.). The complainant respondent No. 2 thus, contended that the revisional application as filed by the petitioners is liable to be dismissed and the trial Court should be directed to dispose of the matter as early as possible since the accused petitioner were already successful in delaying the matter for more than two years by virtue of the continuance of the present proceedings under section 482 of the Code.
7. From an entire conspectus of the complaint it is not very clear as to whether the prospectus issued after the commencement of the Act includes any untrue statement and as such the accused persons who authorised the issue of the prospectus can be taken to be guilty of an offence punishable with imprisonment for a term which may extend to two years, or with fine which may extend to five thousand rupees, or with both. If the accused persons, however, prove that the statement was immaterial or that they have reasonable ground to believe, and did up to the time of the issue of the prospectus believe, that the statement was true, they can evade criminal liability for the mis-statements so occurring in prospectus.
8. In P.C. Wadhwa v. S.C. Bhatia [1995] Suppl
(4) SCC 244, in a case for quashing of the complaint which on the facts of the
case was under section 73 at the initial stage, where the complaint was quashed
by the High Court on the ground that the accused was not an officer in default
and the complainant had no locus standi to file the complaint, it was observed
by the Supreme Court in the said case that the High Court was not justified in
quashing the complaint.
9. As was held by a learned Single Judge of our court in Ranbaxy
Laboratories Ltd. case (supra), the powers of the court under section 482 of
the Code are quite limited and extraordinary and should be exercised with great
care and caution in the rarest of rare and exceptional cases only to prevent
the abuse of the process of the court or otherwise to secure the ends of justice.
If there was sufficient material for the magistrate's action, was in the
reported decision the averments made in the complaint and statements recorded
under sections 200 and 202 of the Code, and a number of documents filed at that
stage clearly disclosed that the respondent had purchased 200 shares of the
company from its shareholders, and sent the same to the petitioner company for
registration of the transfer in her name but the petitioner company for one
reason or the other, had failed to do the needful. Such evidence prima facie
disclosed the commission of an offence punishable under section 113 of the Act.
10. It was observed in this case that taking cognizance of an offence at the
initial stage is altogether different from cancelling the order of taking such
cognizance at a subsequent stage. At the later stage, the magistrate may
consider the case from an angle of the accused who, after putting in appearance
before the court may bring such facts to the notice of the court as may justify
the cancellation of the order of taking cognizance of the case by him. Section
204 of the Code gives such powers to the magistrate and it is, therefore,
always proper for an accused to put up his grievance against an order summoning
him as an accused before the magistrate in the first instance. It was observed
that in such circumstances the accused should not rush to the High Court.
11. Regard being had to be entire fact situation of the case, I am of the
considered view that no case for quashing of the proceedings pending against
the accused under section 63 has been made out. The question of limitation
would be considered at the time of the trial itself. Since the question of
consideration of limitation would involve question of taking of evidence, I
would leave the matter at the discretion of the trial court at the appropriate
stage.
12. In the
result, the revisional application under section 482 of the Code stands
rejected.
[1998] 93 COMP CAS 236 (ALL)
HIGH COURT OF
v.
P.N.B. Capital Services Ltd.
D.P. MOHAPATRA AND R.R.K.
TRIVEDI JJ.
Special Appeal No. 172 of 1997
JULY 2,
1997
Janardan Sahai for the
Appellant.
K.L. Grover for the Respondent.
R.R.K. Trivedi, J.—Aggrieved by the order dated December 6,
1996, passed by the learned single judge, in Company Petition No. 16 of 1996,
the respondent therein has filed this appeal. By the impugned order the
objection of the appellant questioning the maintainability of the company
petition in this court at Allahabad has been overruled.
The facts, in short, giving rise
to this appeal are that the respondent-Punjab National Bank filed a petition on
July 2, 1996, for winding up of the appellant company under sections 433, 434
and 439 of the Companies Act, 1956. The winding up of the company has been
sought on the ground that it is unable to pay its debts and, therefore, it
should be wound up by order of this court. On July 3, 1996, this court issued
notice to the appellant company to show cause why the petition may not be
admitted and advertised. In response to this notice, the appellant company
appeared and filed objections questioning the maintainability of the company
petition and prayed for dismissal of the same. After exchange of affidavits,
the objections raised by the appellant were rejected on December 6, 1996.
Against the aforesaid order the present appeal was filed by the appellant on
March 28, 1997.
We have heard Shri Janardan Sahai
for the appellant and Shri K.L. Grover for the respondent. Learned counsel for
the appellant has submitted that the notification dated July 15, 1949,
excluding jurisdiction of the Lucknow Bench in respect of company cases was
issued by the Chief Justice in exercise of his power under the second proviso
to para. 14 of the United Provinces High Courts (Amalgamation) Order, 1948
(hereinafter referred to as "the Amalgamation Order"). The
notification is not under the first proviso which deals with the territorial jurisdiction
of the Lucknow Bench in respect of districts falling in the Oudh area. It has
been submitted that the second proviso confers power on the Chief Justice to
order that any case or class of cases arising in the said areas, shall be heard
at Allahabad. The word "heard" has been interpreted by the apex court
in the case of Nasiruddin v. State Transport Appellate Tribunal, AIR 1976 SC
331, and it has been held that the expression "heard" would not
include institution of cases. Thus, under the second proviso, the Chief Justice
could issue an order for the case or class of cases arising out of the Oudh
area to be heard at Allahabad which were already instituted at Lucknow. It has
been further submitted that the effect of the judgment of the Supreme Court in
Nasiruddin v. State Transport Appellate Tribunal, AIR 1976 SC 331, is that the
power under the second proviso can be exercised only with reference to cases
already instituted at Lucknow and pending there and not in respect of cases to
be instituted in future. If the order of the Chief Justice published in the
notification dated July 15, 1949, is interpreted to mean that institution of a
case or class of cases at Lucknow Bench is excluded and the institution should
also be at Allahabad, the notification would be beyond the powers conferred on
the Chief Justice under the second proviso to para. 14 of the Amalgamation
Order and consequently it shall be invalid. It has also been submitted that as
notification dated July 15, 1949, modifies partially the notification dated
July 26, 1948, by which the jurisdiction of the Lucknow Bench has been defined
in respect of the cases arising out of the Oudh area, the notification is
illegal and bad for want of authority in view of the Full Bench judgment of
this court in the case of Ram Lakhan Saran v. Sunni Central Board of Waqf, AIR
1976 All 532. It has also been submitted that the judgment of the Division
Bench of this court dated September 24, 1982, in the case of Jugul Kishore v.
Official Liquidator, in Special Appeals Nos. 7 and 8 of 1979 dated 24-9-1982,
is distinguishable as in that case the winding up order had already been passed
at Allahabad. The Bench in that case observed that the proceedings under
sections 446, 448, 542 and 543 of the Companies Act, 1956, were in the course
of winding up and for these proceedings the cause of action arose at Allahabad,
where the winding up order was passed. It is submitted that the aforesaid
judgment of the Division Bench is not applicable to the facts of the present
case. It is also submitted that the view taken by the Division Bench cannot be
termed to be a good law as the Bench could not consider the observations of the
Supreme Court in Nasiruddin v. State Transport Appellate Tribunal, AIR 1976 SC
331, in para. 37 in which the expression "heard" has been considered
and interpreted and distinguished from the expression "institution".
It has been further submitted that under section 10 of the Companies Act, 1956,
also the company petition for winding up of the appellant company could be filed
at Lucknow and not at Allahabad. The jurisdiction at Allahabad could not be
created for filing the company petition on the ground that the official
liquidator has his office at Allahabad. The official liquidator is appointed
for the High Court and not in respect of any Bench of the High Court. It has
also been submitted that the question of jurisdiction can be raised at any
stage. In the present case, objection was raised at the earliest opportunity
even before filing of the counter-affidavit. In the counter-affidavit filed in
the company petition also the question of jurisdiction was raised in para. 22.
Even after exchange of counter and rejoinder affidavits, the winding up
proceedings are at the initial stage. It has also been submitted that the cases
reported in: Pathumma v. Kuntalan Kutty, AIR 1981 SC 1683 and Manager, Hardware
and Tools Ltd. v. Saru Smelting (P.) Ltd., AIR 1983 All 329, are based on
section 21 of the Civil Procedure Code, 1908, and cannot be helpful in the
present case where the appeal has been filed against the order deciding the
question of jurisdiction. Learned counsel has also placed reliance on the case
of U.P. Rashtriya Chini Mill Adhikari Parishad v. State of U.P., AIR 1995 SC
2148.
Shri K.L. Grover, on the other
hand, submitted that the learned company judge passed the order and issued
notice and registered the case on August 7, 1996. The appellant company filed
objection to the jurisdiction which was rejected by the impugned order on
December 6, 1996, and after the impugned order was passed, counter and
rejoinder affidavits were exchanged. The special appeal was filed in this court
after about four months during which period the hearing of the company petition
continued. Learned counsel has further submitted that the Division Bench of
this court in Ram Chandra Sugar Mills, In re, Special Appeals Nos. 7 and 8 of
1979, has already held that Nasiruddin v. State Transport Appellate Tribunal,
AIR 1976 SC 331, has no application in the matters relating to company cases.
Learned counsel has submitted that as the Chief Justice by order dated July 15,
1949, excluded the jurisdiction of the Lucknow Bench to hear company cases, the
company petition was rightly filed at Allahabad. It has been submitted that the
Supreme Court in Nasiruddin v. State Transport Appellate Tribunal, AIR 1976 SC
331, has upheld the power of the Chief Justice to pass orders in his discretion
for transfer of a case or class of cases arising in the erstwhile Oudh area to
be heard at Allahabad. The notification is legal and valid and does not suffer
from want of authority. Learned counsel has further submitted that under para.
18 of the Amalgamation Order, application of the laws enacted subsequent to it
has been saved. The Companies Act was enacted by Parliament in 1956. The
jurisdiction of the new High Court of Judicature at Allahabad created by the
Amalgamation Order could not be prejudiced or affected with regard to the
jurisdiction conferred under the Companies Act. Learned counsel has placed
reliance on section 10 of the Companies Act and has submitted that the High
Court at Allahabad has jurisdiction to hear company petitions filed under the
Companies Act. The High Court is the new High Court created under para. 3 of
the Amalgamation Order. From a combined reading of para. 3 and para. 18 of the
Amalgamation Order and section 10 of the Companies Act, the only conclusion
which can be drawn is that the company judge who sits at Allahabad alone has
jurisdiction to entertain company petitions. For this purpose, reliance has
also been placed on Chapter V, rule 1 of the Rules of the Court, 1952, which
provides that judges shall sit alone or in such Division Courts as may be
constituted from time to time and do such work as may be allotted to them by
order of the Chief Justice or in accordance with his discretion. As the company
judge has been appointed at Allahabad alone, allotting to him all the cases
pertaining to company matters, there is no illegality involved in entertainment
of winding up petitions at Allahabad in relation to a company which has its
registered office within the territories of the State of Uttar Pradesh. It has
also been submitted that the judgments of the apex court in Nasiruddin v. State
Transport Appellate Tribunal, AIR 1976 SC 331, and the case of U.P. Rashtriya
Chini Mill Adhikari Parishad v. State of U.P., AIR 1995 SC 2148, have no
application in the present case. Learned counsel for the respondents has
submitted that the winding up proceedings are now at a ripe stage, the
appellant's objection is not substantial but only technical and no failure of
justice or prejudice has been shown in the memo of appeal or in any other
document and it is not a fit case for interference at the appellate stage.
Learned counsel has placed reliance on the case of Pathumma v. Kuntalan Kutty,
AIR 1981 SC 1683, and Manager, Hardware and Tools Ltd. v. Saru Smelting (P.)
Ltd., AIR 1983 All 329.
We have carefully considered the
submissions of learned counsel for the parties. Before we consider the rival
submissions made on behalf of the parties, it would be appropriate if the
relevant provisions of the Amalgamation Order of 1948, and the notification
issued thereunder are looked into. The Amalgamation Order has been the
subject-matter of consideration before the apex court as well as before various
Full Benches and Division Benches of this court. The historical background of
the Amalgamation Order, 1948, has been mentioned in detail in the aforesaid
judgments and we need not repeat the same in this judgment. However, as the issue
involved in the present appeal is about the interpretation of para. 14 of the
Amalgamation Order and the notification dated July 26, 1948, and July 15, 1949,
it shall be relevant to reproduce them here for convenience and better
appreciation.
"14. The new High Court, and the judges
and division courts thereof, shall sit at Allahabad or at such other places in
the United Provinces as the Chief Justice may, with the approval of the
Governor of the United Provinces, appoint:
Provided that unless the Governor of the
United Provinces with the concurrence of the Chief Justice, otherwise directs,
such judges of the new High Court, not less than two in number, as the Chief
Justice may, from time to time, nominate, shall sit at Lucknow in order to
exercise in respect of cases arising in such areas in Oudh, as the Chief
Justice may direct, the jurisdiction and power for the time being vested in the
new High Court:
Provided further that the Chief Justice may,
in his discretion, order that any case or class of cases arising in the said
areas shall be heard at Allahabad."
Under para. 14, the Chief Justice
passed Order No. 6103, dated July 26, 1948, in the following terms:
"In exercise of the powers conferred by
article 14 of the United Provinces High Courts (Amalgamation) Order, 1948, the
Chief Justice of the High Court of Judicature at Allahabad is pleased to direct
that as from the July 26, 1948, until further order, the Bench of the High
Court at Lucknow shall exercise the jurisdiction and power vested under the
said Order in the High Court in respect of cases arising in the whole of
Oudh."
On July 15, 1949, the Chief
Justice passed Order No. 8427 to the following effect:
"In exercise of the power conferred by
article 14 of the United Provinces High Courts (Amalgamation) Order, 1948, and
in partial modification of the Court's Notification No. 6103, dated July 26,
1948, as amended up to date, the Chief Justice of the High Court of Judicature
at Allahabad is pleased to direct that with effect from July 25, 1949, the Lucknow
Bench of the High Court of Judicature at Allahabad shall not exercise
jurisdiction and power in respect of cases under the following Acts arising
within its existing territorial jurisdiction:
1. The Indian Divorce Act, 1869 (Act IV of
1869).
2. The Special Marriage Act, 1872 (Act III of
1872).
3. The Indian Companies Act, 1913 (Act VII of
1913).
4. The Indian Income-tax Act, 1922 (Act XI of
1922).
5. The Indian Succession Act, 1925 (Act XXXIX
of 1925).
6. The Indian Matrimonial Causes (War
Marriages) Act, 1948 (Act No. XL of 1948):
Provided
that nothing herein contained shall affect the jurisdiction and power of the
Lucknow Bench in respect of proceedings already pending before that Bench prior
to the coming into force of this Notification."
By subsequent notification of
April, 1973, cases under some more Acts were also excluded from the
jurisdiction of the Lucknow Bench. They were the Agricultural Income-tax Act,
the Sales Tax Act and the Displaced Persons Rehabilitation Act.
Time and again, various orders
were passed by the Chief Justice under para. 14 with regard to exercise of
jurisdiction. Such orders were of December 14, 1948, February 11, 1950, April
18, 1973, and May 3, 1975. However, these orders are not relevant for. the
present controversy.
From a perusal of para. 14 of the
Amalgamation Order, it is clear that the Chief Justice of the new High Court
could nominate judges from time to time to sit at Lucknow in order to exercise,
in respect of cases arising in such areas in Oudh as the Chief Justice may
direct, the jurisdiction and power for the time being vested in the new High
Court. In exercise of this power the Chief Justice passed first order in the
shape of Notification No. 6103, dated July 26, 1948. Obviously, by this
notification, the jurisdiction and power of the judges sitting at Lucknow was
defined in respect of cases arising only in the territory of Oudh area
irrespective of their nature. The second proviso to para. 14, however, provides
an exception under which exercise of jurisdiction and power under the first
proviso could be excluded by order of Hon'ble the Chief Justice in respect of a
case or class of cases. Under the second proviso, the Chief Justice in his
discretion thus could order that in a case or class of cases arising in the
Oudh areas hearing shall be done at Allahabad. This power of the Chief Justice
conferred by the second proviso can be exercised for various reasons including
with reference to the nature of cases determined according to the provisions of
law under which they are to be decided. Such cases could be heard at Allahabad
without causing any kind of increase or decrease of the territorial
jurisdiction of the judges sitting at Lucknow. The order dated July 15, 1949,
thus does not affect the territorial jurisdiction defined by order dated July
26, 1948, for exercise of jurisdiction and power by the judges sitting at
Lucknow. By subsequent order, only the exercise of jurisdiction and power in
respect of certain cases of particular nature under specified Acts was
excluded. Thus, the contention of learned counsel for the appellant that the
order dated July 15, 1949, is invalid and bad for want of authority cannot be
accepted. The ratio in Nasiruddin v. State Transport Appellate Tribunal, AIR 1976
SC 331, and Ram Lakhan Saran v. Sunni Central Board of Waqfs, AIR 1976 All 532,
is in respect of the subsequent order of the Chief Justice affecting the
territorial jurisdiction and in that context it was held that once the power
defining the territorial jurisdiction was exercised by the Chief Justice, it
stood exhausted and could not be exercised again. In Ram Lakhan Saran v. Sunni
Central Board of Waqf, AIR 1976 All 532, the notification dated December 14,
1948, by which, in respect of cases arising within the local limits of the
jurisdiction of District Faizabad, the Bench of the High Court at Lucknow was
directed not to exercise jurisdiction, was in consideration. Thus the dispute
was with regard to territorial jurisdiction. The Full Bench, following
Nasiruddin v. State Transport Appellate Tribunal, AIR 1976 SC 331, held that
after the passing of the order dated July 26, 1948, demarcating the whole of
the Oudh area for exercise of jurisdiction and power by judges sitting at
Lucknow, the power stood exhausted and the area could not be curtailed or
reduced by order dated December 14, 1948. It may also be noticed that para. 14
of the Amalgamation Order and the dispute about jurisdiction has been the
subject-matter of consideration before the apex court as well as before several
Full Benches and Division Benches of this court, but the validity of the order
dated July 15, 1949, has never been questioned. Since 1949, the cases under the
Companies Act are being instituted and heard at Allahabad.
Learned counsel for the appellant
during his submissions attempted to say that the notification dated July 15,
1949, is a notification under proviso II of para. 14 and not under proviso I.
However, from a close look on the provisions contained in para. 14 and the order
dated July 15, 1949, there remains no doubt that the order could be and has
been passed under the first proviso. The second proviso provides only an
exception to the first proviso which is the main provision conferring power on
the Chief Justice to define the area and the cases arising therein for exercise
of jurisdiction and power by the learned judges sitting at Lucknow. The second
proviso is in the nature of an enabling provision. It was for this reason that
the order dated July 15, 1949, has been passed by the Chief Justice in partial
modification of the earlier order dated July 26, 1948. Such a modification was
necessary to avoid conflict and doubt with regard to exercise of jurisdiction
and power in respect of cases of the nature specified under the order dated
July 15, 1949.
The next submission of learned
counsel for the appellant was that under the second proviso to para. 14, the
Chief Justice could pass an order only in respect of those cases which have
been already instituted at Lucknow as the expression "heard" does not
include institution. For this submission reliance has been placed in para. 37
of the judgment in Nasiruddin v. State Transport Appellate Tribunal, AIR 1976
SC 331, which is being reproduced below:
"To sum up, our conclusions are follows.
First, there is no permanent seat of the High Court at Allahabad. The seats at
Allahabad and Lucknow may be changed in accordance with the provisions of the
Order. Second, the Chief Justice of the High Court has no power to increase or
decrease the areas in Oudh from time to time. The areas in Oudh have been
determined once by the Chief Justice and, therefore, there is no scope for
changing the areas. Third, the Chief Justice has power under the second proviso
to paragraph 14 of the Order to direct in his discretion that any case or class
of cases arising in Oudh areas shall be heard at Allahabad. Any case or class
of cases are those which are instituted at Lucknow. The interpretation given by
the High Court that the word 'heard' confers power on the Chief Justice to
order that any case or class of cases arising in Oudh areas shall be instituted
or filed at Allahabad instead of at Lucknow is wrong. The word 'heard' means
that cases which have already been instituted or filed at Lucknow may in the
discretion of the Chief Justice under the second proviso to paragraph 14 of the
Order be directed to be heard at Allahabad. Fourth, the expression 'cause of
action' with regard to a civil matter means that it should be left to the
litigant to institute cases at Lucknow Bench or at Allahabad Bench according to
the cause of action arising wholly or in part within either of the areas. If
the cause of action arises wholly within Oudh areas then the Lucknow Bench will
have jurisdiction. Similarly, if the cause of action arises wholly outside the
specified areas in Oudh, then Allahabad will have jurisdiction. If the cause of
action in part arises in the specified Oudh areas and part of the cause of
action arises outside the specified areas, it will be open to the litigant to
frame the case appropriately to attract the jurisdiction either at Lucknow or
at Allahabad. Fifth, a criminal case arises where the offence has been
committed or otherwise as provided in the Criminal Procedure Code, 1973. That
will attract the jurisdiction of the court at Allahabad or Lucknow. In some
cases depending on the facts and the provisions regarding jurisdiction, it may
arise in either place."
With great respect, it is stated
that the Conclusion Third in paragraph 37 of Nasiruddin v. State Transport
Appellate Tribunal, AIR 1976 SC 331, dealt with an assumed order under the
second proviso to paragraph 14 of the Amalgamation Order. However, we have
already found earlier that order dated July 15, 1949, has been passed under the
first proviso in partial modification of the order dated July 26, 1948. The
order dated July 15, 1949, was not in question before the Supreme Court. It may
be noted here that the dispute in Nasiruddin v. State Transport Appellate
Tribunal, AIR 1976 SC 331, was with regard to territorial jurisdiction. We do
not see any useful purpose or ends of justice to be served in directing that
cases of the nature excluded by order dated July 15, 1949, should be first
instituted at Lucknow, and then heard at Allahabad. If such an interpretation
as advanced by learned counsel for the appellant is accepted, it shall create
only complications and unnecessary harassment to parties. The notification
dated July 15, 1949, uses the same phraseology which has been used in the first
proviso to paragraph 14 and it provides that with effect from July 25, 1949,
the Lucknow Bench of the High Court of Judicature at Allahabad shall not
exercise jurisdiction and power in respect of cases under the following Acts
arising within its existing territorial jurisdiction. The phraseology used in
the order dated July 15, 1949, is wide enough and excludes even the institution
of the cases under the Companies Act at Lucknow. The expression used in the
order is "exercise of jurisdiction and power" which is much wider than
the expression "heard", to include the institution of cases also.
Thus, in terms of the order dated July 15, 1949, all company cases could be
filed and heard at Allahabad. We are in respectful agreement with the view
taken by the Division Bench in the case of Jugul Kishore v. Official
Liquidator, Special Appeals Nos. 7 and 8 of 1979 dated September 24, 1982. Even
assuming for the sake of argument that the contention of learned counsel for
the appellant is correct, as learned counsel does not dispute that the case can
be lawfully heard at Allahabad, it shall be only a technical breach if the
petition is instituted at Allahabad instead of Lucknow as it has to be
ultimately heard at Allahabad and for this technical defect or reason, in our
opinion, it shall not be appropriate to hold that the proceedings are not
maintainable at Allahabad. If the petition is instituted and heard at
Allahabad, it shall not be a case of total lack of jurisdiction. At the most it
can be said to be defective exercise of jurisdiction at one stage but which is
rendered ineffective if the stage of hearing has come. Ultimately, both the
Benches at Allahabad and Lucknow form one High Court. The jurisdiction of this
court at Allahabad in a company case is not disputed, hence there is no chance
of any failure of justice. Learned counsel for the respondent has rightly
submitted that no prejudice or failure of justice has been established or even
pleaded to show that if the company petition is heard at Allahabad, it shall
cause any prejudice or failure of justice to the appellant. It is not disputed
before us that the parties have already exchanged counter and rejoinder
affidavits and thus the company petition is ripe for hearing. If at this stage
the case is transmitted to Lucknow to remove the technical defect pointed out
by the appellant, it shall not in any way subserve the ends of justice and in
our opinion it may only cause waste of time and money. This company petition is
pending in this court for more than a year.
For the reasons stated above, we
do not find any illegality or error of law in the impugned order justifying
interference in the same. The appeal is devoid of any merit and is dismissed.
The interim order dated March 31, 1997, is vacated. There will be no order as
to costs.
Delhi High Court
Companies Act
[2003]
46 SCL 61 (Delhi)
High
Court of
v.
Union of India
B.C.
Patel, CJ.
And
A.K. Sikri, J.
Civil Writ Petition No. 1549 of 2001
April 29,
2003
Section 10 of the Companies Act, 1956, read with article 226 of the
Constitution of India - Court - Jurisdiction of - Whether where registered
offices of companies were situated outside territorial limits of Delhi and
offences were alleged to have been committed outside territories of Delhi,
complaint which was required to be filed, could not be filed within territorial
limits of Delhi and, therefore, High Court of Delhi would have no jurisdiction
to entertain petition - Held, yes
The petitioner, alleging that respondent No. 5 had committed offences
under the Companies Act, filed a writ petition in the High Court of Delhi
praying, inter alia, that the offences disclosed in his petition be
expeditiously investigated/adjudicated in accordance with law.
On writ :
Keeping in mind section 10(1)(a), the Court which is required to be
approached is the Court where the registered office of the company is situate.
In the instant case, the company was situated outside the limits of Delhi. Either
a prosecution or a charge sheet, if, is to be filed,the same will have to be
filed within the territorial limits of the Court where offence is alleged to
have been committed. No act or commission was attributed to the respondents
anywhere within the territorial limits of Delhi. [Para 2]
In a petition under article 226, the Court has to see where the cause of
action has arisen. Other aspects such as company’s office, Registrar of
Companies office, availability of record, must be borne in mind. [Para 4]
The High Court at Delhi would have no jurisdiction when cause of action
had arisen outside the territorial limits of Delhi and within the territorial
limits of other State, namely, in the instant case, State of Maharashtra. [Para
5]
In the instant case, it was clear from the petition itself that the CBI,
Mumbai, was investigating, the properties were situated at Mumbai, and the acts
were alleged to have been committed by the respondents at Mumbai. [Para 10]
In view of the fact that in the instant case registered offices of the
companies were situated outside the territorial limits of Delhi and the
offences were alleged to have been committed outside the territories of Delhi,
the complaint which was required to be filed could not be filed within the
territorial limits of Delhi and, therefore, prima facie, the Delhi High Court
would have no jurisdiction to entertain the petition. [Para 12]
Union of India v. Adani Exports Ltd. [2002] 1 SCC 567 (para 5), Oil
& Natural Gas Commission v. Utpal Kumar Basu [1994] 4 SCC 711 (para 6),
Subodh Kumar Gupta v. Shrikant Gupta [1993] 4 SCC 1 (para 7), Navinchandra N.
Majithia v. State of Maharashtra [2000] 7 SCC 640/[2001] 34 SCL 882 (para 8)
and State of Rajasthan v. Swaika Properties [1985] 3 SCC 217 (para 8).
Ms. Roxna Swamy for
the Petitioner. K.K. Sud, Neeraj Jain, Sumant Batra, Lov Malhotra, Viraj
Datar and Ms. Kalyani Vadlamani for the Respondent.
B.C. Patel, CJ. - The
petitioner has filed this petition inter alia praying that the offences disclosed
in the petition be expeditiously investigated and/or adjudicated in accordance
with law and to appoint Special Commissioners and/or officers of unimpeachable
integrity and competence to investigate and report to this Hon’ble Court.
CWP 2047/2003
2. It may be noted that the violations are
attributed to respondent No. 5 for which it is specifically stated that
respondent No. 4 was required to take action in accordance with law but has
failed to take action. Respondent No. 4 as well as respondent No. 5 have their
offices at Mumbai. Learned counsel for respondent No. 5 submitted that the
address is wrongly given, it had its registered office at Jamnagar and the said
company has merged with Reliance Industries Limited which has its registered
office at Mumbai. The offences are alleged to have been committed by respondent
No. 5 which are made punishable under the Companies Act.
3. Section 10(1)(a) of the Companies Act, being
relevant is reproduced hereunder :
“(a) the High Court having jurisdiction in relation
to the place at which the registered office of the company concerned is
situate, except to the extent to which jurisdiction has been conferred on any
District Court or District Courts subordinate to that High Court in pursuance
of sub-section (2);”
Thus keeping this aspect in mind, the court which is required to be
approached, is the court where the registered office of the company is situate.
In the instant case it is the case of the petitioner that offences are
committed under the Companies Act. On the record, list has been placed pointing
out that the offences which are alleged to have been committed have been
compounded for which compounding fees have also been imposed. This is so stated
in the affidavit dated 10th March, 2003 filed by Mr. B.K. Bansal. Joint
Director (Inspection), the details of which, are given in Annexure 1. This
position is also accepted by the petitioner. However, it is contended by him
that there are some offences which are compoundable. Section 621A(1) is
required to be perused for that purpose. Section 621A(1) reads as under :—
“Composition of certain
offences.—(1) Notwithstanding anything contained in the Code of Criminal
Procedure, 1973 (2 of 1974), any offence punishable under this Act (whether
committed by a company or any officer thereof), not being an offence punishable
with imprisonment only, or with imprisonment and also with fine, may, either
before or after the institution of any prosecution, be compounded by—
(a) the
Company Law Board; or
(b) where the maximum amount of fine which may
be imposed for such offence does not exceed five thousand rupees, by the
Regional Director, on payment or credit, by the company or the officer, as the
case may be, to the Central Government of such sum as that Board or the
Regional Director, as the case may be, may specify:
Provided that the sum so
specified shall not, in any case, exceed the maximum amount of the fine which
may be imposed for the offence so compounded :
Provided further that in
specifying the sum required to be paid or credited for the compounding of an
offence under the sub-section, the sum, if any, paid by way of additional fee
under sub-section (2) of section 611 shall be taken into account.”
If the complaint is required to be filed for the alleged offences or the
police is required to file charge sheet in case the offences are committed, the
same will have to be filed at Mumbai or where the alleged offence is committed.
We have dealt with this aspect earlier in C.W. No. 2047 of 2003, decided on
March 21, 2003. In that case also offences alleged were committed at Bombay. In
the instant case also, the company is situated outside the limits of Delhi.
Either a prosecution or a charge sheet is to be filed, the same will have to be
filed within the territorial limits of the court where offence is alleged to
have been committed. No act or omission is attributed to the respondents
anywhere within the territorial limits of Delhi.
4. In a petition under Article 226 as filed,
really speaking, the court has to see where the cause of action has arisen.
Other aspects such as company’s office, Registrar of Companies office,
availability of record, must be borne in mind. Considering these, when no cause
of action has arisen within the territorial limits of Delhi, one must consider
where to initiate action.
5. In this connection, we may also note the
decision of the Supreme Court in the case of Union of India v. Adani Exports
Ltd. [2002] 1 SCC 567 wherein, while considering the question of territorial
jurisdiction of the High Court, the Supreme Court observed as under :
“17. It is seen from the above
that in order to confer jurisdiction on a High Court to entertain a writ
petition or a special civil application as in this case, the High Court must be
satisfied from the entire facts pleaded in support of the cause of action that
those facts do constitute a cause so as to empower the court to decide a
dispute which has, at least in part, arisen within its jurisdiction. It is
clear from the above judgment that each and every fact pleaded by the
respondents in their application does not ipso facto lead to the conclusion
that those facts give rise to a cause of action within the court’s territorial
jurisdiction unless those facts pleaded are such which have a nexus or relevance
with the lis that is involved in the case. Facts which have no bearing with the
lis or the dispute involved in the case, do not give rise to a cause of action
so as to confer territorial jurisdiction on the court concerned. If we apply
this principle then we see that none of the facts pleaded in para 16 of the
petition, in our opinion, falls into the category of bundle of facts which
would constitute a cause of action giving rise to a dispute which could confer
territorial jurisdiction on the courts at Ahmedabad.”
6. In the case of Oil & Natural Gas
Commission v. Utpal Kumar Basu [1994] 4 SCC 711, the question of territorial
jurisdiction came to be considered by the Apex Court. In that case, in response
to advertisement inviting tenders at Delhi for works to be executed in Gujarat,
the petitioner sent its tender to Delhi from Calcutta. He made representations
from Calcutta against non-consideration of its offer. Court pointed out that
such averments in the petition did not disclose that even a part of the cause
of action arose within the territorial jurisdiction of Calcutta High Court.
7. The Apex Court in the said case considered the
case of Subodh Kumar Gupta v. Shrikant Gupta [1993] 4 SCC 1. We reproduce para
9 of the Apex Court judgment in case of Oil & Natural Gas Commission
(supra) :
“In Subodh Kumar Gupta case, the
facts revealed that he had instituted a suit in the Court of Senior Judge,
Chandigarh, for dissolution of the firm in which he as partner had 20% share
along with his father, brothers and one another. The head office of the firm
was situate in Mumbai where the firm was registered with the Registrar of
Firms. Its factory was situate at Mandsaur where the father Rajaram Gupta lived
with his sons and attended to the partnership business. The
plaintiff-petitioner was also residing in Mandsaur till 1974 when he shifted to
Chandigarh. He, however, visited Mandsaur often in connection with the business
of the firm. The case, pleaded by him was that after he shifted to Chandigarh
he used to call for and received the statements of account of the business
carried on at Mandsaur. He had got letterheads printed indicating that the
branch office of the firm was at Chandigarh and he claimed that he also booked
orders for the firm at Chandigarh. It was also pleaded that certain disputes
had arisen regarding the management of the partnership firm and in regard to
the correctness of the accounts which were discussed at the meeting in Bhilai
at the end whereof an agreement was drawn up for the dissolution of the
partnership and for distribution of assets amongst the partners to which the
plaintiff was a signatory. The suit filed in the Chandigarh Court was resisted
on the preliminary contention that no part of the cause of action had arisen at
Chandigarh and therefore that court had no jurisdiction. The Chandigarh Court
upheld the contention and this Court affirmed the said view. While dealing with
the averment that the plaintiff was carrying on business of the firm from
Chandigarh where the branch office of the firm was situate this court held that
there is no averment that the branch at Chandigarh was started with the consent
of the other partners and intimation thereof was given to the Registrar of
Firms as required by section 61 of the Partnership Act; the mere printing of
stationery was neither here nor there and therefore no part of the cause of
action could be said to have arisen within the territorial jurisdiction of the
Chandigarh Court.”
Thus it is very clear that the High Court at Delhi will have no jurisdiction
when cause of action has arisen outside the territorial limits of Delhi and
within the territorial limits of other State, namely in the instant case, State
of Maharashtra. The Apex Court deeply regretted and deprecated the practice of
exercising jurisdiction and passing interlocutory orders in the matters where
it lacked territorial jurisdiction and while allowing the appeal preferred by
ONGC directed NICCO to pay the cost of Rs. 50,000.
8. In the case of Navinchandra N. Majithia v.
State of Maharashtra [2000] 7 SCC 640, the Apex Court was also required to
considered the same question. The Apex Court in para 21 considered the decision
of the Apex Court in case of Oil & Natural Gas Commission (supra) and after
referring Article 226(2), the court pointed out :
“On a plain reading of the
aforesaid two clauses of Article 226 of the Constitution it becomes clear that
a High Court can exercise the power to issue directions, orders or writs for
the enforcement of any of the fundamental rights conferred by Part III of the
Constitution or for any other purpose if the cause of action, wholly or in
part, had arisen within the territories in relation to which it exercises
jurisdiction, notwithstanding that the seat of the Government or authority or
the residence of the person against whom the direction, order or writ is issued
is not within the said territories.”
9. The Apex Court in the case of Navinchandra N.
Majithia (supra) pointed out in para 22 as under in so far as the territorial
jurisdiction with reference to the criminal offence is concerned:
“22. So far as the question of
territorial jurisdiction with reference to a criminal offence is concerned the
main factor to be considered is the place where the alleged offence was
committed.” (p. 649)
In para 41 in the case of Navinchandra N. Majithia (supra), the Apex
Court considered the case of State of Rajasthan v. Swaika Properties [1985] 3
SCC 217 in the case of Oil & Natural Gas Commission (supra) the
observations are made as under :
“12. It is well settled that the
expression “cause of action” means that bundle of facts which the petitioner
must prove, if traversed to entitle him to a judgment in his favour. Having
given such a wide interpretation to the expression Ahmadi, J. (as the learned
Chief Justice then was) speaking for M.N. Venkatachaliah, C.J., and B.P. Jeevan
Reddy, J., utilised the opportunity to caution the High Courts against
transgressing into the jurisdiction of the other High Courts merely on the
ground of some insignificant event connected with the cause of action taking
place within the territorial limits of the High Court to which the litigant
approaches at his own choice or convenience. The following are such
observations.” (p. 722)
“If an impression gains ground
that even in cases which fall outside the territorial jurisdiction of the
Court, certain members of the court would be willing to exercise jurisdiction
on the plea that some event, however, trivial and unconnected with the cause of
action had occurred within the jurisdiction of the said court, litigants would
seek to abuse the process by carrying the cause before such members giving rise
to avoidable suspicion. That would lower the dignity of the institution and put
the entire system to ridicule. We are greatly pained to say so but if we do not
strongly deprecate the growing tendency we will, we are afraid, be failing in
our duty to the institution and the system of administration of justice. We do
hope that we will not have another occasion to deal with such a situation.”
In para 43, in the case of Navinchandra N.
Majithia (supra), the Court pointed out as under :
“43. We make it clear that the
mere fact that FIR was registered in a particular State is not the sole criterion
to decide that no cause of action has arisen even partly within the territorial
limits of jurisdiction of another State. Nor are we to be understood that any
person can create a fake cause of action or even concoct one by simply jutting
into the territorial limits of another State or by making a sojourn or even a
permanent residence therein. The place of residence of the person moving a High
Court is not the criterion to determine the contours of the cause of action in
that particular writ petition. The High Court before which the writ petition is
filed must ascertain whether any part of the cause of action has arisen within
the territorial limits of its jurisdiction. It depends upon the facts in each
case.” (p. 655)
The Court pointed out that large number of events have taken place at
Mumbai in respect of allegations contained in FIR registered at Shillong. If
the averments in the writ petition are correct then major portion of the facts
which led to registering of FIR have taken place at Mumbai. Ultimately, the
court held that it is almost impossible to hold that not even a part of the
cause of action has arisen in Mumbai so as to deprive the High Court of Mumbai
of total jurisdiction to entertain the writ petition filed by the petitioner.
10. In the instant case, it is clear from the
petition itself that CBI, Mumbai was investigating, the properties are situated
at Mumbai, the acts are alleged to have been committed by the private
respondents at Mumbai and therefore this Court will have no jurisdiction to
entertain the petition.
11. In the case of Adani Exports Ltd. (supra)
passbook was issued at Chennai by designated authority at Chennai and
transaction concerning the said passbook were made from Chennai port. In that
case, the respondent carried on their business of export and import from
Ahmedabad. Their orders of export and import were placed from and were executed
at Ahmedabad; documents of export and import were sent/made at Ahmedabad;
credit of duty claimed in respect of exports were handled from Ahmedabad;
non-granting and denial of utilisation of the credit in the passbook will
affect the respondent’s business at Ahmedabad; the respondents executed bank
guarantee through their bankers at Ahmedabad as well as a bond at Ahmedabad,
where the grounds taken for having jurisdiction over the subject in Gujarat
State. Thus, it is very clear that where cause of action arose is required to
be seen. At least, part of the cause of action must have arisen within the
territorial limits where the court is required to take cognizance of the
matter. In the above decision, we have considered the Apex Court judgments.
12. In view of the fact that in the instant case,
registered offices of the companies are situated outside the territorial limits
of Delhi and offences alleged to have been committed outside the territories of
Delhi, the complaint which is required to be filed cannot be filed within the
territorial limits of Delhi and, therefore, prima facie this court is of the
opinion that this court will have no jurisdiction to entertain the petition.
13. It may not be misunderstood that we have said
anything on the merits of the case with regard to non compoundable offences.
14. The writ petition is accordingly disposed of.
[2003] 115 COMP. CAS. 577 (DELHI)
v.
Akshay Finance
VIKRAMJIT
SEN, J.
C.A.
NOS. 641, 642, 685, 686, 639, 640 AND 707 OF 2002 IN C.P. NO. 21 OF 1986
AUGUST 9, 2002
atishi Dipanker for the Petitioner.
Jayant Bhushan,
Ms. Zuba Khan, A.S. Chandok, Rajiv Shakdhar, Ms. Jyoti Mendiratta and Ms. Amita
Sehgal for the Respondent.
Vikramajit Sen J. s—C.A. Nos. 641 and 642 of 2002:
Allowed, subject to all just
exceptions.
C.A. Nos. 685 and 686 of 2002 in C.P. No. 21 of 1986:
Mr. Chandiok, learned senior
counsel for the respondents, states that the applications may be allowed,
subject to all just exceptions. Ordered accordingly. The amended applications
are taken on record.
C.A. Nos. 639, 640, 707 of 2002 in C.P. No. 22 of 1986:
In order to fully appreciate the
facts and issues that have been brought into focus in the context of the
reliefs prayed for in these applications, it is necessary to make a precis of
the annals of this family litigation. Shri D.K. Oswal filed petition C. P. Nos.
21 to 26 of 1986 under section 155 of the Companies Act, 1956, read with rule 9
of the Companies (Courts) Rules, for the rectification of the register of
members of the companies which were controlled by the Oswal family. These companies
were Akshay Finance and Trading Company, Paras Finance and Trading Company,
Arihant Investment and Trading Co., Victor Investment and Mercantile Co., Ambar
Investment and Mercantile Co. and Adinath Investment and Trading Company. At
that point of time four public limited companies were also under the Oswal
family's management, i.e., Vardhman Spinning and General Mills Ltd. Mahavir
Spinning Mills Ltd., Shreyans Paper Mills Ltd. and Adinath Textiles Ltd. It is
not in dispute that Vardhman Polytex was not in existence in 1987 and was,
therefore, not within the purview of those company petitions. In those
petitions the father of the petitioner, namely the late R.G Oswal, and the
petitioner's two brothers A.K. Oswal and S.P. Oswal were arrayed as respondents.
They put up a common response/defence in all the petitions.
After one year of the pendency of
those petitions, a settlement was brought about by Mr. Justice B.N. Kirpal (as
the learned Chief Justice of India then was) in terms of his order dated August
12, 1987. It is not of only little significance that the opening sentence and
paragraph of this judgment reads as follows:
"This judgment will dispose
of Company Petitions Nos. 21 of 1986 to 26 of 1986." (underlining added for
emphasis)
A perusal of the aforementioned
judgment dated August 12, 1987, will make it abundantly clear that there were
two groups before the court, that of the petitioner/Shri D.K. Oswal on the one
side and his father and his two brothers on the other. No further fragmentation
in the second group was either pleaded or had manifested in itself in any
manner whatsoever.
The applications under
consideration have been moved in Co. Petition No. 21 of 1986 above, but I do
not propose to stand on strict technicalities and shall assume, wherever
necessary, that reference has been made to all the erstwhile petitions, viz.,
C.P. Nos. 21 to 26 of 1986. It is imperative to mention that all the companies
in contemplation in the earlier petitions had their registered offices at 205,
Surya Kiran Building, Kasturba Gandhi Marg, New Delhi. The prayer contained in
C.P. No. 21 of 1986 was as follows:
"Prayer
It is, therefore, most
respectfully prayed that the illegal redemption of,-
(i) 2630-four per cent. non-cumulative
redeemable preference shares of the company; and
(ii) 30-eight per cent. preference share of the company belonging to
the petitioners be declared illegal, inoperative and being void in law and the
register of members of the company be rectified by inserting therein the names
of the petitioners as holders of the aforesaid shares. Costs of petition be
allowed to the petitioners: Any other order deemed fit and proper in the
circumstances of the case be also made."
Mr. Jayant Bhushan, learned
counsel appearing for the applicants in C.A. Nos. 639 of 2002 and 702 of 2002
has relied heavily on the previous order passed on May 6, 1986, in the earlier
proceedings so as to emphasise that the division and severance which took place
was not just between Shri D.K. Oswal and the rest of the family, but also
individually between the father late Shri R.C. Oswal and his three sons,
namely, Shri D.K. Oswal, Shri A.K. Oswal and Shri S.P. Oswal respondent. This
order is reproduced verbatim since separate portions thereof have been relied
upon by the opposite parties. Mr. Bhushan has relied on paragraph 1 which
mentions that the four branches of the family shall have 25 per cent. interest
each. On the contrary Mr. Chandiok has relied on paragraph 5 since it mentions
that the interests of Shri D.K. Oswal were being separated from the rest of the
family.
"Present: Mr. Shanti Bhushan
senior advocate with Mr. G.L. Rawal and Mr. K.M. Sharma, for the petitioner.
Mr. Kapil Sibal, senior advocate
with Mr. S.S, Shroff and Mr. Pinaki Misra, for the respondent.
C.P. Nos. 21 to 26 of 1986:
It is indeed gratifying to note
that the parties are agreed to the manner in which the disputes between them
are to be settled.
The agreement is that the share
of each of the four branches involved in this case, namely, the petitioner, his
father and his two brothers, should be deemed for working the settlement as
being equal. The total value of the family's holdings in the various business
concerns will be ascertained and thereafter the interest of the petitioner and
his family members shall be separated. Payments made to any of the family
members either from investment companies or trusts or otherwise for the alleged
redemption/cancellation of shares shall be properly adjusted.
The parties are agreed that in
order to bring about a settlement between the parties, the various members of
the family should file in court undertakings by way of affidavits which would
spell out the terms of the agreement between them and would also bind each one
of the deponents. The affidavits by way of undertakings which would be filed by
all the members of the family would be to the following effect:
1. The deponent will accept that for the purpose of settling the
dispute, the four branches of the family, namely, the petitioner, his two
brothers and father, have 25 per cent. interest each.
2. The value of the total shareholding of the family determined on
the basis of net worth of the companies as on March 31, 1986, held in the name
of the members of the family or through their investment companies in the four
companies, namely, Vardhman Spinning and General Mills Ltd., Mahavir Spinning
Mills Ltd., Sriyans Paper Mills Ltd. and Adinath Textiles Ltd., will be
determined as on March 31, 1986.
3. The value of the family's total shareholding as on March 31,
1986, in the aforesaid companies will be determined on net worth basis by S.B.
Billimoria and company, chartered accountants. They shall value the
shareholding after giving opportunity of hearing to all the parties. The report
to be submitted by S.B. Billimoria and Co. will be subject to
confirmation/adoption, with or without modification, by the court.
4. The deponent will undertake to this court that he will not
challenge, by way of appeal or otherwise, the valuation as finally determined
by the court.
5. Upon determination and confirmation of the valuation by then
court, the parties agree that the court shall decide the manner in which the
interest of the petitioner is to be separated from the interests of rest of the
family and the decision so arrived at shall be final and binding on all the
parties. In order to assist the court in arriving at this decision, the
chartered accountants shall not only value the family's total shareholdings in the
said companies but they should also submit to the court their report containing
conclusions as to the net worth of each of the four companies as on March 31,
1986.
6. The parties undertake, when called upon to do so by the court,
to transfer the shares etc. in order to give effect to the order of separation.
Any transfer of shares necessary in the process of settlement, will be subject
to such approvals or the financial institutions as may be required under the
various agreements and undertakings to them. The deponent undertakes to take
all necessary steps to obtain such approvals. In the meantime the suits,
appeals and criminal complaints as are pending today will be stayed till
further orders of the court.
Affidavits in the aforesaid terms
should be filed in court by all the members of Oswal family who have shares in
their names directly or indirectly within
ten days from today and the case be listed in chamber on May 16,1986, at 4 p.m.
(Sd.) B.N. Kirpal,
Judge.
May 6, 1986."
Even on a bare reading of the
aforementioned order I am unable to subscribe to the view proposed by Mr.
Bhushan that the court had divided and partitioned the shares of the late R.C.
Oswal and each of his three sons in equal shares of Ľth each. The division that
was postulated even on May 6, 1986, was a severance of the Ľth share of Shri
D.K. Oswal from the Oswal family fortunes. Though this is the tenor of the
orders passed by Justice B.N. Kirpal, this is apparent on a perusal of the
following extracts from the judgment dated August 12, 1987:
"In order to give effect to
separation of petitioners' interests from the rest of the family, necessary
directions have to be issued so as to ensure that shares of Vardhman and
Mahavir held by D.K. Oswal and his associates are transferred in favour of R.C.
Oswal group and, at the same time, shares of Shreyans and Adinath held by R.C.
Oswal, S.P. Oswal and Ashok Oswal and their group be transferred in favour of
D.K. Oswal and his nominees. Appropriate directions have also to be issued with
regard to the divesting of shares of Shreyans by Vardhman as has been proposed
by the respondents in their written arguments.
The transfer of shares which is
involved, to give effect to the aforesaid, as has been indicated by the
respondents, is as follows:
'A. Share transfers involved from respondents to Shri D.K. Oswal and his
group
|
I.
Shreyans Paper Mills Ltd. |
|
|
IA.
Direct holding of the respondents: |
|
|
Name of the individual |
No. of shares |
|
(a) Shri
R.C. Oswal |
1 |
|
(b) R.C. Oswal
and Sons |
65,500 |
|
(c) Shri
S.P. Oswal |
95,450 |
|
(d) Smt.
Banarso Devi will account (registered in the name of Shri Ashok Oswal) |
450 |
|
Total |
1,61,401 |
IB. Name of investment companies which hold shares in Shreyans and where shares
alone will be transferred.
|
(a) Metro Investment and
Marketing Co. Pvt. Ltd. |
14,000 |
|
(b) Eastern Investment and
Marketing Co. Pvt. Ltd. |
13,900 |
|
(c) Sanmati Investment and
Trading Co. Pvt. Ltd. |
15,500 |
|
(d) Nahar Investors and Traders
Pvt. Ltd. |
10,100 |
|
Total |
53,350 |
II. Adinath Textiles Ltd.
IIA. Direct holding of respondents.
Name of the individual
|
No. of shares
|
|
(a) Shri S. P. Oswal |
800 |
|
(b) S.P. Oswal and Sons |
700 |
|
(c) Mrs. Shakun Oswal |
200 |
|
(d) Shri R.C. Oswal |
70 |
|
(e) R.C. Oswal and Sons |
500 |
|
(f) Mr. Ashok Oswal |
320 |
|
(g) Ashok Kumar and Sons |
14,600 |
|
(h) Mrs. Manju Oswal |
4,500 |
IIB. Name of the investment companies which hold shares in Adhinath and where
shares alone will be transferred.
Name of investment company
|
No. of shares
|
|
(a) Amber Investment and Mercantile
Co. |
400 |
|
(b) Paras Finance and Trading Co. |
50 |
|
(c) Victor Investment and Mercantile
Co. |
1,030 |
|
(d) Arihant Investment and Trading Co. |
75 |
|
(e) Akshay Finance and Trading Co. |
200 |
|
(f) Adinath Investment and Trading Co. |
500 |
|
(g) Devakar Investment and Trading Co.
Pvt. Ltd. |
330 |
|
(h) Nahar Investors and Traders Pvt.
Ltd. |
50 |
|
Total |
3,065 |
IIC. Names of three public limited companies which hold shares in
Adhinath and where shares alone will be transferred.
Name of the company
|
No. of shares
|
|
(a) Santon Finance and Investment Co.
Ltd. |
19,995 |
|
(b) Flamingo Finance and Investment
Co. Ltd. |
30,000 |
|
(c) Ramaniya Finance and Investment
Co. Ltd. |
50,000 |
|
Total |
99,995 |
IID. Names of the firms which hold shares in Adinath and where shares
alone will be transferred.
|
Name of the firm |
No. of shares
|
Registered in the name of |
||
|
(a) Amber Syndicate |
|
25,350 |
|
D.K. Oswal 25,000 |
|
|
|
R.C. Oswal 350 |
||
|
(b) Para Syndicate |
|
30,000 |
|
D.K. Oswal |
|
(c) Adinath Syndicate |
|
30,000 |
|
S.P. Oswal |
|
Total |
|
85,350 |
|
|
III. Names of the investment companies which hold shares in Shreyans and
Adinath and the control of the same will be handed over to Shri D.K. Oswal's
group.
No. of shares
|
||||
|
Name of the company |
||||
|
(a) Achin Investment and Mercantile Co. |
55,500 |
|
55,500 |
|
|
(b) Levina Investment and Mercantile Co. |
76,600 |
|
78,900 |
|
|
(c) Ojasvi Investment and Mercantile Co. |
40,500 |
|
95,000 |
|
|
(d) Adeep Investment Co. |
17,900 |
|
30,000 |
|
|
(e) Virat Investment and Mercantile Co. |
36,100 |
|
30,000 |
|
|
Total |
2,26,600 |
|
2,88,900 |
|
In order to give effect to the
aforesaid transfer, the following directions are issued:
(i) Within two weeks from today all the parties will deposit with
the Registrar of this court, duly executed, share transfer deeds along with
share scrips in the manner indicated above.
(ii) The Registrar shall deliver the blank share transfer deeds duly
signed as well as share scrips of Shreyans and Adinath to Shri D.K. Oswal or
his nominee and of Vardhman and Mahavir to Shri R.C Oswal or his nominee.
(iii) With the lodging and handing over of the transfer deeds, the
respondents will, within one week thereof, ensure the registration of the
transfer of shares of Shreyans and Adinath in favour of Shri D.K. Oswal and his
nominees and will ensure that the board of directors of Shreyans and Adinath
co-opt Shri D.K. Oswal and his nominees as directors of Shreyans and Adinath
and thereupon Shri S.P. Oswal, R.C. Oswal and Ashok Oswal snail resign from the
board of directors of Shreyans and Adinath.
(iv) Shri S.P. Oswal and Shri R.C. Oswal are further directed to give
effect to the resolution dated February 26, 1981, passed by Vardhman regarding
the compliance with condition No. J. attached to the letter dated November 12,
1981, issued by the Controller of Capital Issues, Government of India to
Shreyans Paper Mills Ltd. and to sell shares of Shreyans held by Vardhman in excess
of 40 per cent. held by the promoters at the market value of the shares. It is
further directed that these shares will first be offered for sale to Shri D.K.
Oswal and his group and in order to make up the difference Shri R.C. Oswal and
members of his group are further directed to give to Shri D.K. Oswal and his
group Rs. 21,75,586 which would enable him to purchase the said shares of
Shreyans to be sold by Vardhman.
(v) Both the groups will file appropriate applications with the
financial institutions and see the release of personal guarantees of the
petitioner and members of his group which may have been given for financial
arrangement extended by the institutions to Vardhman and Mahavir and also the
release of guarantees of R.C. Oswal and members of his group which may
similarly have been given to the financial institutions or other institutions
for extending the financial assistance to Shreyans and Adinath.
(vi) Both the groups are directed to take all steps which may be
necessary to give effect to the transfer of shares and management of Shreyans
and Adinath to D.K. Oswal and his group and the transfer of shares of Vardhman
and Mahavir by D.K. Oswal members of his group in favour of R.C. Oswal and his
group.
(vii) Parties are at liberty to apply to this court,
from time to time if the need arises, for directions or clarifications which
may be necessary in order t: give effect to the settlement of dispute between
the parties.
The company petitions are disposed of in the aforesaid
terms. The parties shall bear their own costs."
Although the lis had been disposed of by the
aforementioned orders, since some delay or difficulty was encountered in its
implementation, applications were subsequently filed and entertained by the
court. However, even on perusal of the orders dated September 25, 1987, in
terms of which C.A. Xo. 643 of 1987 had been disposed of, it will be evident
that the severance which took place in C.P. No. 21 of 1986 was the separation
of the share of Shri D.K. Oswal only. What was clarified by the court was
merely that each person had an equal share, i.e., one quarter each. This is
also manifested from the fact that from 1987 onwards, till the death of the
patriarch the late R.C. Oswal, the business ventures of the respondent group
which included the two brothers who are now adversaries in these applications
were jointly carried out by all three of them. The contention of Mr. Bhushan
that the Oswal family businesses were, in fact, partitioned in Ľth share each
is accordingly rejected. Once this conclusion is reached, it will not be
possible to view the present applications as having the character and merely
endeavouring to implement the earlier orders and effecting a distribution of
assets by metes and bounds, so as to bring them within the parameters set down
in para (vii) of the above extracted orders.
What must be decided is whether
this court possesses the requisite jurisdiction to entertain applications
which, in essence, seek to carry out rectifications in the register of members
of companies within the management of the further fragmented Oswal group
subsequent to the death of the late R.C. Oswal. At the time when C.P. No. 21 of
1986 had been filed section 155 of the Companies Act vested the power to
rectify the register of members in the company judge. This provision, however,
has been repealed by the Companies (Amendment) Act, 1988, with effect from May
31,1991, and its provisions have been assimilated in the amended section 111
with the consequence that the avenue of relief now leads to the Company Law
Board. Where a totally new case is being put forward, the court must not revive
a petition which has already been disposed of and thereby assume a jurisdiction
which it no longer possesses. No doubt, applications have been entertained in this
petition till quite recently, but the distinction which must be honoured is
that the court may retain the power to pass orders which are calculated to
implement the orders previously passed by it when it possesses jurisdiction
over the lis. The present dispute, as has already been stated is essentially
different to the factual matrix and the prayers contained in C.P. No. 21 of
1986, and for that matter in all the other C. Ps. Nos. 21 and 26 of 1986. Mr.
Bhushan has himself adverted to the will of the late R.C. Oswal, which has
become operative several years after the disposal of C.P. No. 21 of 1986. The
genesis of the resent disputes can be traced back to the allotment of 10,000
shares in 1998, and the resultant alteration of the control of Vardhman Polytex.
Mr. Bhushan has also mentioned changes in the board of directors of that
company and Mahavir Spinning and General Mills which occurred in August 2000.
Quite obviously this has no bearing on the facts which existed in 1986. The
heading of the applications mentions that they are pursuant to the demise of
Shri R.C. Oswal.
Before departing from this aspect
of the case it is of extreme relevance that the registered offices of the
companies which were within the purview of the six petitions which had received
the attention of this court, were all at the same address, i.e., 105, Surya
Kiran Building, Barakhamba Road, New Delhi. At the present moment the
registered offices have been shifted out of Delhi to Ludhiana (Punjab) after
obtaining the approval of the Company Law Board.
Section 10 of the Companies Act
stipulates that the court having jurisdiction shall be the High Court having
jurisdiction in addition to the place at which the registered office of the
company is situate. Sub-section (3) of section 10 is not relevant inasmuch as
it refers to winding-up petitions. However, it is interesting to note that even
in the context of the period of six months, it has been clarified that the
location of only that registered office will be taker, into consideration which
has existed in the longest portion of the six months immediately preceding the
presentation of such a petition. The effort in these applications is to
resurrect a petition filed almost over fifteen years ago, despite the fact that
the registered offices are located in Ludhiana since last four years.
This is also how the applicants
had themselves viewed the legal position. A scheme of amalgamation under
section 394 of the Companies Act was moved by the parties hereby not in this
High Court but in the High Court of Punjab and Haryana at Chandigarh. The
scheme was approved by that court on August 1, 2000. Thereafter, C. P. No. 49
of 2001 was filed by the applicant himself before the-Company Law Board,
Principal Branch, New Delhi as recently as February 25, 2002. The Company Law
Board had passed an order in respect of Panchsheel Textile Manufacturing and
Trading Co. (Pvt.) Ltd. at the instance of the applicant and directed that the
prevailing position in the said company will continue till such time the obligations
resting on the petitioner are discharged. An appeal from this order is pending
in the High Court of H Punjab and Haryana at Chandigarh. It has been ordered
that status quo as it existed on April 24, 2002, shall be maintained.
As I see it the present applications
have been filed in 2002, in an attempt to open up another frontier in the
family dispute between the two brothers. This court no longer possesses any
jurisdiction over these disputes.
C.A. Nos. 639 and 640 of 2002
are, accordingly rejected C.A. No. 707 of 2000 is allowed. Interim orders dated
May 31, 2002, are recalled.
[2003] 114 COMP. CAS. 404 (AP)
HIGH COURT OF ANDHRA PRADESH
v.
Central Economic Intelligence
Bureau
V.V.S. RAO, J.
WRIT PETITION NO. 19137 OF 2000
JULY 9, 2002
L. Ravichander for the
Petitioner.
C.V. Ramulu for the Respondent.
JUDGMENT
V.V.S. Rao, J.—Introduction and reliefs prayed:
The first petitioner is a
non-banking finance company (NBFC) registered under the Companies Act, 1956. The
registered office of the company is at 152, Sanghi Street, Mhow, Indore
District, Madhya Pradesh. The company was started and promoted by the second
respondent, inter alia, with the objectives of carrying on in India or
elsewhere the business of financing, money-lending, bills discounting,
hire-purchasing, leasing etc. As per the list of branch offices given in the
affidavit accompanying the writ petition, they have branch offices in New
Delhi, Lucknow, Hapur, Sharanpur and Noida in Uttar Pradesh; Mhow, Dewas,
Bhopal, Sihore, Chavni, Reeva and Ratlam in Madhya Pradesh; Malegam and Dhulia
in Maharashtra; and Palanpur in Gujarat. It is also alleged that they have a
branch office at Pathergatti Main Road in Hyderabad.
The writ petition filed by the
petitioner-company and its managing director is supported by a sworn affidavit
filed by the second petitioner, who is the managing director of the company.
The petitioners prayed for the following relief:
...to issue a writ of mandamus,
writ order or direction declaring the action of the respondents in not taking
necessary prohibitive steps for the safety of the petitioners and on the other
hand, calling upon the writ petitioners to make payments on the basis of civil
transactions between the petitioners and their investors/shareholders as
arbitrary, illegal, unjust, unconsti-tutional without jurisdiction, without
authority of law and violative of the fundamental rights guaranteed under
articles 14, 19, 20, and 21 of the Constitution of India and also has the effect
of violation of constitutional guarantees guaranteed to the petitioner under
articles 50 and 300A of the Constitution of India and also contrary to ratio
laid down by this court and direction to the first respondent to centralize all
alleged complaints against the first and second petitioners, if any and carry
out the investigations in accordance with law and for consequential reliefs and
directions to the police to take all such steps as are necessary for the
protection of the petitioners and not to harass the petitioners on the basis of
the complaints which are strictly civil in nature and more particularly, direct
them to carry out their investigations, if any, on the alleged complaints
against the petitioner strictly in accordance with the procedure under the Code
of Criminal Procedure and pass such other or further orders as this court may
deem fit and proper in the circumstances of the case.
Analyzing the reliefs it may be
taken that the petitioners pray for the following: (i) to declare the action of
the respondents in not taking necessary prohibitive steps for the safety of the
petitioners as illegal and unconstitutional; (ii) to declare the action of the
respondents in calling upon the petitioners to make payments on the basis of
civil transactions between the petitioners and their investors/shareholders is
arbitrary, illegal and unjust and violative of the fundamental rights
guaranteed under articles 14, 19, 20 and 21 of the Constitution of India and
constitutional guarantees under articles 50 and 300A of the Constitution of
India; (iii) to issue a direction to the first respondent, namely, Central
Economic Intelligence Bureau (CEIB), New Delhi, to centralize all the alleged
complaints against the petitioners, if any, and carry out investigation in accordance
with law; (iv) to issue a consequential direction to the police to take such
steps as are necessary for the protection of the petitioners and not to harass
the petitioners on the basis of civil complaints; and (v) to direct the
respondents to carry out their investigations if any on the complaints against
the petitioners strictly in accordance with the procedure under the Code of
Criminal Procedure, 1973.
The Pleadings; Writ affidavit:
Before briefly noticing the averments
made in a lengthy writ affidavit, be it noted that all of the above reliefs are
not supported by the necessary averments or pleadings. Be that as it may, as
noticed the petitioner is an NBFC registered in Madhya Pradesh. According to
the petitioners, being a company promoted by citizens of Islamic faith which
prohibits the collection and payment of interest (Sood Haram) they evolved a
scheme known as Shayee Funding Deposit Receipt. Under this scheme, it is
alleged, the deposits collected from the investors would be utilized for
allotment of shares to them and funds/deposits collected would be invested in
other companies. The petitioners allege that they collected non-interest
yielding/profit sharing investments in the form of equity and invested in
equity shares. There were baseless rumours of cheating against the first
petitioner and therefore some of the members of public filed complaints in
various police stations including in the police station at Shahjahanabad,
Bhopal, Madhya Pradesh; Sarafa Police Station, Indore; and New Friends Colony
Police Station, New Delhi. The directors of the company obtained
bail/anticipatory bail. As there was a threat to their lives, the second
petitioner left the city of Mhow and is leading a subdued life elsewhere. It is
also alleged that in spite of repeated requests to some of the Station House
Officers (SHOs) to extend proper protection, those police officers instead of
protecting the second petitioner are compelling to repay the deposits collected
by the company. It is also alleged that some time ago when some of the
investors attacked the office of the second petitioner and threatened with
physical abuses, he sought protection from the third respondent, namely, the
SHO, Mirchowk Police Station, Hyderabad in vain. Therefore, he filed the writ
petition.
It is alleged that all the
investors who have invested in the company are likely to earn profits/dividends
provided the petitioners are permitted to carry on its trading and other
non-finance business activities. Therefore, the petitioners aver that the
company is willing to work under supervision of the court commissioner, which
arrangement would establish the bona fides of the company and benefit the large
public, and that the petitioner-company is also willing to face any
investigation in accordance with law. This according to the petitioners would
ensure commercial survival of the company as well as public interest but the
Station House Officer is trying to convert civil claims into criminal demands
and resorting to arm twisting methods. The disputes between the depositors and
the petitioner-company are purely of civil nature and therefore it is alleged
the police cannot interfere in the matter. It is also alleged that the
petitioner has filed W.P. No. 1936 of 2000 before the Madhya Pradesh High Court
and the same is pending.
Be it also noted that along with
the writ petition the petitioner filed two miscellaneous petitions: (i) for a
direction to the respondents to give police protection to the petitioners and
their properties; and (ii) to appoint a court commissioner/receiver to take
over properties of the second petitioner and permit the petitioners to takeover
the same under the supervision of the receiver.
Interlocutory proceedings before this court:
The writ petition was filed
before this court on October 9, 2000, inter alia, alleging that the Station
House Officer is not giving proper protection and that he is compelling the
petitioners to repay the deposits made by certain depositors. This court
ordered notice before admission on October 11, 2000.
The matter was adjourned on
eleven occasions and on November 18, 2001, his Lordships justice I.
Venkatanarayana passed orders appointing Sri P.V. Vidyasagar as advocate
commissioner to discharge the functions namely (i) to take charge of movable
and immovable properties as per the list furnished by the petitioners and (ii)
to invite claims from all the creditors and to supervise the management of
properties by ensuring that the properties are not alienated. When the matter
was called on April 19, 2001, before his Lordships Justice Goda Raghuram the
learned advocate commissioner made an oral request that he be discharged due to
personal circumstances. Therefore, his Lordships by order dated April 19, 2001
while discharging P.V. Vidyasagar as advocate commissioner, appointed R.
Raghunandan Rao, a practising lawyer of this court to take charge of the
movable and immovable properties. The new advocate commissioner was also
further directed as under:
The said advocate commissioner
shall invite claims from all the creditors and also supervise the management of
the properties ensuring that the properties are not alienated and in any way
encumbered. The management and administration, wherever it is required in
respect of the properties aforementioned shall be under the supervision and
instructions of the advocate commissioner. The petitioners shall not be
entitled to deal with the properties except with and in accordance with the
written instructions of the advocate commissioner. The advocate commissioner
shall submit an interim report as to the nature of the properties, their
valuation and adequacy of the value of the properties qua the liabilities of
the petitioners to investors and shareholders and whether any of the properties
above are encumbered in any manner as to detract from their viability to
discharge claims of such investors and shareholders, as are raised on the first
petitioners's company and/or the second petitioner. The interim report as
directed above shall be submitted within a period of eight weeks from today.
The learned advocate commissioner
visited different places in Madhya Pradesh and New Delhi. He submitted report
on June 6, 2001. Some more facts:
After having come to know about
the writ petition before this court when the advocate commissioner visited New
Delhi one Lt. Cdr. Bhisham Kumar (retired) of New Delhi addressed a letter
dated July 28, 2001 to the Assistant Registrar of this court informing that all
the depositors of the first petitioner belong to New Delhi and Indore and that
he and other depositors like him were cheated by the petitioners and that they
lodged FIR No. 290 of 2000 with police station, Friends Colony, New Delhi. A
further reference to this letter would be made a little while later.
Be it also noted that after
receiving notices the inspector (investigating officer) of F and C section of
Economic Offences Wing, Crime Branch, New Delhi sent a letter dated August 22,
2001, enclosing a list of enclosures whose complaints were received by the said
police station requesting to consider their cases. It is also reported by the
said inspector that the petitioner cheated innocent investors with lucrative
scheme and accepted fixed deposits from the public. The list of 94 investors
enclosed to the letter dated August 22, 2001 shows that all the depositors of
the first petitioner NBFC are from New Delhi, Punjab, Assam, Madhya Pradesh and
Uttar Pradesh. There is no depositor from Andhra Pradesh.
Submissions of the petitioner counsel:
When the matter was called for
admission before this court on February 14, 2002 and February 18, 2002, learned
counsel for the petitioners L. Ravichander submitted an argument which, to say
the least, is full of rhetoric, hype, and hyperbole. Learned counsel more than
once repeated that in a democratic country governed by rule of law the police
and investigating agencies cannot take law into their own hands and harass an
NBFC to repay the amounts collected as deposits especially when in accordance
with the scheme the first petitioner NBFC is entitled to convert the same into
shares. Learned counsel did not place any material as to any complaint lodged
with the third respondent or anywhere in Andhra Pradesh nor did he place any
material that the second petitioner has lodged a complaint when allegedly some
of the investors behaved in such a manner that the second petitioner reasonably
apprehends that there is threat to his life. Learned counsel is also not able
to place any material to show that a part of cause of action arose within the
territorial jurisdiction of this court under article 226 of the Constitution of
India. Learned counsel only makes a request that the Registrar of Companies be
directed to conduct enquiry under section 241 of the Companies Act, 1956.
Before adverting to these submissions, it is necessary to refer to the counter
affidavit filed by the Station House Officer, Mirchowk Police Station,
Hyderabad, on November 9, 2000, which was not brought to the notice of the
court when the two learned judges passed orders appointing advocate
commissioners.
Counter averments:
The third respondent in the
counter denied all the allegations made in the writ affidavit. It is also
stated that the various allegations made by the petitioners in so far as the
business of deposits received and the scheme of the first petitioner-company
are concerned respondents Nos. 2 and 3, namely the Commissioner of Police,
Hyderabad and the Station House Officer, Mirchowk Police Station, have nothing
to do with the same. It is further stated that the petitioners never visited
the third respondent nor did they seek police protection. It is also stated
that the third respondent has not received any complaint against the
petitioner-company and the petitioner also has not made any complaint to the third
respondent with regard to the alleged attack on the petitioners. The third
respondent has not taken any action against the petitioners, much less action
for allegedly exhorting non-decretal amounts under the threat of investigating
criminal offence. The petitioners were never called to police station to make
payments to the investors/shareholders and the petitioners never requested the
police to take prohibitive action against the alleged attempts made on the
petitioners' movable/immovable properties and life.
Points for consideration:
After hearing learned counsel for
the petitioners and considering the counter-affidavit filed by the third
respondent as well as the letter addressed by Inspector of Police, Economic
Offences Wing, Crime Branch, New Delhi, and the letter addressed by Lt. CDR.
Bhisham Kumar (Retd.) New Delhi, the two points that arises for consideration
are (i) whether this court has jurisdiction to entertain the writ petition and
(ii) whether the petitioner has not resorted to sharp practices and obtained
interim orders from this court by making all false and incorrect statements.
In re Point No. 1:
The jurisdiction of this court:
Under sub-article (2) of article
226 of the Constitution of India the power conferred on the High Court to issue
directions, orders or writs can be exercised by this court in relation to
territories within which the cause of action wholly or in part arises for the
exercise of such powers. If the cause of action or part of cause of action had
not arisen or the person fails to demonstrate such cause of action as having
arisen within the territorial jurisdiction of the court, issue of any writ or
direction would be without jurisdiction.
Case-law on question of jurisdiction
While considering the question
whether this court has territorial jurisdiction to entertain the writ petition
the court must take all the pleas and pleadings in support of the cause of
action into consideration without embarking about the correctness or otherwise
of the facts. It was so held by the Supreme Court in Aligarh Muslim University
v. Vinay Engineering Enterprises (P.) Ltd. [1994] 4 SCC 710 as well as Oil and
Natural Gas Commission v. Utpal Kumar Basu [1994] 4 SCC 711. In Aligarh Muslim
University v. Vinay Engineering Enterprises (P.) Ltd. [1994] 4 SCC 710, 711 it
was held as under:
"We are surprised not a
little, that the High Court of Calcutta should have exercised jurisdiction in a
case where it had absolutely no jurisdiction. The contracts in question were
executed at Aligarh, the construction work was to be carried out at Aligarh,
even the contracts provided that in the event of dispute the Aligarh Court
alone will have jurisdiction. The arbitrator was from Aligarh and was to
function there. Merely because the respondent was a Calcutta based firm, the
High Court of Calcutta seems to have exercised jurisdiction where it had none
by adopting a queer line of reasoning. We are constrained to say that
this is a case of abuse of jurisdiction and we feel that the respondent
deliberately moved the Calcutta High Court ignoring the fact that no part of
the cause of action had arisen within the jurisdiction of that court. It
clearly shows that the litigation filed in the Calcutta High Court was
thoroughly unsustainable."
(emphasis
supplied)
In Oil and Natural Gas Commission v. Utpal Kumar Basu [1994] 4 SCC 711, Engineers India Ltd. (EIL), New Delhi, who
are consultants of the Oil and Natural Gas Commission (ONGC) issued a notice
inviting tenders for setting up a kerosene recovery processing unit at Hazira
Complex in Gujarat. Bid offers were to be sent to EIL at New Delhi. M/s. Nicco
having its registered office at Calcutta became aware of the tender notice
published in the Times of India, Calcutta and submitted a tender to EIL at New
Delhi. The tenders were scrutinised at New Delhi and Nicco's tender was
rejected. The Steering Committee decided to award the contract to M/s. Cimmco
Ltd. which was challenged by Nicco in the Calcutta High Court praying to
restrain the ONGC from awarding the contract. For the purpose of cause of
action it was pleaded by Nicco that they came to know about the tender from
Times of India, Calcutta, submitted its tender from Calcutta and had
correspondence with EIL in Calcutta and therefore the High Court of Judicature,
Calcutta, would have territorial jurisdiction. This plea found favour with the
Calcutta High Court which allowed the writ petition by overruling the objection
raised by ONGC. On appeal from the ONGC a three-judge Bench of the apex court
while interpreting article 226 of the Constitution of India referred to and
followed Chand Kour v. Partab Singh [1889] 16 ILR Cal 98; 15 IA 156 and held as
under (p. 717 of [1994] 4 SCC):
"Therefore, in determining the
objection of lack of territorial jurisdiction the court must take all the facts
pleaded in support of the cause of action into consideration albeit without
embarking upon an enquiry as to the correctness or otherwise of the said facts.
In other words, the question whether a High Court has territorial jurisdiction
to entertain a writ petition must be answered on the basis of the averments
made in the petition, the truth or otherwise whereof being immaterial. To put
it differently the question of territorial jurisdiction must be decided on the
facts pleaded in the petition. Therefore, the question whether in the instant
case the Calcutta High Court had jurisdiction to entertain and decide the writ
petition in question even on the facts alleged must depend upon whether the
averments made in paragraphs 5, 7, 18, 22, 26, and 43 are sufficient in law to
establish that a part of the cause of action had arisen within the jurisdiction
of the Calcutta High Court."
The apex court further held that merely
because Nicco became aware of the contract advertisement in the Times of India,
Calcutta, and submitted their tender from Calcutta, it cannot be said that
cause of action arose partly within the territorial jurisdiction of the
Calcutta High Court. Further, the Supreme Court observed (p. 719):
When it learnt that it was
considered ineligible it sent representations, including fax messages, to EIL,
ONGC, etc., at New Delhi, demanding justice.
"As stated earlier, the
Steering Committee finally rejected the offer of Nicco and awarded the contract
to Cimmco at New Delhi on January 27, 1993. Therefore, broadly speaking, Nicco
claims that a part of the cause of action arose within the jurisdiction of the
Calcutta High Court because it became aware of the advertisement in Calcutta,
it submitted its bid or tender from Calcutta and made representations demanding
justice from Calcutta on learning about the rejection of its offer. The
advertisement itself mentioned that the tenders should be submitted to EIL at New
Delhi; that those would be scrutinised at New Delhi and that a final decision
whether or not to award the contract to the tenderer would be taken at New
Delhi. Of course, the execution of the contract work was to be carried out at
Hazira in Gujarat. Therefore, merely because it read the advertisement at
Calcutta and submitted the offer from Calcutta and made representations from
Calcutta would not, in our opinion, constitute facts forming an integral part
of the cause of action. So also the mere fact that it sent fax messages from
Calcutta and received a reply thereto at Calcutta would not constitute an
integral part of the cause of action. Besides the fax message of January 15,
1993, cannot be construed as conveying rejection of the offer as that fact occurred
on January 27, 1993. We are, therefore, of the opinion that even if the
averments in the writ petition are taken as true, it cannot be said that a part
of the cause of action arose within the jurisdiction of the Calcutta High
Court."
A reference may also be made to a
latest judgment of the Supreme Court in Union of India v. Adani Exports Ltd.
[2002] 1 SCC 567. In the said case the respondents invoked the jurisdiction of
the Gujarat High Court, at Ahmedabad alleging that they carried on business of
export and import from Ahmedabad; orders for export and import are placed and
accepted from Ahmedabad; documents and payments for exports and imports were
sent/made at Ahmedabad; the credit of duty claimed is in respect of exports
handled from Ahmedabad and therefore substantial part of cause of action had
arisen within the jurisdiction of the Gujarat High Court. The Union of India
opposed the writ petitions on the ground of territorial jurisdiction contending
that the licence was issued to the respondents at Chennai by the designated
authority and that the transactions concerning the passbook (for recording
granting of the credit) were made from Chennai Port and therefore the cause of
action lies at Chennai not withstanding the fact that the petitioner have their
office at Ahmedabad and that no part of cause of action has arisen within the
territorial jurisdiction of the High Court at Ahmedabad. The High Court of
Ahmedabad accepted the plea of the respondents holding that the existence of
registered office of the company would ipso facto give cause of action to the
High Court within whose jurisdiction the registered office is situated. Before
the Supreme Court a question arose whether any of the facts mentioned in the
respondents' application would give rise to part of cause of action at
Ahmedabad at least for the purpose of conferring territorial jurisdiction on
the High Court at Ahmedabad. After noticing the facts disclosed by the
respondents in paragraph 16 as summarised above the Supreme Court observed that
the mere fact that the respondent-company is receiving export and import orders
and making payments from Ahmedabad has no connection whatsoever with the
dispute that is involved in the case and therefore the same would not give rise
to any cause of action to a court at Ahmedabad to adjudicate on the actions
complained against the Union of India. After referring to Oil and Natural Gas
Commission v. Utpal Kumar Basu [1994] 4 SCC 711, the Supreme Court held (p. 573
of [2002] 1 SCC):
"It is seen from the above that
in order to confer jurisdiction on a High Court to entertain a writ petition or
a special civil application as in this case, the High Court must be satisfied
from the entire facts pleaded in support of the cause of action that those
facts do constitute a cause so as empower the court to decide a dispute which
has, at least in part, arisen within its jurisdiction. It is clear from
the above judgment that each and every fact pleaded by the respondents in their
application does not ipso facto lead to the conclusion that those facts give
rise to a cause of action within the court's territorial jurisdiction unless
those facts pleaded are such which have a nexus or relevance with the lis that
is involved in the case. Facts, which have no bearing with the lis or the
dispute involved in the case, do not give rise to a cause of action so as to
confer territorial jurisdiction on the court concerned." (emphasis supplied)
Facts of this case in support of cause of action?
The question whether this court
has territorial jurisdiction to entertain the writ petition shall have to be
examined with reference to the allegations made in the writ affidavit.
Al-Faihad Fincom Ltd. has its registered office under the Companies Act at 152,
Sanghi Street, Mhow, Indore District, Madhya Pradesh. The company is involved
in banking and corporate finance and is governed by various provisions of the
Reserve Bank of India Act, 1934 (RBI Act). Be it noted Chapter IIIB of the RBI
Act contains provisions relating to non-banking institutions receiving deposits
and financial institutions. Be it noted that as per clause (f) of section 45-1
of the Reserve Bank of India Act the first petitioner is an NBFC because it
received deposits under a scheme or arrangement and admittedly obtained licence
under the provisions of the RBI Act. Further under section 45-QA of the RBI Act
the first petitioner is under obligation to repay every deposit accepted by it.
If the deposit is not repaid the aggrieved party can file application before
the Company Law Board (CLB) constituted under section 10E of the Companies Act
which may direct the NBFC to make payment of such deposit. Any order passed by
the CLB is appealable order under section 10F of the Companies Act before the
High Court within whose territorial jurisdiction the company has its registered
office. From this view of the matter the High Court of Andhra Pradesh is not a
court to which an appeal would have lied under section 10F of the Companies
Act.
The registered office of the
company is in Mhow, Madhya Pradesh. When the company admittedly failed to repay
the deposits complained were made to the police alleging cheating. One such
complaint was registered as FIR No. 290 of 2000 under sections 406, 409, 420
and 120B of the Indian Penal Code, 1860, in Police Station, New Friends Colony,
New Delhi. The petitioners approached this court alleging that there were
serious threats to their life from the investors/depositors and that the
respondents failed to give protection and they are compelling the petitioners
to repay the deposits. The counter affidavit filed by the third respondent as
well as the letters addressed by Lt. CDR Bhisham Kumar (Retd.) as well as
Inspector of Police (Economic Offences Wing), Crime Branch, New Delhi would
show that no cause of action whatsoever arose in the State of Andhra Pradesh,
much less in Hyderabad except the petitioners allegedly have branch office at
SYJ Shopping Mall, Pathergatti Main Road, Hyderabad. Further, it is the case of
the petitioners that the respondents, including the first respondent, namely,
Central Economic, Intelligence Bureau, Janpath, New Delhi, are harassing them.
If that be the case, one fails to understand as to how the petitioners chose to
file the present writ petition and obtained an order from this court appointing
an advocate commissioner.
The report of the advocate
commissioner would show by the time the advocate commissioner visited the
places where properties were situated in the month of May 2001, some of the
properties were sold by Dena Bank. It is also in the report of the advocate
commissioner that there are no substantial money deposits in the name of the
first petitioner-company, but there were deposits in the name of the wife of
the second petitioner and personal account of the first petitioner. It is also
disclosed that properties were sold under Revenue Recovery Act by Dena Bank and
cold storage units at Jamli were still under construction and that the office
at Meena Bazar, Indore, was seized by the police in connection with some
criminal case. There was also a complaint with Sarafa Police Station which was
registered as Crime No. 188 of 2000 which was under investigation. It is
reasonable to infer that the petitioners have intentionally withheld the
information from this court and obtained an order. It is also reasonable to
infer that the petitioners having failed to obtain necessary orders of bail or
otherwise, have approached this court and chosen to file the writ petition
seeking the relief the granting of which would preempt any authority in the
country to investigate further into the acts of malfeasance and misfeasance and
deny justice to the depositors. The Inspector of Police, Economic Offences Wing,
Crime Branch, New Delhi, enclosed a list of 94 depositors as noticed earlier
and none of them is a resident or hails from Hyderabad or Andhra Pradesh.
After perusing the various
documents on record, the affidavit in support of the writ petition as well as
the report of the advocate commissioner dated June 6, 2001, the irresistible
conclusion is that the petitioners have no cause of action to file writ
petition and no part of cause of action arose within the territorial
jurisdiction of this court. Be it noted that the categorical averment made by
the third respondent in the counter affidavit that the petitioners have not
lodged any complaint with Police Station Mirchowk and that the petitioners have
never approached them and that there was no complaint made against them stand
unrebutted thereby supporting the view that no part of the cause of action
arose in Andhra Pradesh. Therefore, it must be held that this court has no
territorial jurisdiction to entertain the writ petition.
In ordinary circumstances, as the
writ petition is not admitted and rule nisi is not ordered, the dismissal of
the writ petition would be sufficient, but by filing the writ petition and
obtaining an order appointing an advocate commissioner the petitioners have
resorted to sharp practices and should be condemned. This aspect is considered
under point No. (ii).
In re Point No. (ii):
Whether filing of this writ
petition by the petitioners in the High Court of Judicature, Andhra Pradesh is
a proceeding taken bona fide by them or whether it was a sharp practice
designed to abuse the process of the law and to take unfair advantage over the
law enforcing agencies and depositors/investors of the company. A reference to
counter affidavit filed by the third respondent as well as letters addressed by
the Investigating Officer, Economic Offences Wing, Crime Branch, New Delhi, and
an investor has already been made. These would disclose that none of the
depositors lodged complaint with respondents Nos. 2 and 3. The so called
depositors/investors who allegedly threatened the second petitioner have not
been made parties to this case. Indeed, none of the depositors allegedly at
whose instance respondents Nos. 2 and 3 are interfering with the petitioners'
business are made parties to this case. Further, a reading of the advocate
commissioner's report would show that there are cases pending against the
petitioners in different places in the States of Delhi and Madhya Pradesh.
The advocate commissioner's
report would also show that some of the properties like cold storage unit at
Indore was already sold away by Dena Bank under the Revenue Recovery Act and
the first petitioner-company was evicted from the tenanted premises. When the
advocate commissioner visited certain premises there were no documents left in
the office. The allegation of the petitioners that there is sufficient
liquidity and sufficient assets to meet the demands of the depositors if the
company is allowed to run business proved to be false. The report of the
advocate commissioner would show that in Union Bank of India, Indore, the funds
were meagre whereas the personal account of the wife of the second petitioner
has substantial funds. All this would show that the petitioner has not
approached this court with clean hands. The attempt to suppress the facts is
glaring. Only to make out a case within the jurisdiction of this court bald
allegations were made against respondents Nos. 2 and 3 which are proved to be
false, baseless and this shows that the petitioners are not only guilty of
suppressio veri suggestio falsi, but these proceedings are not bona fide. These
proceedings are only a sharp practice designed to abuse the process of the law
and take unfair advantage from depositors/investors and law enforcing agencies.
At every moment and at every stage the petitioners made a mockery of the rule
of law. The extraordinary special jurisdiction under article 226 of the
Constitution was never intended to redress the spurious grievance of persons
like the petitioners to force miscarriage of justice.
In this context a reference may
be made to the decision of the Supreme Court in Municipal Corporation of
Delhi v. Kamla Devi, AIR 1996 SC 1733. In the
said case the Delhi Municipal Corporation determined the rental value and
ratable value of the property situated in Delhi and determined the taxes
payable thereon. Kamla Devi, owner of the property, appealed against the
assessment. Again she filed a suit in the Court of Civil Judge, Ghaziabad,
State of Uttar Pradesh alleging that the officials of the Corporation were
trying to attach the properties in Uttar Pradesh and sought the relief of
declaration that the assessment order passed by the Delhi Municipal Corporation
is illegal, void ab initio. She also sought prohibitory injunction against the
attachment of her property. An ex parte decree was passed against the Delhi
Municipal Corporation though no document was filed showing that any attempt was
made by the Corporation or its officials to restrain or attach the property.
Before the Supreme Court the Municipal Corporation contended that Kamla Devi
has filed suit in Ghaziabad, deliberately concealing the fact of filing appeal
before the appellate authority and obtained decree hoodwinking the courts
below. It was also contended that the Corporation did not receive any notice
from the Ghaziabad Court and that filing of suit by Kamla Devi in Ghaziabad
Court by making false allegations amounted to an abuse of the process of the
court. The Supreme Court held that filing of suit by Kamla Devi in the
Ghaziabad Court which has no jurisdiction concealing the factum of filing
appeal and making false allegations amounted to sharp practice designed to
abuse the process of the court and allowed the appeal. It is apposite to
excerpt the following from the headnote of the reported decision (AIR 1996 SC
1733):
"The suit instituted in a court in Uttar
Pradesh against the assessment order passed by the assessor of Delhi Municipal
Corporation was not bona fide and it was only a sharp practice designed to
abuse the process of the law and to take unfair advantage over the corporation.
The averment made in plaint to the effect that the officers of the
Corporation went in Uttar Pradesh to attach the movables of the owner or her
grandchildren to realise the tax under the assessment order was a total
falsehood and was a mere pretence to create jurisdiction in the court in Uttar
Pradesh. Not a single document or any other scrap of paper has been filed
before the court in support of the said allegation. Moreover, the frame of the
suit and the language and terms in which the declaration and prohibitory
injunction are asked for suggesting a clear attempt to overreach the process of
the court. The object clearly was to obtain a declaration that the assessment
order is illegal and invalid from a court outside Delhi. The fact that owner
(plaintiff) chose to conceal the fact
of her filing the appeal against the assessment order is also indicative of the
mala fides on her part. It is true that the court has limited the prohibitory
injunction only to properties in Uttar Pradesh but it has granted a declaration
that the very assessment order is void and illegal which means that it cannot
be enforced even within the limits of Delhi Municipal Corporation. Such
practices of gross abuse of the process of the court ought to be put down with
a stern hand so that others similarly minded may desist from indulging in
similar acts. Exemplary costs in a sum of rupees fifty thousand awarded against
the legal representatives of the deceased-owner." (emphasis supplied)
The writ petition is also liable
to be rejected at the threshold as the petitioners have suppressed necessary
facts and also came to this court with unclean hands. The petitioners are not
entitled to any indulgence. Being an NBFC the first petitioner is bound to
follow the law especially the provisions contained in Chapter III-B of the RBI
Act and section 58A(9) of the Companies Act. Be it also noted that a defaulting
NBFC is liable to be subjected to procedure for recovery to the Company Law
Board under section 58A(9) of the Companies Act as well as section 45-QA of the
RBI Act. This court has no doubt whatsoever that this writ petition is filed by
the petitioners only to preempt any action by respondents as well as scores of
helpless depositors. As already observed by me, the allegations made in the
writ affidavit to the effect that respondents Nos. 2 and 3 failed to protect
the life of second petitioner and the property of petitioners in spite of
giving complaint that there is a grave threat to the petitioners is a total
falsehood and mere pretence to create jurisdiction in the High Court of
Judicature, Andhra Pradesh. Further, the report submitted by the advocate
commissioner falsified the rosy picture given by the second petitioner about
the financial soundness of the first petitioner-company. In these
circumstances, any submission of learned counsel for the petitioners that an
enquiry be ordered by the Registrar of Companies is wholly misconceived and is
rejected.
In this context, a reference may
be made to the decision of the Supreme Court in Sri Ramdas Motor Transport Ltd.
v. Tadi Adhinarayana Reddy [1997] 90 Comp Cas 383; AIR 1997 SC 2189. A writ
petition, in effect, was filed before this court praying for investigation into
the affairs of the SRMT Ltd. and for action against appellants Nos. 2 and 3.
There was also interlocutory prayer to appoint administrator to take charge of
the affairs of the SRMT Limited and to direct enquiry by the Central Bureau of
investigation (CBI). The writ petition was dismissed by a learned single judge
of this court. This was reversed by a Division Bench in Writ Appeal No. 1409 of
1996, dated December 4, 1996. The Supreme Court while reversing the judgment of
the Division Bench observed as under (p. 391 of Comp Cas):
"Learned single judge before
whom the present writ petition came up for hearing very rightly held that the
Companies Act provides a forum to consider the grievances made out by the first
respondent in the writ petition. When such a forum, statutorily constituted,
exists, it is but appropriate that resort to article 226 should be discouraged.
There is an efficacious alternative remedy available under the statute. In fact
under the Companies Act, a more satisfactory solution is available. The single
judge was right in pointing out that some of the shareholders have initiated
proceedings before the Company Law Board. The only grievance of the petitioner
in the writ petition is that no orders have been passed therein. The single
judge has rightly held that such a grievance cannot constitute a ground for
invoking the jurisdiction of the High Court under article 226. He, therefore,
dismissed the writ petition.
In appeal, however, the Division
Bench of the Andhra Pradesh High Court presided over by the Chief Justice,
entertained the appeal on the ground that the petition raised many serious
issues as to falsification of the accounts of a public limited company. It said
that the acts of the company would jeopardize public interest. Therefore, the
petition involved wider 'public interest' and should be entertained. In the
result the Division Bench issued a direction to the Central Government to make
its own verification of the allegations in the writ petition. In other words,
the Division Bench of the High Court directed an investigation into the affairs
of the company, bypassing the detailed provisions with inbuilt safeguards under
the Companies Act, designed specially for this purpose. The only ground for
intervention appears to be 'public interest'. We fail to see what public
interest is involved in disputes of the kind referred to in the writ petition.
They basically deal with mismanagement of the affairs of the company and
oppression of the minority shareholders. The company is only a deemed public
limited company. Its shareholding is very closely held. They only other factor
referred to in the writ petition to invoke the doctrine of the so-called public
interest is the fact that the company had borrowed moneys from public
institutions. This is no ground for not availing of the statutory remedies
provided under the Companies Act before the appropriate statutory forums which
are designed for this very purpose. We are distressed to find that the well reasoned
judgment of the single judge was interfered with in a casual manner. The
impugned judgment rests on fragile foundations and reads more like an ipse
dixit."
The judgments of the Supreme
Court in Katnla Devi's case, AIR 1996 SC 1733 and Sri Ramdas Motor Transport
Ltd.'s case [1997] 90 Comp Cas 383; AIR 1997 SC 2189, squarely apply to the
facts of this case. The petitioners in fact have remedies both under the
Companies Act and the RBI Act before the Company Law Board.
In the result, for the aforesaid
reasons, the writ petition fails and is accordingly dismissed holding that
these proceedings are not bona fide and only a sharp practice designed to abuse
the process of the court to take unfair advantage before the law enforcing
agencies, investigating agencies and the depositors of the first
petitioner-company. The petitioners therefore have to be burdened with heavy
exemplary costs of Rs. 20,000 (rupees twenty thousand only). It is open to any
depositor of the first petitioner-company to enforce this order for the
recovery of the costs.
rajasthan
high court
companies
act
[2004]
56 scl 42 (raj.)
HIGH
COURT OF RAJASTHAN, JAIPUR BENCH
v.
Rungta
Projects Ltd.
S.K.
KESHOtE, J.
S.B. COMPANY PETITION NO. 14 OF 2002
NOVEMBER
28, 2003
Section 10 of the Companies Act, 1956 - Court - Jurisdiction of -
Whether winding-up petition is maintainable only in Court having jurisdiction
in relation to place where registered office of company is situated - Held, yes
Facts
The petitioners filed the company
petition under sections 433 and 434 for winding-up of the respondent company.
The respondents raised a preliminary objection regarding maintainability of the
winding-up petition stating that the company petition was not maintainable in
the High Court inasmuch as the High Court had no jurisdiction to entertain and
try the company petition because the registered office of the respondents’
company was situated at Kolkata.
Held
Jurisdiction of the Court under
the Act shall be, as per the provision of section 10 thereof, the High Court
having jurisdcition in relation to the place at which the registered office of
the company concerned is situated, except to the extent to which jurisdiction
has been conferred on any District Court or the District Courts subordinate to
that High Court in pursuance of sub-section (2). It was not the case of the
petitioner-company that the matter fell under sub-section (2) of section 10.
[Para 6]
It was not in dispute that the
registered office of the respondent-company was at Kolkata. In that view of the
matter, the High Court had no jurisdiction to deal with the instant petition.
[Para 7]
In the result, the company
petition failed and the same was to be dismissed. [Para 8]
Rajendra Soni for the
Petitioner. Manoj Sharma for the Respondent.
Order
1. Heard learned counsel for the parties.
2. The petitioners filed this Company
Petition under sections 433 and 434 of the Companies Act, 1956 (‘the Act 1956’)
for winding up of the respondents’ company.
3. The respondents, in reply to the
company petition, raised a preliminary objection re-maintainability of the
winding-up petition. In para No. 1 of the reply to the writ petition it is
stated that ‘the Company Petition is not maintainable in this Court inasmuch as
this Court has no jurisdiction to entertain and try this company petition
because the registered office of the respondents’ company is situated at
Kolkata.
4. It is further stated that according
to the Act, 1956 the petition of winding-up is maintainable in the Court having
jurisdiction in relation to place where the registered office of the company is
situated.
5. Rejoinder to the reply has been
filed by the petitioners. The contents of para No. 1 of the reply to the
company petition has been replied by the petitioners in the following terms :
“1. That
the contents of para No. 1 of preliminary objection are not correct in the
manner stated. It is submitted that the entire work of tyre retreading has been
executed at Shahpura Distt. Jaipur in the petitioner’s industry and therefore
the entire cause of action arose in Jaipur jurisdiction and not only this, it
is clearly evident from Annexure-A/1 that the project office is situated at
Jaipur also therefore as the entire cause of action has arose in the present
matter in Jaipur district and therefore, this Hon’ble Court has jurisdiction to
entertain the present company petition.”
From this reply to the
preliminary objection No. 1 raised by the respondent company in the reply to
the company petition I am satisfied that it is not in dispute that the
registered office of the respondent company is at Kolkata. That apart from
document Annexure-1 filed by the petitioner along with company petition it is
admitted position that the registered office of the respondent company is at
Kolkata. Annexure-19 is the notice sent by the petitioner company to the
respondents company through the Advocate.
6. Section 10 of the Act, 1956
provides the jurisdiction of the Courts. Jurisdiction under the Act, 1956 of
the Court shall be as per the provision of section 10 thereof, the High Court
having jurisdiction in relation to place at which the registered office of the
company concerned is situated, except to the extent to which jurisdiction has
been conferred on any District Court or the District Courts subordinate to that
High Court in pursuance of sub-section (2). It is not the case of the
petitioners Company that the matter falls under sub-section (2) of section 10
of the Act, 1956. Sub-section (2) of section 10 of the Act, 1956 provides,
except to the extent to which any jurisdiction is expressly conferred on the
District Court either by the Court or by the Central Government by Notification
in the Official Gazette of residuary jurisdiction under the Act, aforesaid is
vested only in the High Courts.
7. It is not in dispute that the
registered office of the respondent Company is at Kolkata. In this view of the
matter, this Court has no jurisdiction to deal with this petition.
8. In the result, this company petition fails and the same
is dismissed.
Punjab and Haryana High Court
Companies Act
High
Court of Punjab and Haryana
v.
Jamna Auto Industries
SWATANTER
KUMAR, J.
COMPANY PETITION NO. 105 OF 1997
FEBRUARY
10, 1999
Section 10 of the Companies Act, 1956 - Courts - Jurisdiction of -
Whether jurisdiction conferred by a statute on a specific court can be altered
or substituted by consent of parties - Held, no
Section 433 of the Companies Act, 1956, read with Arbitration Act, 1940
- Winding up - Circumstances in which a company may be wound up - Whether
arbitration agreement per se will oust jurisdiction of company court to
entertain petition for winding up - Held, no - Whether where petitioner-company
miserably failed to satisfy that its claim in petition could be termed as an
admitted debt or debt which was apparently recoverable from respondent-company
and further failed to show that dispute raised by respondent-company was not
genuine and bona fide, winding up petition was liable to be dismissed - Held,
yes
According to the petitioner-finance-company, it entered into a lease
agreement with the respondent in connection with the supply of certain
machinery and equipment. As per agreement the respondent was required to make
payments in 12 quarterly instalments. The petitioner averred that the last five
quarterly instalments were not paid and
the cheques issued by the respondent were dishonoured. As payment was not made
despite a legal notice, a winding up petition was filed. The respondent raised
a preliminary objection that in view of the arbitration clause provided in the
agreement, the winding up petition was not maintainable. The respondent raised
another objection contending that as per clause 10.9 of the agreement, the
jurisdiction was vested in the civil courts in Delhi to the exclusion of other
courts and hence the instant court had no jurisdiction. As regards the merits
of the case, the respondent contended that as per lease agreement, the
petitioner was required to finance equipment and machinery for an agreed
purchase price of Rs. 16,40,000 but the petitioner financed equipment, etc.,
to the extent of Rs. 14,65,000 only and because of this default, the agreement
had become voidable at the option of the respondent-company. The respondent
also contended that none of the cheques issued by it were dishonoured and that
the last cheque payment was intentionally stopped because of the default on the
part of the petitioner. The respondent also furnished copies of ledger account
showing encashment of cheques by the petitioner and a letter addressed to the
petitioner regarding stopping payment of the last instalment pointing out that
there was no response despite numerous telephone calls.
As regards the first preliminary objection, no
doubt the parties had entered into an arbitration agreement to refer their
disputes to the arbitrator in accordance with the provisions of the Arbitration
Act, 1940. An arbitration agreement per se would not oust the jurisdiction of
the Company Court to entertain a petition for winding up. It is only upon
examination of the dispute on merits that the Court would be required to decide
whether such a petition should be entertained by the Company Court or the
party should be directed to take recourse to the arbitration proceedings. This
question is no more res integra as far as the Punjab & Haryana High Court
is concerned, as it stood settled by two different Division Benches of the
Court. A Division Bench of the Court in the case of Goetze India Ltd. v. Pure Drinks (New Delhi)
Ltd. [1994] 80 Comp. Cas. 340 (Punj. & Har.) prior to the amendment, while
after the amendment of the Arbitration Act, another Division Bench of the
Court in a recent judgment in Haryana Telecom Ltd. v. Sterlite Industries
(India) Ltd. [1999] 97 Comp. Cas. 675, took the view that the arbitration
clause does not ipso facto oust the
jurisdiction of the Company Court to entertain a winding up petition and the
party invoking the arbitration clause for making a request to the company court
to refer the matter to arbitration must satisfy the said court that there was a
bona fide dispute between the parties to the agreement which required reference
to the arbitrator and it was not sufficient for the applicant to say that the
court should refer the matter to the arbitration because there was a clause in
the agreement for making reference to the arbitrator.
The second objection again was without any
merit. The parties can elect the court by mutual agreement only amongst the
courts which otherwise have jurisdiction to entertain and decide a particular
proceeding. It is a settled rule of law that parties cannot vest jurisdiction
in a court by consent if the court otherwise has no jurisdiction to entertain
and decide the suit or other proceedings. A jurisdiction conferred by a
statute on a specific court can neither be altered nor substituted by the
consent of the parties. Under section 10, a winding up petition can only lie in
the court in whose jurisdiction the registered officer of the
respondent-company is located. Thus, clause 10.9 of the agreement in the
instant case could no way affect the jurisdiction of the court vested by virtue
of section 10. Resultantly, this contention deserved nothing but rejection.
As regards merit of the case, it was strange
that the petitioner-company did not react to the telephone calls and no
reference was made to the statutory notice served upon the respondent-company.
No, rejoinder was filed by petitioner-company to the written statement/reply
filed by the respondent-company despite opportunities. The court, therefore,
would be justified in drawing an interference that the petitioner-company did
not deny the averments made in this reply.
A specific case had been pleaded by the
petitioner that all the post-dated cheques issued by the respondent-company had
been dishonoured on presentation. This fact was disputed in the reply and
during the course of hearing the respondent-company reiterated the stand.
According to them, all other cheques had been honoured on time except for a
cheque for a sum of Rs. 1,94,067, the payment of which was stopped for the
reasons stated by the respondent-company itself. Keeping in view this
controversy, on 14-5-1998, the Court granted opportunity to the petitioner to
controvert this fact by filing photocopy of the dishonoured cheque. As the
petitioner failed to comply with the directions contained in the order dated
14-5-1998, another opportunity was
granted for this purpose, vide order dated 24-9-1998. After a few dates on
26-11-1998, it was confirmed that the stand of the respondent-company was
correct.
From orders of the court it was clear that
there was a bona fide and genuine dispute raised by the respondent-company in
relation to stoppage of payment of one cheque for Rs. 1,94,067 while all other
payments had been made as per the terms of the agreement. As a result of the
alleged default on the part of the petitioner, whether the respondent-company
was entitled to claim damages or was entitled to the disbursement of the amount
of Rs. 1,75,000 or whether the petitioner-company was entitled to the late
charges as claimed in terms of the agreement, was not a question which would
fall squarely within the scope of the winding up petition.
It is a settled principle of law that a
petition for winding up cannot be permitted to the used as an ordinary mode of
recovery of claims and counter-claims. The jurisdiction of the company court
while entertaining and deciding the company petition is a limited one and the
company court would normally be reluctant to go into disputed questions of
facts requiring detailed evidence and investigation and more so when such
claims are based upon the alleged breach of terms of an agreement. The
petitioner-company had miserably failed to satisfy that their claim in the
petition could be termed as an admitted debt or a debt which was apparently
recoverable from the respondent-company. Furthermore, they had failed to show
that the dispute raised by the respondent-company was not genuine and bona
fide.
For the reasons afore-stated the winding up
petition merited dismissal.
Goetze India Ltd. v. Pure Drinks (New Delhi)
Ltd. [1994] 80 Comp. Cas. 340 (Punj. & Har.) and Haryana Telecom Ltd. v.
Sterlite Industries (India) Ltd. [1999] 97 Comp. Cas. 675 (Punj. & Har.).
Manjeet Dalal for the Petitioner. Hemant Kumar for
the Respondent.
1. J.G.
Finance Ltd. have filed this petition under sections 433 and 434 read with
section 439 of the Companies Act, 1956 (‘the Act’), praying for an order of
winding up against Jamna Auto Industries Ltd. (‘the respondent-company’).
2. In order
to examine the sustainability of the claim of the petitioner reference to some
basic facts would be necessary. The petitioner which itself is a limited
company duly incorporated under the provisions of the Act has filed this
petition through its managing director and constituted attorney in furtherance
of the resolution of the board of directors of the petitioner-company dated
28-2-1997. A lease agreement dated 14-5-1992, was entered into between the
petitioner as lessor and the respondent-company as lessee. Under the terms of
the said lease, the list of equipment granted in favour of the lessee in
relation to the equipment, machinery etc. was described in the schedule of
agreement. The period of lease being 48 months at the rate of Rs. 1,94,067 per
quarter continuously for 12 quarters payable in advance at Delhi commencing
from 14-5-1993. The lease charges were in addition to the other charges and
expenses payable in terms of the agreement between the parties. Initially, the
respondent-company was paying the amounts, but it is averred that it fell in
default in relation to five quarters from November, 1995, for the period May,
1996 to February, 1997, amounting to Rs. 9,07,335. It is averred in paragraph
No. 11 of the petition that the cheques issued by the respondent-company in
relation to lease rent were dishonoured. For default thereof and on account of
late charges, the petitioner-company claimed a sum of Rs. 12,09,814 as on
31-3-1997. The petitioner served a statutory notice dated 14-5-1997, through
its counsel claiming the said amount. Copy of the notice is annexed hereto
along with acknowledgement receipts exhibit P-3 and exhibit P-4 to this petition.
Having failed to recover the amount, the petitioner filed the present winding
up petition.
Upon notice the respondent filed detailed
reply, took preliminary objections in regard to maintainability of the petition
and also repudiated the claim of the petitioner and any part thereof. The
respondent-company stated that none of its cheques had been dishonoured and in
fact all cheques have been honoured except for one cheque the payment of which
was stopped because of default on the part of the petitioner-company. As such
the claim was without any merit.
3. The learned
counsel appearing for the respondent-company firstly relied upon clause 10.8 of
the lease agreement dated 14-5-1992, to contend that there is an arbitration
clause in the agreement itself and as such the winding up petition is not
maintainable as parties had agreed to refer their disputes to arbitration.
Clause 10.8 of the agreement reads as under :
“1. The respondent submits that as per clause 10.8 of the lease agreement
dated May 14, 1992, it has been expressly agreed upon by and between the
parties :
‘Any dispute or difference arising out of or in relation to, or under
this agreement shall be referred to the arbitration in accordance with the
Arbitration Act, 1940. The seat of arbitration proceedings shall be in New
Delhi’.”
4. No doubt the
parties have entered into an arbitration agreement to refer their disputes to
the arbitrator in accordance with the provisions of the Arbitration Act, 1940.
An arbitration agreement per se would not oust the jurisdiction of the company
court to entertain a petition for winding up. It is only upon examination of
the dispute on the merits that Court would be required to decide whether such a
petition should be entertained by the Company Court or the party should be
directed to take recourse to the arbitration proceedings. This argument of the
learned counsel for the respondent need not detain me any further as this
question is no more res integra as far as this Court is concerned, as it stands
settled by two different Division Benches of this Court. A Division Bench of
this Court in the case of Goetze India Ltd. v. Pure Drinks (New Delhi) Ltd.
[1994] 80 Comp. Cas. 340 (P&H) prior to the amendment took this view while
after the amendment of the Arbitration Act another Division Bench of this Court
in a recent judgment titled Haryana Telecom Ltd. v. Sterlite Industries (India)
Ltd. [1999] 97 Comp. Cas. 675 (P&H), took the same view and held as under :
“Therefore, it must be treated as a settled proposition of law that the
arbitration clause does not ipso facto oust the jurisdiction of the company
court to entertain a winding up petition and the party invoking the arbitration
clause for making a request to the company court to refer the matter to arbitration must satisfy the said court
that there is a bona fide dispute between the parties to the agreement which
requires reference to the arbitrator and
it is not sufficient for the applicant to say that the court should refer the
matter to the arbitration because there is a clause in the agreement for making
reference to the arbitrator.” (p. 683)
5. Secondly, the
learned counsel for the respondent-company relied upon clause 10.9 of the
agreement to contend that this Court had no jurisdiction. As per this clause
the jurisdiction is vested in the civil courts in Delhi to the exclusion of
other Courts. This contention again is without any merit. The parties can elect
the Court by mutual agreement only amongst the Courts which otherwise have jurisdiction
to entertain and decide a particular proceeding. It is a settled rule of law
that parties cannot vest jurisdiction in a Court by consent if the Court
otherwise has no jurisdiction to entertain and decide the suit or other
proceedings. A jurisdiction conferred by a statute on a specific court can
neither be altered nor substituted by the consent of the parties. Under section
10 of the Act a winding up petition can only lie in the Court in whose
jurisdiction the registered office of the respondent-company is located. Thus,
clause 10.9 can no way affect the jurisdiction of this Court vested by virtue
of section 10. Resultantly, this contention deserves nothing but rejection.
6. In regard to the
merits of the case, at the outset I would like to notice the stand taken by the
respondent-company in its reply. Para No. 4 of the reply in fact is the
complete answer given by the respondent-company to the claim of the petitioner,
which reads as under :
“The respondent submits that, vide lease agreement dated May 14, 1992,
the lessor (petitioner-company herein) had agreed to finance equipment and
machinery on behalf of the lessee (respondents herein) for an agreed purchase
price of Rs. 16,40,000 (rupees sixteen lakhs and forty thousand only). The
aforesaid lease agreement commenced from May 14, 1992, and under the lease instalments
at Rs. 1,94,067 (rupees one lakh ninety-four thousand and sixty-seven only)
were to be paid for a total of 12 quarters with effect from May 14, 1993, and
thereafter on payment of the final 12th quarter instalment the agreement would
expire by efflux of time. That as agreed upon by and between the parties, the
total value of the assets was Rs. 16,40,000 (rupees sixteen lakhs and forty
thousand only) which was the agreed purchase price by and between the
parties in respect of the aforesaid
transaction. It is pertinent to mention here that out of the aforesaid purchase
price of Rs. 16,40,000 (rupees sixteen lakhs and forty thousand only) the petitioner-company
financed an amount of only Rs. 14,65,000 (rupees fourteen lakhs sixty-five
thousand only) which is a default on the part of the petitioner. It is further
submitted that the short financing of the agreed purchase price of Rs.
16,40,000 (rupees sixteen lakhs and forty thousand only) goes to the very root
of the transaction and such default on the part of the petitioner has resulted
in the lease agreement becoming voidable at the option of the
respondent-company. Since there was short financing of the agreed purchase
price by the petitioner to the tune of Rs. 1,75,000 (rupees one lakh
seventy-five thousand only) the respondent-company withheld an amount of Rs.
1,94,067 (rupees one lakh ninety-four thousand and sixty-seven only) by not
permitting the encashment of cheque dated November 14, 1995, amounting to Rs.
1,94,067 (rupees one lakh ninety-four thousand and sixty-seven only) which
amount was the lease rental fee for the eleventh quarter which became due and
payable on November 14, 1995. Photocopy of letters dated April 24, 1996, and
May 6, 1996, are annexed hereto and marked as annexures R-5 and R-6.”
7. In order to
substantiate its stand in the reply, the learned counsel for the
respondent-company relied upon letter dated 6-5-1996 (annexure R-6 to the
reply). In this letter the respondent-company had written to the
petitioner-company that the petitioner had not shown the entry of cheque No.
269131 dated 14-6-1996, for Rs. 1,94,067 while the cheque had been encashed in
the account of the petitioner-company. In regard to the stoppage of payment of
the cheque due on 14-11-1995, it was averred as under :
“Regarding instalment which had fallen due on November 14, 1995, we had
instructed our bankers to stop the payment against the said cheque because in
spite of our numerous telephone calls, we were not paid Rs. 1,75,000 which are
still recoverable from you as per our books of account, neither were we
provided with any relevant details in this regard.
Kindly revert back on the matter with details of deduction, for needful
action at our end.”
The statement of ledger account showing the
encashment of the cheques up to 31-3-1996, was also enclosed to this letter
(copy thereof annexure R-7).
8. It is strange
enough that the petitioner-company did not react to annexures R-6 and R-7 and no
reference was made to this letter in the statutory notice served upon the
respondent-company on 14-5-1997. It must be noticed that no rejoinder was filed
on behalf of the petitioner-company to the written statement/reply filed by the
respondent-company despite opportunities. The Court, therefore, will be
justified in drawing an inference that
the petitioner-company does not deny the averments made in this reply.
9. As already
noticed, a specific case has been pleaded by the petitioner that all the post-dated
cheques issued by the respondent-company had been dishonoured on presentation.
This fact was disputed in the reply and during the course of hearing the
learned counsel for the respondent-company upon instructions from his clients
reiterated the stand. According to them, all other cheques have been honoured
on time except for cheque for a sum of Rs. 1,94,067, the payment of which was
stopped for the reasons afore-stated by the respondent-company itself. Keeping
in view this controversy, on 14-5-1998, the Court had granted opportunity to
the petitioner to controvert this fact. The order dated 14-5-1998, reads as
under :
“Learned counsel for the petitioner may file on record photostat copy of
dishonoured cheque. Authorised signatory of the respondent-company shall be
present in court. List the matter on July 16, 1998.”
As the petitioner failed to comply with the
directions contained in the order dated
14-5-1998, another opportunity was granted for this purpose, vide order dated
24-9-1998, which reads as under :
“Learned counsel appearing for respondent prays for time to comply with
the order dated May 14, 1998. Let needful be done now positively before the
next date of hearing.
List on October 29, 1998.
No further time for the said purpose would be granted.”
After a few dates on 26-11-1998, it was
confirmed that the stand of the respondent-company was correct. The order dated
26-11-1998, reads as under :
“Learned counsel appearing for the petitioner-company submits that
except one cheque there is no photocopy or copy of the cheques which are
alleged to have been dishonoured, available with the petitioner-company.
List this matter for hearing on December 3, 1998.”
From the above orders of the Court it is clear
that there is a bona fide and genuine dispute raised by the respondent-company
in relation to stoppage of payment of one cheque for Rs. 1,94,067 while all
other payments have been made as per the terms of the agreement. As a result of
the alleged default on the part of the petitioner, whether the respondent-company
is entitled to claim damages or is entitled to the disbursement of the amount
of Rs. 1,75,000 or whether the petitioner-company is entitled to the late
charges as claimed in terms of the agreement, is not a question which would
fall squarely within the scope of the winding up petition.
10. It is a settled
principle of law that a petition for winding up cannot be permitted to be used
as an ordinary mode of recovery of claims and counter-claims. The jurisdiction of
the company court while entertaining and deciding the company petition is a
limited one and the company court would normally be reluctant to go into
disputed questions of facts requiring detailed evidence and investigation and
more so when such claims are based upon the alleged breach of terms of an
agreement. The petitioner-company has miserably failed to satisfy that their
claim in the petition can be termed as an admitted debt or a debt which is
apparently recoverable from the respondent-company. Furthermore, they have
failed to show that the dispute raised by the respondent-company is not genuine
and bona fide.
11. For the reasons afore-stated I am of the considered view that this
winding up petition merits dismissal. Consequently, I dismiss this petition
leaving the parties to take recourse to such other remedies as are permissible
to them in law. However, in the facts and
circumstances of the case, there shall be no order as to costs.
Allahabad High Court
Companies Act
[2003]
45 scl 31 (all.)
High
Court of
v.
Lalit Bhasin
N.K.
Mehrotra, J.
Civil Revisional No. 51 of 2003
March 26,
2003
Section 10, read with section 397, of the Companies Act, 1956, and
Order VI, rule 17 of the Code of Civil Procedures, 1908 - Courts - Trial court
had left question of jurisdiction open and decided application for amendment of
plaint - Whether action of trial court in allowing amendment without deciding
question of jurisdiction would amount to usurping a jurisdiction not vested in
it - Held, yes - Whether, where cause of action in plaint contained complaint
of a member of revisionist-company that affairs of company were being conducted
in a manner prejudicial to public interest and in manner oppressive to him and
other members, civil court had no jurisdiction to entertain such complaint
under section 397 - Held, yes
After the filing of the suit,
the plaintiff-opposite party sought an ad interim injunction and when the injunction
was not granted and the meeting of shareholders was held, the plaintiff moved
an application for amendment of the plaint with the allegations that the
defendant-revisionist had already acquired shares from the persons and the
Corporate body in the promoter group and also allotted shares and the decision
with respect to providing dividend were also taken in the board’s meeting and
that dividend was also to be provided/distributed to the persons to whom the
impugned shares had been transferred. It was against that application for
amendment, the defendant-revisionist contended that the proposed amendment
concerned the allotment of the shares and it was the Securities and Exchange
Board of India (SEBI) which was proper Forum to agitate the same, that the
declaratory relief as proposed to be sought through the amendment could not be
granted by the Court inasmuch as the plaintiff was not seeking any declaration
with regard to his legal character as shareholder of the company but was
seeking to undo the majority rule which majority rule being a creature of the
Companies Act, that the cause of action did not continue to arise to the
plaintiff; and that the civil court had no jurisdiction to enter into the cause
of action to the plaintiff. The trial court allowed the amendment without
deciding the question of jurisdiction.
On revision petition :
The issue of jurisdiction should
be decided at the first instance. Where there is inherent lack of jurisdiction
in the Court to entertain the suit itself, it cannot make any order for
amendment of the plaint to bring the suit within its jurisdiction. In such a
case, the Court would be exercising its jurisdiction which is not vested in it
and, therefore, passing of any order would amount to usurping the jurisdiction
not vested in it. Therefore, before the question of jurisdiction in allowing
the amendment, the trial court must decide the issue of jurisdiction. In order
to determine the jurisdiction, the trial court has to see the averments in the
plaint first because the cause of action is determined from the facts, which
are required to be proved by the plaintiff. The trial court must decided the
question of jurisdiction on the bundle of facts stated by the plaintiff. [Paras
5, 6 and 8]
By the Companies (Amendment) Act,
1988, the provisions of sections 396 to 405 were amended and in place of word
‘Court’ words ‘Company Law Board’ were substituted with the result that now if
the affairs of the company are being conducted in a manner prejudicial to the
public interest or in the manner prejudicial to the interest of any member or
the company, as the case may be, it is the Company Law Board which has the
jurisdiction to entertain such complaints of the members. [Paras 12]
With regard to the contention
that the proposed amendment could be allowed and the revision against that
order was not maintainable in view of the proviso of the Code of Civil
Procedure (Amendment) Act, 1999, these legal proposition can be considered only
when the trial court finds that the bundle of facts averred in the plaint
constitute a cause of action which lies within the jurisdiction of the civil
court. Since the trial court had left the question of jurisdiction open and
decided the application for amendment without looking to the question of jurisdiction
raised by the defendant, the action of the trial court in allowing the
amendment without deciding the question of jurisdiction would amount to
usurping a jurisdiction not vested in it. Since the cause of action in the
plaint contained the complaint of the opposite party, a member of the
revisionist-company that the affairs of the company were being conducted in a
manner prejudicial to the public interest and in the manner oppressive to the
opposite party-plaintiff and the other members, the civil court had no
jurisdiction to entertain such complaint under section 397. [Para 14]
In the result, the revision was
allowed. The impugned order passed by the civil Judge (Senior Division), was
set aside with a direction to the trial court to return the plaint for want of
jurisdiction. [Para 15]
Tirkha v. Ghasi Ram AIR 1935
All. 842 (para 5), Lord Esher M.R. in Read v. Brown [1889] 22 OBD 128 (para 6),
Smt. Kamala Chopra v. L.I.C. of India AIR 1975 Delhi 15 (para 6), Rajasthan
High Court Advocates Association v. Union of India AIR 2001 SC 416 (para 6),
Prem Buxi v. Dharam Deo 2002 (2) SBR 36 (para 14), Debi Das v. State of U.P.
AIR 2003 All. 14 (para 14), Sampat Kumar v. Ayyakannu 2002 (20) LCD 1186 (para
14), B.K. Narayana Pillai v. Paremeswaran Pillai [2000] 1 SCC 712 (para 14) and
Lalit Bhasin v. Jaiprakash Industries Ltd. [Suit No. 129 of 2002].
S.C. Misra, S.R. Gupta
and R.J. Gupta for the Appellant. B.K. Saxena for the Respondent.
N.K. Mehrotra, J. - This
is a revision against the order dated 30-11-2002 passed by Civil Judge (Senior
Division), Lucknow allowing the application 25-A under Order VI Rule 17 of the
Code of Civil Procedure. The copy of the application for amendment of the
plaint of the suit filed by the opposite party is Annexure No. S-1 and the
objection filed by the defendant-revisionist is Annexure No. S-2. It appears
that the plaintiff filed a suit for the following reliefs :—
“(a) That
a decree of permanent injunction may be passed restraining the defendant from
holding its Extraordinary General Meeting in pursuance of the Notice dated
18-2-2002 or any other General Meeting containing the same or similar
Resolutions;
(b) That
a decree of permanent injunction may be passed restraining the Defendant from
adopting or passing the Resolutions, contained in the Notice dated 18-2-2002
convening the said Extraordinary General Meeting or any other General Meeting
containing the same and similar Resolutions;
(c) That
a decree of permanent injunction may be passed restraining the Defendant from
declaring/informing the results of the Notice of Postal Ballot dated 1-2-2002;
(d) That
a decree of permanent injunction may be passed restraining the Defendant from
acquiring the equity shares of Jaypee Hotels Ltd. from the persons and/or corporate
bodies in the Promoter group including the companies namely Jaiprakash
Enterprises Limited and Jaypee Ventures Ltd.
(e) That
cost of this Suit be awarded to the Plaintiff against the Defendant and such
other relief or reliefs as may be deemed to be fit and proper in the
circumstances of the case may also be granted to the Plaintiff against the
defendant.”
2. After the filing of the suit, the
plaintiff sought an ad interim injunction and when the injunction was not
granted and meeting was held, the plaintiff moved an application for amendment
of the plaint with the allegations that the defendant has already acquired
shares of M/s. J.P. Hotels Limited from the persons and the corporate body in
the promoter group including the company namely J.P. Enterprizes limited, J.P.
Ventures Limited and also allotted shares and the decision with respect to
providing dividend were also taken in the Board’s Meeting held on 29-7-2002 and
this dividend is also to be provided/distributed to the persons to whom the
impugned shares have been transferred. It is also alleged that in view of the
subsequent development, the reliefs earlier sought be deleted and substituted
by the following reliefs :-
“(a) It
be declared by a declaratory decree that the purported Extra-ordinary General
Meeting, allegedly held on 21-3-2002 stated to be pursuant to the Notice dated
18-2-2002 and the resolution/resolutions if any passed in the said Meeting of
the defendant, may kindly be declared to be illegal, arbitrary, null and void,
legally ineffective and non-existent.
(b) It
be declared by declaratory decree that all resolutions passed as contained and
pursuant to the Notice of postal ballot dated 1-2-2002 by the defendant, may
kindly be declared illegal, non-existent, null and void.
(c) It
be declared by a declaratory decree that the acquisition of Equity shares of
M/s. Jaypee Hotels Ltd. from the persons and/or Corporate bodies in the
Promoter Group including the Companies namely Jai Prakash Enterprises Limited
and Jaypee Ventures Limited and the impugned shares transferred/allotted to the
persons, being henchmen of the defendant, should be declared as illegal,
non-existent, null and void.
(cc) By
means of a decree for perpetual injunction, the defendant and its agents may
kindly be restrained from getting or permitting the impugned shares, as
mentioned in paras above, further alienated/transferred or to declare the
profit or disburse the dividend upon the impugned shares, as aforesaid, to the
transferees or allottees.”
3. It is against this application for
amendment, the defendant filed objection. The defendant-revisionist contended
that the proposed amendment concerned the allotment of the shares and it is the
Securities and Exchange Board of India (hereinafter referred to be as “SEBI”)
which is proper forum to agitate the same. It also contended that the
declaratory relief as proposed to be sought through the amendment cannot be
granted by the court inasmuch as the petitioner is not seeking any declaration
with regard to his legal character as shareholder of the company but is seeking
to undo the majority rule which majority rule being a creature of the Companies
Act, 1956, no judicial order can be passed against the landlord (sic) of the
provisions of the Companies Act. It was also contended that the court below
lacks jurisdiction to interfere the conduct of the company meeting. The cause
of action does not continue to arise to the plaintiff. In short the main
objection of the defendant-revisionist against the application for amendment of
the plaint is that the Civil Court has no jurisdiction to enter into the cause
of action to the plaintiff-opposite party.
4. The learned trial court allowed the
amendment without deciding the question of jurisdiction. On the point of jurisdiction
the learned trial court recorded his finding as follows :-
“In my opinion so far as the amendment of the present suit is concerned,
it is matter of later on and it should be decided after incorporation of the
amendment prayed for......”
5. In my opinion the issue of jurisdiction
should have been decided at the first instance. In Pandit Rudra Nath Mishir v.
Pandit Sheo Shanker Mishir AIR 1993 Pat. 53 (sic) after referring the view of
the Allahabad High Court in Tirkha v. Ghasi Ram AIR 1935 All. 842, it was held
that granting of amendment postulates an authority of the court to enter the
suit. But where there is inherent lack of jurisdiction in the court to
entertain the suit itself, it cannot make any order for amendment of the plaint
to bring the suit within its jurisdiction. In such a case the court would be
exercising its jurisdiction which is not vested in it and therefore, passing of
any order would amount to usurping the jurisdiction not vested in it.
Therefore, before the question of jurisdiction in allowing the amendment, the
trial court must have decided the issue of jurisdiction.
6. In order to determine the jurisdiction
the trial court has to see the averments in the plaint first because the cause
of action is determined from the facts, which are required to be proved by the
plaintiff. Now the question is what is the cause of action. Lord Esher M.R. in
Read v. Brown [1889] 22 OBD 128 defined a cause of action as “every fact which
it would be necessary for the plaintiff to prove if traversed in order to
support its right to the judgment of the court.” In Smt. Kamala Chopra v.
L.I.C. of India AIR 1975 Delhi 15 it was held by the Delhi High Court that the
cause of action comprises every fact which is necessary to be proved. In
Rajasthan High Court Advocates Association v. Union of India AIR 2001 SC 416.
The expression ‘cause of action’ has been interpreted as follows :-
“The expression ‘cause of action’ has acquired a judicially settled
meaning in the restricted sense cause of action means the circumstances forming
the infraction of the right or the immediate occasion for the action. In the
wider sense it means the necessary conditions for the maintenance of the suit,
including not only the infraction of the right, but the infraction coupled with
the right itself. Compendiously the expression means every fact, which it would
be necessary for the plaintiff to prove, if traversed in order to support his
right to the judgment of the Court. Every fact which is necessary to be proved,
as distinguished from every piece of evidence which is necessary to prove each
fact, comprises in ‘cause of action’.”
7. So in order to determine the cause of
action to the plaintiff in filing the suit one has to see the bundle of facts
averred in the plaint. For this purpose I would like to refer the case of the
plaintiff as set out in the plaint which are as follows :—
“6. That
it is submitted that the present share capital of the Defendant Company, as per
its Balance Sheet of the Defendant Company as on 31st March, 2002 is Rs. 158
crores against this the Promoters Directors of the Defendant Company have taken
huge loans aggregating Rs. 1,399 crores from Banks and Financial Institutions,
as Secured Loan or through Non Convertible Debentures on a very high rate of
interest ranging up to 16.5 per cent per annum that while the Defendant Company
is paying heavy interest, its funds have been diverted to purposes, where no
income is there since several years. That besides investments and loans, the
Promoter-Directors of the Defendant Company have also exposed the Defendant
Company to heavy risks by giving Guarantees against loans taken by its
subsidiaries, as otherwise the companies were not entitled to obtain any loan
from Banks and financial institutions. The details of investments, loans and
guarantees are given in the following paras.
7. That
a summary of such investments made and loans and guarantees given by the
Defendant Company, as per their Balance Sheet as on 31st March, 2001 are given
as follows ;
Summary of Investment and Loans
|
|
Rs. In Crores
|
|
|
Investment
is Subsidiaries |
800 |
|
|
Loans to
Subsidiaries |
510 |
|
|
Guarantees
given for loan by Subsidiaries |
926 |
|
|
Loans to
other Companies |
32 |
|
|
Investment
in other Companies |
35 |
|
|
Further
Investment Proposed |
138 |
|
|
Total |
2441 |
|
|
|
|
|
8. That
in addition to the above, the Defendant Company has also given huge Advances to
Suppliers, which aggregate to another Rs. 427.67 crores (These advances
constitute about 41.5 per cent of the Shareholders Fund and 35.5 per cent of
the total Sales-Turnover of the company). In fact the beneficiary of such
advances are the Proxy and Front Companies of the Promoters of the Defendant
Company. This is a clear attempt to diversion of funds, which is detrimental to
the interests of the Shareholders of the Defendant Company.
9. That
it is submitted that the Defendant Company has also invested, besides in
subsidiary companies, in the Shares of the other entities including unlisted
companies like Jaiprakash Enterprises Ltd.
(i) The
total investments in subsidiary and other companies aggregate to Rs. 834.5
crores in Equity Share Capital of various companies;
(ii) The
total amount of loans and Advances to suppliers, as stated in Para 6 above,
aggregates to Rs. 937.67 crores; and
(iii) The total amount of Corporate Guarantees is
Rs. 926 crores.
9. These
all included aggregate to Rs. 2698.15 crores, as against the Share capital of
the Defendant Company of Rs. 158 crores. This is funded by huge borrowings as
secured Loans from Banks and Financial institutions and by issue of Non
Convertible Debentures aggregating Rs. 1399.10 crores.
10. That
it is submitted that no return on these funds invested and/or given on loans is
received by the Defendant Company and the shareholders are put to severe loss
and consequently no financial return to the shareholders of the Defendant
Company is given. Resultantly, the asset value of the shareholders of the
Defendant Company is decreasing steeply and market price of its shares has
fallen down considerably from Rs. 90 in the past to about Rs. 33 per share
recently.
11. That it
is submitted that Promoter-Directors of Defendant Company have put into stake
the hard earned money of more than a lac of small, poor and gullible investors
who had invested their hard earned saving money in the Shares of the Defendant
Company. By the above diversion of funds by the Defendant Company, the future
of the company and its shareholders has been put at serious and grave risk,
harzard and great peril.
12. That
recently a news-item titled as “Something Rotten in JP Empire” was published in
The Pioneer dated 9-3-2002, which
also speaks of the same truth.
13. That
it is submitted that the various projects claimed to be undertaken by the
defendant company through its subsidiaries are in shambles and their status has
not been correctly disclosed by the Defendant Company. However, the facts about
the subsidiary companies are summarized hereunder.
14. That
it is submitted that in furtherance of the fraudulent, obnoxious and
mischievous acts and conducts of the Promoter-Directors of the Defendant
Company, the Defendant Company has issued a “Notice with Postal Ballot” to its
shareholders seeking ex post facto approval/ratification for the unauthorized
Guarantees of Rs. 167 crores and payment guarantees of 2.62 Million US Dollar
given by the Board of Directors of the Defendant Company against Loans taken by
M/s. Jaiprakash Hydro Power Limited. In addition, Security is also being
provided by the Defendant Company by pledge of 19,59,19,900 Equity Shares of
Jaypee Hydro Power Limited which was owned and held by the Defendant Company.
15. That
in addition to the above, a Notice dated 18-2-2002 has been issued by the
Defendant Company for convening an Extraordinary General Meeting of the
shareholders of the Defendant Company on 21st March, 2002, in which the Defendant
Company has proposed to pass the following resolutions in respect of the
following matters :—
(A) Resolution No. 1 for making investment of
Rs. 10 crores in J.P. Karcham Hydro Corporations Ltd.
(B) Resolution No. 2 for making investment of
Rs. 76.50 crores in the shares of JPSDC Venture Ltd.
(C) Resolution No. 3 is for making an
investment of Rs. 49.95 crores in Jaypee Hotels Ltd.
(D) Resolution
No. 4 is for allotment of 20,99,740 equity shares of Rs. 10 each of the
Defendant Company to Jaiprakash Enterprises Limited and 1,18,34,560 equity
shares of Rs. 10 each of the Company to Jaypee Ventures Limited at a price of
Rs. 35.85 per equity shares against purchase of 3,26,50,000 fully paid equity
shares of Rs. 10 each of Jaypee Hotels Limited.
16. That
it is submitted, as already stated earlier, the Promoter-Directors of the
Defendant Company has already drained and siphoned out huge amount of funds, as
already explained in the earlier, paragraphs, on the purported ground that it
is expanding and undertaking various grand projects, but it is apparent that
none of the projects have been properly set up and cost of projects have been
doubled and their completion is still out of sight. The plaintiff submits if
these acts and deeds of the Promoter-Directors of the defendant Company are
allowed to be continued and such investments, loans and guarantees are allowed
to be given by the Defendant Company, the Defendant Company would meet with the
same fate as has happened with Enron of USA i.e. “A Brankrupt and Insolvent”.
The exposure of the acts and deeds of the Company shall at that point of time
shall ruin not only the shareholders of the company but also cause immense
damage to the Financial Institutions and banks.
17. That
it is submitted that if the abovementioned Resolutions Nos. 3 and 4 are passed,
the Promoter-Directors of the Defendant Company are interpretating a fraud on
the shareholders of the Defendant Company for their own ulterior benefits.
18. That
it is submitted that for carrying out the above dubious exchange/swap of shares
of the Defendant Company with the Shares of Jaypee Hotels Ltd. from the two
companies owned by the Promoters, the Rules and Regulations have been grossly
violated and Valuation Reports have been got prepared, without substance and
without applying the established norms of valuation of shares. It is submitted
that the defects and fraudulent aspects of valuation are summarized as under :
** ** **
25. That
it is submitted that a Special Appeal has been filed by HB Stockholdings Ltd.
as associate company of the plaintiff before the Division Bench of Allahabad
High Court challenging the Scheme of arrangement of the Defendant Company,
which is not the subject-matter of this Suit. The said Special Appeal has been
admitted.
26. That
it is submitted that from the above, it is apparently clear that the
Promoter-Directors of the Defendant Company are deliberately, with mala fide
intentions and by misuse of their fiduciary capacity as Director of the
Defendant Company and ignoring all the norms and provisions of law, are
perpetrating a fraud on the Shareholders of the company. This is a tyranny of
the Promoter-Directors of the ‘Defendant Company, who are majority shareholders
on the small and gullible shareholders like the Plaintiff.”
8. The learned trial court must have decided
the question of jurisdiction on the aforesaid bundle of facts stated by the
plaintiff. In the light of the provisions of sections 10, 397 and 398 of the
Companies Act. Section 10 is as follows :—
“Jurisdiction of Courts.—(1) The Court having jurisdiction under this
Act shall be—
(a) the
High Court having jurisdiction in relation to the place at which the registered
office of the company concerned is situate, except to the extent to which jurisdiction
has been conferred on any District Court or District Courts subordinate to that
High Court in pursuance of sub-section (2); and
(b) where
jurisdiction has been so conferred, the District Court in regard to matters
falling within the scope of the jurisdiction conferred, in respect of companies
having their registered offices in the district.
(2) The
Central Government may, by notification in the Official Gazette and subject to
such restrictions, limitations and conditions as it thinks fit, empower any
District Court to exercise all or any of the jurisdiction conferred by this Act
upon the Court, not being the jurisdiction conferred—
(a) in respect of companies generally, by
sections 237, 391, 394, 395 and 397 to 407, both inclusive;
(b) in
respect of companies with paid-up share capital of not less than one lakh of
rupees by Part VII (sections 425 to 560) and the other provisions of this Act
relating to the winding up of companies.
(3) For
the purposes of jurisdiction to wind-up companies, the expression ‘registered
office’ means the place which has longest been the registered office of the
company during the six months immediately preceding the presentation of the
petition for winding up.”
9. In exercise of the powers conferred by
sub-section (2) of section 10 of the Companies Act, 1956 the Central Government
has conferred the jurisdiction on the District Court by sections hereafter
specified in JSR 663 dated 29-5-1959 :—
“Section 89 - Termination of disproportionately excessive voting rights
in existing companies.
Section 113 - Limitation of time for issue of certificates.
Section 118 - Right to obtain copies of and inspect trust deed.
Section 144 - Right to inspect copies of instruments creating charges
and company’s register of charges.
Section 163 - Place of keeping, and inspection of, registers and
returns.
Section 196 - Inspection of minute books of general meetings.
Section 219 - Right of member to copies of balance sheet and auditor’s
report.
Section 234 - Power of Registrar to call for information or explanation.
Section 304 - Inspection of the register of Directors.
** ** **
Section 307 - Register of [***] Directors shareholdings, etc.
Section 614 - Enforcement of duty of company to make returns, etc. to
Registrar.”
10. The aforesaid provisions go to show that
even the Central Government could not confer the jurisdiction to the District
Court with regard to the provisions in sections 397 to 407 of the Companies
Act. Section 397 of the Companies Act is as follows :—
“Application to Company Law Board for relief in cases of oppression.—(1)
Any members of a company who complain that the affairs of the company are being
conducted in a manner prejudicial to public interest or in a manner oppressive
to any member or members (including anyone or more of themselves) may apply to
the Company Law Board for an order under this section, provided such members
have a right so to apply in virtue of section 399.
(2) If, on any application under
sub-section (1), the Company Law Board is of opinion-
(a) that
the company’s affairs are being conducted in a manner prejudicial to public
interest or in a manner oppressive to any member or members; and
(b) that
to wind up the company would unfairly prejudice such member or members, but
that otherwise the facts would justify the making of a winding up order on the
ground that it was just and equitable that the company should be wound up; the
Company Law Board may, with a view to bringing to an end the matters complained
of, make such order as it thinks fit.”
11. Section 398 of the Companies Act is as follows :—
“Application to Company Law Board for relief in cases of
mismanagement.—(1) Any members of company who complain—
(a) that
the affairs of the company are being conducted in a manner prejudicial to
public interest or in a manner prejudicial to the interests of the company; or
(b) that
a material change (not being a change brought about by, or in the interests of,
any creditors including debenture holders, or any class of shareholders, of the
company) has taken place in the management or control of the company whether by
an alteration in its Board of Directors, [***] or manager [***] or in the
ownership of the company’s shares, or if it has no share capital, in its
membership, or in any other manner whatsoever, and that by reason of such
change, it is likely that the affairs of the company will be conducted in a
manner prejudicial to public interest or in a manner prejudicial to the
interests of the company; may apply to the Company Law Board for an order under
this section, provided such members have a right so to apply in virtue of
section 399.
(2) If,
on any application under sub-section (1), the Company Law Board is of opinion
that the affairs of the company are being conducted as aforesaid or that by
reason of any material change as aforesaid in the management or control of the
company, it is likely that the affairs of the company will be conducted as
aforesaid, the Company Law Board may, with a view to bringing to an end or
preventing the matters complained of or apprehended, make such order as it
thinks fit.”
12. Earlier if any member of the company
complained with the affairs of the company which were being conducted in a
manner prejudicial to the public interest or in a manner oppressive to any member
or members, he was empowered to apply to the court but by the Companies
Amendment Act, 1988, the provisions of sections 396 to 405 have been amended
and in place of word ‘Court’ words ‘Company Law Board’ have been substituted.
The result of this amendment is that now if the affairs of the Company are
being conducted in a manner prejudicial to the public interest or in the manner
prejudicial to the interest of any member or the Company as the case may be, it
is the Company Law Board which has the jurisdiction to entertain such
complaints of the members.
13. In its objection, the revisionist has also
contended that M/s. H.B. Stock Holdings Limited of which the plaintiff-opposite
party is the Director had also filed another Civil Suit No. 1722 of 2001 against
the Defendant Company for the similar relief in the Delhi High Court and the
Delhi High Court in its order dated 20-3-2002 has held that the prayer made by
the plaintiff could not be allowed as she sought to restrain the
defendant/revisionist from alloting its shares to anybody corporate or from
investing in or pledging, selling, or otherwise disposing off his shares to
anybody corporate in favour of any other person/body corporate and also from
providing any loans to any other body corporate. The plea taken by the
defendant-revisionist is that the suit is pending in the Delhi High Court and
the present suit is also not maintainable before the Court at Lucknow because
of the provisions of section 10 of the Code of Civil Procedure. This contention
has also been left undecided before passing the impugned order.
14. The learned counsel for the opposite party
has placed reliance on Prem Buxi v. Dharam Deo 2002 (2) SBR 36, Debi Das v.
State of U.P. AIR 2003 All. 14, Sampat Kumar v. Ayyakannu 2002 (20) LCD 1186
and B.K. Narayana Pillai v. Paremeswaran Pillai [2000] 1 SCC 712 in support of
his contention that the proposed amendment can be allowed and the revision
against that order is not maintainable in view of the proviso of the Code of
Civil Procedure Amendment Act, 1999 but these legal proposition can be
considered only when the trial court finds that the bundle of facts averred in
the plaint constitute a cause of action which lies within the jurisdiction of
the civil court. Since the trial court has left the question of jurisdiction
open and decided the application for amendment without looking to the question
of jurisdiction raised by the defendant, in my opinion the action of the trial
court in allowing the amendment without deciding the question of jurisdiction
would amount to usurping a jurisdiction not vested in it. Therefore, the
revision is to be allowed. Since the cause of action in the plaint contain the
complaint of the opposite party, a member of the revisionist-company that the
affairs of the company are being conducted in a manner prejudicial to the
public interest and in the manner oppressive to the opposite party (plaintiff)
and the other members, the civil court has no jurisdiction to entertain such
complaint under section 397 of the Companies Act and by passing the impugned
order amounts to usurping of the jurisdiction in it.
15. In result, the revision is allowed. The
impugned order dated 30-11-2002 passed by the Civil Judge (Senior Division),
Lucknow in Lalit Bhasin v. Jaiprakash Industries Ltd. [Suit No. 129 of 2002] is
set aside with the direction to the trial court to return the plaint for want
of jurisdiction.
Sections 10E
& 10F
Company
Law Board
[1999] 97 COMP. CAS.
582 (MAD)
HIGH COURT OF
Gordon Woodroffe and Company Ltd.,
v.
Gordon Woodroffe Ltd., Chennai
S.M ABDUL WAHAB J.
DECEMBER 24, 1998
JUDGMENT
S.M. Abdul Wahab J.—All these eight appeals arise out of the orders passed by the Company Law Board, Principal Bench, New Delhi, in two company petitions, namely, C.P. No. 45 of 1993 and C.P. No.16 of 1994, dated May 12, 1998.
C.M. A. Nos. 1071, 1207, 1208 and 1210 of 1998 are preferred against the order in C. P. No. 16 of 1994 while C.M.A. Nos. 1072, 1073, 1149 and 1209 are preferred against the order in C.P. No. 45 of 1993. The main dispute relates to the affairs of Gordon Woodroffe and Company Limited (GWL) a sick company now before the Board for Industrial and Financial Reconstruction (BIFR). In C.M.A. No. 1071 of 1988, Gordon Woodroffe and Company Limited, UK, the petitioner in C.P. No. 16 of. 1994 is the appellant. In C.M.A. No. 1207 of 1998, Kishore Rajaram Chhabria, Madan Dwarakas Chhabria and Rajaram Dwarakadas Chhabria, respondents Nos. 4 to 6 in C. P. No. 16 of 1994 are the appellants. In C.M.A. No. 1208 of 1998, Tracstar Investments (P.) Ltd., the second respondent in C.P. No. 16 of 1994, is the appellant. In C.M.A. No. 1210 of 1998, Shoe Specialities (P.) Ltd., the third respondent in C.P. No. 16 of 1994, is the appellant. In C.M.A. No. 1072 of 1998 Shaw Wallace and Company Limited, the second respondent in C.P. No. 45 of 1993 is the appellant. In C. M. A. No. 1073 of 1998, Gordon Woodroffe Ltd., the first respondent in C. P. No. 45 of 1993, is the appellant. In C.M.A. No. 1149 of 1998, Tracstar Investment (P.) Ltd., the petitioner in C.P. No. 45 of 1993, is the appellant. In C.M.A. No. 1209 of 1998, Shoe Specialities (P.) Ltd., the ninth respondent in C. P. No. 45 of 1993, is the appellant.
The peculiar feature of these appeals is that the appeals have been preferred both by the petitioners as well as the respondents in both C.P. No. 45 of 1993 and C.P. No. 16 of 1994. The two groups of companies and individuals are the parties in these appeals and they are both appellants as well as respondents. The seven petitioners in C. P. No. 45 of 1993, headed by Tracstar Investments Private Limited and its managing director, Kishore Rajaram Chhabria, are forming one group ; Kishore Rajaram Chhabria is heading that group ; while his brother, Manohar Rajaram Chhabria, is heading the other group. Tracstar Investments Private Limited, headed by K.R. Chhabria, two individuals and four companies are petitioners in C.P. No. 45 of 1993. They filed the said petition under sections 397 and 598 of the Companies Act, 1956.
The petitioners in C.P. No. 45 of 1993 alleged that the affairs of Gordon Woodroffe Limited (GWL)/first respondent-company where mismanaged by respondents Nos. 2 to 11 and their subordinates. Their multidimensional oppressive acts by themselves and through their agents have seriously affected the interest of the public as well as the company itself. While Shoes Specialities Private Limited in which Tracstar Investment Private Limited holds substantial shares, i.e., 12.73 per cent. of shares held in Gordon Woodroffe Limited. The respondents deliberately manipulated the minutes of the board of the directors on May 26, 1992, and June 25, 1992, refused to transfer 6.84 per cent. shares in the name of Trident Investments and Portfolio Services Private Limited, the seventh petitioner herein, in which also, the first petitioner holds controlling interest. On account of the manipulation perpetrated by the respondents, the petitioners were not in a position to exercise their right in respect of 19.57 per cent. shares in the first respondent-company. Shaw Wallance and Company (SWC), the first respondent and M.R. Chhabria (Mr. Manohar Rajaram Chhabria) have consistently defrauded the Board for Industrial and Financial Reconstruction (BIFR) scheme and have been acting against the interest of the company. SWC and M.R. Chhabria have been attempting to grab all the valuable properties of GWL. In the annual general meeting on August 14, 1992, none of the nominees of the petitioners were elected on account of the manipulation of the minutes of the meeting of the board of directors. By reducing the voting rights of the petitioners by 19.57 per cent. and adding to the respondents' voting rights by 12.73 per cent. the respondents were able to show 44.48 per cent. An artificial majority of 37.63 per cent. to 24.91 per cent. was made out. On account of this manipulation Mr. Kishore Rajaram Chhabria was defeated in the last annual general meeting held on August 14, 1992. Manohar Rajaram Chhabria consistently defied BIFR schemes for rehabilitation. In the hearing before the BIFR on March 31, 1993, Honkong Bank explicitly stated that it has lost confidence in the present management of GWL. There was an attempt in a meeting held on June 30, 1993, by the board to alienate the First Line Beach property to SWC. This resulted in the resignation of M.S. Ram from the board of directors. On account of the various acts of mismanagement, the BIFR chose to lay an embargo on the alienation of assets by the present management. Despite the fact that Tracstar Investment Private Limited and Shoe Specialities Private Limited (SSPL) have ceased to be controlled by SWC or the M. R. Chhabria group, M.R. Chhabria and SWC continued to claim that these two companies are in their control. M. R. Chhabria fell out with his father, uncle and brother, namely, Rajaram Dwarakdas Chhabria, Madan Dwarakdas Chhabria and Kishore Rajaram Chhabria. When the family consisting of brothers, father and the uncle held 62.54 per cent. of shares in Tracstar Investment Private Limited and SSPL, after the split, K. R. Chhabria got control of 37.67 per cent. while the M. R. Chhabria group had only 24.9 per cent. of shares. This took place during the year 1992. 44.48 per cent. of shares in GWL came to be owned in the following manner :
Tracstar Investments Pvt. Ltd., 24.9 per cent.
SSPL, 12.74 per cent.
Trident Investments and Portfolio Service Pvt. Ltd.. 6.84 per cent. As on May 5, 1992, when C. P. No. 19 of 1992 was filed, the entire proprietary right in SSPL, which held 12.73 per cent. shares in GWL came to be owned by the K, R. Chhabria group, because Tracstar Investment Pvt. Ltd., and SSPL owning 24.9 per cent. and 12.73 per cent. of shares in GWL, came to be owned by the said group. Hence, the other M. R. Chhabria group began to initiate multi-dimentional move to grab, confiscate, hijack and strangulate the proprietary and voting rights in Tracstar, SSPL, Stridewell and Bhankerpur. After filing C.P. No. 19 of 1992 under sections 247 and 250 of the Companies Act, the respondents' group attempted to obtain an order for freezing the voting rights on the 44.48 per cent. shares held by the K.R. Chhabria group in GWL. But the Company Law Board declined to pass any order and the petition under section 250(3) of the Act was dismissed. The next attempt was to file Civil Suit O.S. No. 3277 of 1992 before the Civil Judge, Bangalore by SWC, to take over the management of Tracstar. On May 20, 1992, the Civil Judge at Bangalore, refused to grant the interim order.
The malicious attempt of the M.R. Chhabria group to take away the proprietary and voting rights of 12.73 per cent. shares held by R.D. Chhabria and M. D. Chhabria (through SSPL and GWL ) was frustrated when the petitioners' group filed C.P. No. 29 of 1992 before the Company Law Board, and when the Company Law Board cancelled the illegal allotment of 20,000 further shares issued by the managing board to Bhankerpur and pledged with Malleswara Investments Private Ltd. on May 28, 1993. The said order was challenged in the Delhi High Court; but that was dismissed at the admission stage itself. Thereafter, W.P. No. 26461 of 1993 was filed in the Karnataka High Court. When their attempt was not successful in the Karnataka also, a civil miscellaneous appeal was filed in this court. Similarly another attempt was made to control SSPL and Stridewell which owned 40 per cent. of the paid-up capital of SSPL by fraudulent issue of shares in Stridewell. Then the petitioners, group filed C. P. No. 30 of 1993 challenging the transfers and the same is pending before the Company Law Board. In the mean time, the employees of the M.R. Chhabria group filed an Application No. 92 of 1992 in C.P. No. 29 of 1992 to remove the name Stridewell, who is the complainant in C.P. No. 29 of 1992. This was dismissed by the Company Law Board. In the said petition, the Company Law Board held that the M.R. Chhabria group employees pretending to be the directors of Stridewell, have no right to represent Stridewell, which was properly represented by the nominees of the K.R. Chhabria group. After failing in their attempt to get control of the 12.73 per cent. shares held by SSPL in GWL, the next attempt was to hold the control of 6.84 per cent. of shares held by Trident in GWL. This attempt was made because of refusal to register 6.84 per cent. of shares in the name of Trident. When the application was made by Trident to register the aforesaid 6.84 per cent. shares in their name, disclosing that the beneficial owner was refused on May 28, 1992, by GWL. The reasons given for refusal are mala fide and fictitious. The continuous and persistent efforts of the respondents to prevent the petitioners from exercising their voting rights in 12.73 per cent. shares in SSPL and 6.34 per cent. shares pending registration in the name of Trident are with the sole object of perpetuated control of GW-1 by the respondents and these acts clearly constitute hostile attitude.
Then the petitioners set out the mismanagement by SWC M.R. Chhabria in GW-1. Thereafter, they set out the acts prejudicial to the public interest. With the aforesaid allegations they have included seven prayers in C.P. No. 45 of 1993. The first prayer is to permanently injunct respondents Nos. 3 to 8 from functioning as directors in GWL and to declare that the other Chhabria group owning 44.48 per cent. shares in Tracstar, SSPL and Trident are the majority group shareholders of the company, after directing the registration of 6.84 per cent. of shares in the name of Tracstar or substitute the name of Tracstar for Trident.
Respondents Nos. 1, 2, 3, 7 and 8 have filed reply, which reads as follows:
Petitioners Nos. 2 and 3 have no locus standi to file the petition inasmuch as they are not members of the company. The company is presently under the rehabilitation scheme of the BIFR and SWC of which respondent No. 3 is the chairman has made a substantial investment. The acquisition of shares by Tracstar is liable to be rejected as they have been acquired by illegal and improper means and as such no cognizance of the shareholding by petitioner No. 1 should be taken. The reply goes on to narrate the proceedings before the BIFR to state that SWC controlled by M.R. Chhabria is actually involved in rehabilitating the company. The proposal of the company to issue shares to SWC for the purpose of rehabilitating the company has also been thwarted by the petitioners. Further, the reply also narrates the association of K.R. Chhabria with SWC and now K.R. Chhabria had taken away or attempted to take away profitable business, etc., from the control of Shaw Wallace when he was functioning as the managing director of SWC and how petitioner No. 1 came to hold the alleged shares held by it. In regard to the annual general meeting held on August 14, 1992, none of the nominees of the petitioners' group could get elected as they were in minority and not because of any unlawful decision taken in the meeting. In regard to the refusal of 6.84 per cent. shares in the name of the seventh petitioner, the company has already filed a reference under section 22A of the Securities (Contracts) Regulation Act before the Company Law Board. As far as the rehabilitation programme is concerned, the matter is under consideration of the BIFR and SWC has not acted in any way against the scheme proposed by the BIFR. In regard to the hiving properties of the company, the respondents have denied the same.
After hearing the parties on August 13, 1993, the Company Law Board recorded an agreement between the parties, agreeing to postpone the meeting of the company scheduled to be held on August 24, 1993, till further orders. On September 22, 1993, the existing directors of the board were allowed to continue to hold the office till the annual general meeting.
When the petition was pending before the Company Law Board, one of the companies in the respondents group, namely GWL, UK filed C. P. No. 16 of 1994 under section 398(1)(b) read with sections 402 and 403 of the Companies Act, 1956. In the said petition Tracstar Investments Private Limited, Shoe Specialities Private Limited, Kishore Rajaram Chhabria, Madan Dwarakdas Chhabria, Rajaram Dwarakdas Chhabria are respondents Nos. 2 to 6, while Gordon Woodroffe Limited, India and Shaw Wallace and Company Limited, are respondents Nos. 1 and 7.
After setting out the history of GWL, India, it is stated that in 1973, the majority shareholding of GWL, UK, in Gordon Woodroffe, India, was reduced to just below 40 per cent. consequent upon the coming into force of the Foreign Exchange Regulation Act, 1973. It is stated that GWL, UK, had no other business except the investment in GWL, India and the only asset which GWL, UK, is holding is the shares of GWL, India. Till 1982, GWL, India was a successful business establishment owning number of properties in Madras, Bombay, Delhi, etc. From 1982-83 GWL, India incurred losses. On January 4, 1985, M.R. Chhabria became the director of GWL, India and, thereafter, he became the chairman of the said company. This was because Messrs. Jumbo International Holdings Limited continued to hold the entire shares in GWL, UK. M.R. Chhabria, acquired through overseas companies the control of 38.96 per cent. shares in Shaw Wallace, the seventh respondent. As M.R. Chhabria became a director of Shaw Wallace with effect from March 27, 1987, and subsequently chairman of Shaw Wallace with effect from April 6, 1987, the day-to-day affairs of GWL, India and its management were done by the employees of the Shaw Wallace group. M.R. Chhabria acquired the controlling interest in various ventures apart from GWL, such as Dunlop India Limited, Chhabria Investment Private Limited, Jaguar Investment Private Limited and Orson Investment Private Limited. The younger brother of M.R. Chhabria became a director of Shaw Wallace on March 27, 1987. Later he was appointed as the managing director of Shaw Wallace Company and continued in the said position till April 25, 1992. As the managing director of Shaw Wallace Company K.R. Chhabria acted as the chairman of the group executive committee constituted by Shaw Wallace Company to attend the affairs of various companies in the Shaw Wallace group. The group executive committee used to take decision and advise the affairs of GWL, India. On September 20, 1991, Kishore Chhabria was appointed as director of GWL, India and he continued to be the director of the said company till September 15, 1993 Thus, Kishore Chhabria was in the position of fiduciary and trustee, both in law and in fact of Shaw Wallace as well as the other companies in the group companies. He was required scrupulously to avoid getting into a situation where there will be a conflict of the company's interest and his personal interest. The duties and obligations in regard to the above being absolute, the same were required to be followed strictly. He owed similar duties and obligations to GWL, UK and other companies. While so, Kishore Chhbaria, in a fraudulent manner has taken away or attempted to take away the profitable businesses, monies, interests, companies, assets and properties and business opportunities of GWL, UK, and Shaw Wallace for his personal gain and for the benefit of his family and relatives. These amount to breach of trust and fiduciary obligations as well as fraud perpetuated by him on Gordon Woodroffe (UK) and Shaw Wallace. Only in April, 1992, this was brought to light when M.R. Chhabria sent a circular dated March 5, 1992 After the letter was issued by M.R. Chhabria, Kishore Chhabria attempted to take away the assets of the various companies. He began to take several steps with groups and acted adverse to the interest of the companies and in a manner prejudicial to the public interest. This includes his attempt to take away the control of GWL, India. This he did by taking away Tracstar which held 24.91 per cent. equity shares in GWL, India, and claiming hostile title to Shoe Specialities Private Limited, which held 12.73 per cent. of equity shares in GWL, India and by acquiring 6.84 per cent. in GWL, India, in the name of Trident Portfolio and Investment Services Private Limited for the benefit of Tracstar. Thus, he eventually made a claim for voting rights in GWL, India to the extent of 44.84 per cent. and thereby arranged to oust the existing management of the company. By acquiring the shares in GWL, India to the extent of 24.91 per cent. in the name of Tracstar and 12.73 per cent. of SSPL. Kishore Chhabria and others acted against the interest of GWL, UK. By misusing his fiduciary and dominant position, he attempted to secure personal gain and advantage for himself and his family members. The acquisition of shares in GWL, India in the name of Tracstar and SSPL, were in violation of various requirements of law and hence it is illegal. When the Sick Industrial Companies (Special Provisions) Act, 1985, came into force, the Board for Industrial and Financial Reconstruction (BIFR) declared GWL, India, as a sick industrial company.
The Industrial Reconstruction Bank of India was appointed as the operating agency for the purpose of preparing a scheme for revival/rehabilitation. When the BIFR issued guidelines for framing of schemes for revival of the company pursuant to the guidelines, the Industrial Reconstruction Bank of India formulated a draft scheme for reconstruction of GWL, India. Pursuant to the scheme, Shaw Wallace and its group contributed Rs. 1,40,00 000 and Rs. 90 lakhs, which would be 24.9 per cent. of the expanded equity shares ; Rs. 50 lakhs as the interest-free unsecured loan. While the revival scheme was under consideration, on June 10. 11, 1989, an extraordinary general meeting of GWL, India was held, to consider further issue of equity shares on rights basis to the existing shareholders. It was resolved to increase the issued capital of the company by issue and allotment of fresh 13,09,363 equity shares of Rs. 10 each to raise Rs. 1,30,95,650. On May 20, 1991, letter of offer was issued to the shareholders of GWL, India, including GWL. UK, whose names were in the register of members as on May 16, 1991. which was the record date for the rights issue. In the meanwhile, a decision was taken that three private limited companies namely, Chhabria Investment, Jaguar Investment and Orson Investment, would transfer their shareholding in GWL, India to the investment companies under the control of the Shaw Wallace group. On May 23, 1991, Chhabria Investment and Jaguar Investment transferred their 1,59.160 equity shares held by them in GWL, India to Tracstar. Tracstar was allowed to acquire the said shares as it was treated as an investment of Shaw Wallace. The transfer was registered on May 25, 1991. Tracstar came to own 6.78 per cent. of shares in GWL, India. On May 31, 1991, Orson Investment also transferred 2.700 shares held by it GWL, India to Tracstar. On July 11, 1991, the group investment committee of Shaw Wallace decided to allot the rights issue held by GWL, UK in GWL, India to Tracstar, Kishore Chhabria attended the meeting. Similarly, Chhabria Investment and Jaguar Investment sold the shares to Tracstar for the same rate. Again, when Tracstar requested for additional 13,45,420 shares and it was accepted for the same reason required by Tracstar as the above investments were arranged by Shaw Wallace group. This aspect is dealt with in C.P. No. 19 of 1992 on February 25, 1993. Out of 14,30,000 shares allotted to Tracstar, as it would hold in excess of 25 per cent. of shares of GWL, India, 5 lakhs equity shares were allotted to SSPL and the balance of 8,30,000 shares were allotted to Tracstar. When the rights issue of GWL, India was finalised in September, 1991, GWL, UK, did not subscribe for the issue of shares in view of the allotment to Tracstar and SSPL as mentioned above. On account of the arrangement under which the rights issue shares which the GWL, UK would have secured, but allowed to be secured to the Tracstar and SSPL, the holding of GWL, UK, in GWL, India, came to be limited to 24.90 per cent. of shares, on the other hand, Tracstar came to hold 24.91 per cent. of shares, while SSPL came to hold 12.73 per cent. of shares. Even after the aforesaid allotment Tracstar and SSPL continued to be managed and controlled by the Shaw Wallace group till April 25, 1992. On account of certain acts of omission and commission from April 25, 1992, Kishore Chhabria ceased to be the managing director of Shaw Wallace as per the resolution of the board of directors dated April 11, 1992, and April 25, 1992.
After the aforesaid statement of facts, the petitioner sets out the circumstances and instances to show that Tracstar and SSPL were also considered as belonging to the Shaw Wallace group. Some of the salient facts would show that the parties concerned intended that the equity shares in GWL, India were intended to go to the Shaw Wallace group and not to any third party are also set out. Thereafter, reference is made to the number of suits and petitions filed in courts and before the Company Law Board. Apart from the proceedings pending before the civil courts and the Company Law Board, Case No. 205 of 1987 is pending before the BIFR is also referred to. Then the petitioner states as follows:
"The petitioner says and submits that without prejudice to the rights and contentions of the parties in the above mentioned suit and independent of any orders that may be passed in the said other proceedings, in the facts and circumstances of the case, the petitioner is entitled to seek relief to this Hon'ble Board under section 398(1)(b) read with other applicable provisions of the Companies Act, 1956, to protect the interest of Gordon Woodroffe (India) and the public interest."
The prayer in the petition is to direct that notwithstanding anything contained in the memorandum and articles of association of Gordon Woodroffe (India) and notwithstanding any resolution which may be proposed to be passed at the annual general meeting or in the extraordinary general meeting of Gordon Woodroffe (India), there shall be no change in the present management of Gordon Woodroffe (India) at the instance of Tracstar and/or Shoe Specialities and that the board of directors of Gordon Woodroffe (India) will be continued to be by nominees as may from time to time be designated by Shaw Wallace and Company Ltd. and Gordon Woodroffe (UK) or its nominees ; to restrain Tracstar Investments (P.) Ltd., and Shoe Specialities (P.) Ltd., to transfer their respective holding to Gordon Woodroffe (UK) or its nominees; to restrain Tracstar Investments (P.) Ltd., and Shoe Specialities (P.) Ltd., from exercising any voting rights in respect of shares held by them in Gordon Woodroffe (India) or interfering with the affairs of Gordon Woodroffe (India).
Not satisfied with the elaborate statement of facts contained in the petition, the petitioner has also filed a petition requesting the Board that some more facts to be taken into account in the said petition.
A detailed reply has been filed on behalf of the second, fifth and sixth respondents. In the said reply, a number of defences are taken. The first one is that though the reliefs claimed relate to Chhabria Investment Private Limited, Jaguar Investment Private Limited and Orson Investment Private Limited, these three companies are not parties to the proceedings. They have not made any complaint. Hence, no relief can be granted in their absence. Further, the petitioner seeks re-transfer of shares held by Tracstar and SSPL in GWL, India. In the absence of the aforesaid companies such a relief cannot also be granted. These companies have never filed any declaration under section 187(c) of the Companies Act to the effect that they were the benami holders of the respective shares for the benefit of the petitioner.
In substance, the relief claimed requires re-transfer of shares involving the rectification of register. Section 111(4) of the Companies Act is the proper section to be invoked. Hence, the petition under section 398(1)(b) of the Act is incompetent. Another defence raised by these respondents is that the deponent to the affidavit accompanying the petition is one E. Subramaniam, is none other than the manager of the seventh respondent. He is personally not aware of the facts relating to K.R. Chhabria and his business relationship or Orson Investment Private Limited or with members of Chhabria family.
The second respondent filed C.P No. 45 of 1993 in August, 1993, pleading apprehension of the second respondent right to exercise the voting with reference to 44.48 per cent. of shares by the management. When the said petition almost came to a conclusion, the present petition has been filed. In C. P. No. 19 of 1992, the acquisition of shares by the second respondent to the extent of 24.19 per cent. in the first respondent-company has already been approved by the Company Law Board. It has also been decided by the Company Law Board that the second respondent is owned by the fifth and sixth respondents. The petitioner filed C.S. No. 1503 of 1993 for identical reliefs as contained in the petition. Further O.A. Nos. 443 and 454 of 1994 have also been filed by the petitioner for injunction restraining the second respondent from exercising its rights in the first respondent-company. In the said suit, the title of the second respondent-company in respect of 24.91 per cent. of the shares held in the first respondent-company is in dispute. When a suit is pending in a civil court, which has exhaustive powers of investigation and trial, the petition for identical relief is not maintainable. The said suit C.S. No. 1503 of 1993 has been transferred to the city civil court and it is pending as O.S. No. 10803 of 1996 on the file of the XIIth Assistant Judge, City Civil Court, Madras. The respondents have also denied the allegation that the second respondent and the third respondent acquired their shares in the first respondent-company with the help of funds provided by Shaw Wallace/seventh respondent. The petitioner itself has filed C. P. No. 19 of 1992 before the Company Law Board under section 247/250 of the Act. After elaborate enquiry, the Company Law Board negatived the claim of the petitioner. On this ground as well the petition is not maintainable. Delay and laches are also set out in the said defence. Then the respondents explained how M.R. Chhabria was helped by the family of Chhabria by providing funds for building up his business in Dubai and London. It is also stated that K.R. Chhabria was in Dubai for some time and then in London. In 1986, he was sent by M. R. Chhabria to India to look after the Shaw Wallace and GWL, India. These respondents deny that. Shaw Wallace has any connection with Tracstar and SSPL. They have been under the control of M.D. Chhabria and R. D. Chhabria, the fifth and sixth respondents. They rely upon the findings of the Company Law Board in C.P. No. 19 of 1992, wherein it has been held that from the facts available the true identity of persons in control of Tracstar and SSPL and they are under the control of M.D. Chhabria and R.D. Chhabria. They refer to the findings rendered in C.P. No. 19 of 1992 with reference to Tracstar and C.P. No. 29 of 1992 and C.P. No. 44 of 1993 with reference to SSPL.
It is also stated that after the aforesaid orders passed by the Company Law Board, Shaw Wallace transferred the shares of SSPL to third parties. These transfers were challenged in C.P. No. 29 of 1992 and it is pending. The Company Law Board found that a fraud was committed on the members of SSPL and set aside the enhanced equity capital. Though C.M.A. No. 743 of 1993 was filed in the High Court, no stay has been granted. One of the transferees, Malleswara Finance and Investments Company Pvt. Ltd., challenged the order of the Company Law Board in W.P. No. 19256 of 1993. The said writ petition was dismissed on May 10, 1994, confirming the order of the Company Law Board in C.P. No. 29 of 1992. Though the Company Law Board rejected the transfer of shares in favour of Trident Investments and Portfolio Services Pvt. Ltd., in C.M.A. No. 232 of 1994 the High Court has passed orders prohibiting any person other than Tracstar and Trident Investments and Portfolio Services Pvt. Ltd., from exercising the voting rights in respect of the shares. The respondents denied the allegation that the entire management, control of GWL, India would be jeopardised. Therefore, they pray for the dismissal of the petition.
The seventh respondent, Shaw Wallace and Company Limited, filed a supporting reply in favour of the petitioner. In the supporting affidavit, it is stated that K.R. Chhabria is duty bound to ensure the protection of interest of Shaw Wallace. He committed breach of fiduciary duty. He set up a scheme in GWL through Tracstar, which is adverse to the interest of Shaw Wallace. Shaw Wallace has contributed over Rs. 3.77 crores as interest-free loan to GWL. It is also stated that Shaw Wallace has from time to time advanced various funds to companies such as Dobur Lager Breweries Limited and Viedale Distillery Limited. The funds advanced to these companies have been diverted by K.R. Chhabria. The amount so advanced aggregate to over Rs. 8 crores. Further, Tracstar owes amounts over Rs. 600 lakhs. Tracstar is not a company involved in any manner in the revival of Gordon Woodroffe Limited. As on March 31, 1991, the issued capital of Tracstar was increased to Rs. 5 lakhs. The Karnataka Government has issued garnishee order with reference to sales tax due against Tracstar amounting to Rs. 78,39,012. A notice has been issued by A.G. Glass Limited to Tracstar for recovery of Rs. 2,10,229.
The second, fifth and sixth respondents have filed a reply to the allegations of the seventh respondent. They have denied the various allegations of the seventh respondent. K.R. Chhabria, fourth respondent, himself has also filed a reply. In the said reply he has stated how he has helped for the growth of the Chhabria group and how he assisted M.R. Chhabria in the business at Dubai and London. According to him, he was the managing director of Shaw Wallace and Company from June 23, 1987, to April 25, 1992. Only on account of some immoral act of M.R. Chhabria, the family of Chhabria got divided into two groups. This respondent is supporting the father and the uncle group, hence, he had to vacate the office of the managing director and director of Shaw Wallace. It is also stated that he was able to hold the said office by virtue of the Chhabrias family holding the shares. He has stated that the management was always conducted by the group committee. He has denied the allegation that he was able to command the affairs of a number of other companies in which M.R. Chhabria had interest. On the other hand, it is M.R. Chhabria, who was actually in control. It is also stated that group management committee was always conducted by the approval of M.R. Chhabria. He has denied that he committed breach of fiduciary duty either to Shaw Wallace or other group companies. He has also found fault with M.R. Chhabria and his associates in indulging in fraud, forgery, etc. He has also relied upon the decisions with reference to the conduct of M. R. Chhabria and his group.
In the rejoinder filed by the petitioner, it is stated that the petition is maintainable under section 398(1)(b) of the Companies Act and there are sufficient ingredients for maintaining this petition. It is also stated that the proceedings in the civil suit C.S. No. 1503 of 1993 are independent proceedings. The reliefs claimed in both are different. Both the proceedings are maintainable in law. The petitioner has not acquired the transfer of shares to Tracstar or SSPL in the understanding that these are companies independent of the Shaw Wallace group. There is also a denial that the interest of GWL was acquired with the joint family funds. The order passed by BIFR shows that Shaw Wallace is a promoter company in the rehabilitation of GWL, India. Tracstar and SSPL were not independent companies. They are connected with Shaw Wallace. There was no illegal management on the part of GWL or on the part of Shaw Wallace. No member of the family of Chhabria other than M.R. Chhabria ever had any interest in GWL, UK. GWL, UK never formed part of the family's assets of Chhabria family.
With these pleadings, the Company Law Board, Principal Bench, New Delhi, passed order on May 12, 1998, in both the petitions, namely, C.P. No. 45 of 1993 and C.P. No. 16 of 1994. A detailed order has been passed by the Company Law Board in C.P. No. 16 of 1994 and following the order in the said petition, C.P. No. 45 of 1993, has been disposed of.
The Company Law Board has overruled the preliminary objection on the maintainability of the petition, C.P. No. 16 of 1994, under section 398(1)(b) of the Companies Act. 1956. It has also rejected the other preliminary objections such as that the petition having been signed by one P. Subramaniam, not associated with any of the decisions taken by Shaw Wallace and had no personal knowledge about the various averments in the petition is not competent to verily the application. Another objection is on the question of res judicata based on the decision of the Company Law Board in the earlier proceedings relating to the transfer of shares in respect of Tracstar and SSPL, have also been rejected. The Company Law Board found as regards the second limb of section 398(1)(b) of the Act, requiring satisfaction that the management and control of the company was likely to be conducted in a manner prejudicial to the interest of the company/public. The Company Law Board has held that the decision under section 398(1)(b) of the Act and apprehended mismanagement would depend on the extraneous matter. Hence, they refrained from expressing their opinion.
The Company Law Board also considered the arguments of S. Ganesh that M.R. Chhabria, Shaw Wallace should continue to have the management of GWL. According to him, Tracstar had only a paid up capital of Rs. 5 lakhs and there was a stricture passed by the Karnataka High Court against Tracstar. They have also considered the allegation against K.R. Chhabria that he misused his position as director of Shaw Wallace relating to the acquisition of shares by SSPL and Tracstar. The Company Law Board found that K. R. Chhabria had no fiduciary duty to Shaw Wallace. The breach of fiduciary duty in one company cannot be the basis for claiming in another group company. Hence, they refrained from taking cognisance of the alleged breach of fiduciary duty. They have given another reason for refraining from considering the said issue. According to them, the petitioner along with M. R. Chhabria companies who have transferred their shares to Tracstar have already filed a suit in C.S. No. 1503 of 1993 in the High Court (now transferred to the City Civil Court, Chennai and numbered as O.S. No. 10803 of 1996 on the file of the XIIth City Civil Court, Chennai). The suit was filed prior to the filing of the petition. The reliefs claimed in the suit were that the transfer of shares by the three companies to Tracstar and SSPI, was null and void. The breach of fiduciary duty has also been taken up in the said suit. Further, there is a plea of violation of provision of section 372 of the Companies Act, at the time of transfer of shares after the book closure date.
There is also a reference to the request of the Company Law Board to S. Ganesh, counsel for the petitioners to withdraw the suit and a categorical assurance from the Company Law Board demanded by him for considering these issues before he withdrew the suit and the refusal of the Company Law Board to do so. The Company Law Board expressed its opinion that it was the petitioners' prerogative to choose the forum and as the petitioner has not chosen to withdraw the suit which is a comprehensive one and filed earlier in point of time, the Company Law Board refused to consider the relief relating to setting aside the transfer/allotment of right of additional shares or the direction that the shares to be transferred to the petitioner.
The Company Law Board refused to consider the arguments of counsel for the petitioner that GWL was likely to be mismanaged by Tracstar/K.R. Chhabria on account of Tracstar's low capital and unsatisfactory functioning, etc., as the allegations remained unestablished in other forums where the allegations are levelled and challenged.
After having given the findings as aforesaid, the Company Law Board has finally concluded that as the revival scheme proposed by Shaw Wallace and Company and the K.R. Chhabria group are pending consideration before the BIFR, both of them having remitted Rs. 1 crore each, the annual general meeting should not be convened before December 31, 1998, even though they indicate that corporate democracy and the will of the shareholders should prevail. Finally, they have restrained the GWL from holding its annual general meeting' for 1992-93 up to December 31, 1998, by which time the Company Law Board hoped the BIFR proceedings would come to an end. But, however, they have directed the holding of the annual general meeting by the company within three months from December 31, 1998.
Based on the judgment in C. P. No. 16 of 1994, the Company Law Board passes orders in C.P. No. 45 of 1993 also. Referring to the grievances of the petitioner in C.P. No. 45 of 1993 and noting that the K.R. Chhabria group was holding 37.64 per cent. shares and the M.R. Chhabria group holding 24.9 per cent. shares ordered that within three months from December 31, 1998, the company could hold the annual general meeting. They have also added that the direction was without prejudice to the proceedings before the BIFR which has already appointed a committee of management to manage the day-to-day affairs of the company and the order that without the approval of the BIFR the board could not dispose of any of the assets of the company.
As against the orders passed by the Company Law Board in both the C.P. Nos. 45 of 1993 and 16 of 1994, we find that the first petitioner in C.P. No. 45 of 1993 has filed C.M.A. No. 1149 of 1998 against the order in C.P. No. 45 of 1993 and C.M.A. No. 1208 of 1998 against the order in C.P. No. 16 of 1994. The second and third petitioners in C.P. No. 45 of 1993 M.D. Chhabria and R.D. Chhabria along with K.R. Chhabria, who are respondents Nos. 5, 6 and 4 in C.P. No. 16 of 1994 have filed C.M.A. No. 1207 of 1998. SSPL, the ninth respondent in C.P. No. 45 of 1993, the third respondent in C.P. No. 16 of 1994 has filed C.M.A. Nos. 1209 and 1210 of 1998 against the order in C.P. No. 45 of 1993 and C.P. No. 16 of 1994. GWL, UK, is the appellant in C.M.A. No. 1071 of 1998, challenging the order in C.P. No. 16 of 1994. SWC, which is the second respondent in C.P. No. 45 of 1993 and the seventh respondent in C.P. No. 16 of 1994 has preferred C.M.A. No. 1072 of 1998 against the order in C.P. No. 45 of 1993. GWL, India which is the first respondent in both C. P. No. 45 of 1995 and C.P. No. 46 of 1994 has preferred C.M. A. No. 1073 of 1998 against the order in C.P. No. 45 of 1993.
Thus, it is seen that though Tracstar, SSPL and K.R. Chhabria group have factually succeeded in both the company petitions, they have filed five appeals, while the other group headed by GWL, UK which has almost failed in both the company petitions has filed three appeals.
All the appeals relate to the management, control and administration of a company, known as Gordon Woodroffe Limited, India (GWL, India). It is shown as the first respondent in C.P. No. 45 of 1993. It is stated to be a public limited company incorporated under the Indian Companies Act, 1913, having its registered office at No. 36, Rajaji Salai, Madras-600 001. The said company may be called as GWL for brevity, was incorporated in December 23, 1924. The authorised share capital of the company is Rs. 5 crores made up of 49,97,390 equity shares of Rs. 10 each and 2,610 cumulative preference shares of Rs. 10 each, the issued and paid-up capital of the company is Rs. 3,93,08,850. The object of the company incorporated was to acquire and take over business carried on by William Arthur Wigram, Eustace Harold Robinson, Robert Galloway, Sir Hugh Stein Frasor, and other Britishers under the name and style of "Gordon Woodroffe and Company". Originally the ownership and control of GWL was with GWL, UK Limited, holding 39.23 per cent. shares up to August 31, 1998. The Chhabria group outside India acquired controlling power in GWL in the year 1985. Subsequently, the three investment companies, i.e., Chhabria Investment Private Limited, Jaguar Investment Private Limited and Orson Investment Private Limited acquired 6.89 per cent. shares in GWL. Thus by March 31, 1991, the Chhabria group family was holding 46.12 per cent. shares, including 39.23 per cent. held by GWL, UK in GWL, India. As a result of some developments in Chhabria family, Chhabria Investment Private Ltd., Jaguar Investment Private Ltd., and Orson Investment Private Ltd., transferred 6.78 per cent. shares in GWL to Tracstar, another Chhabria group company, in May, 1991.
M.R. Chhabria was holding the single largest share in SWC and GWL. M.R. Chhabria became a director of Shaw Wallace on March 27, 1981. Thereafter, Kishore Chhabria was appointed as the managing director of Shaw Wallace for a period of five years from June 23, 1987, to June 22, 1992. He continued in the said position when he ceased to be the managing director and directorship of Shaw Wallace. On August 25, 1987, GWL India made a reference to the Board for Industrial and Financial Reconstruction under section 15 of the Sick Industrial Companies (Special Provisions) Act, 1985, as it became a sick company by that time. On March 17, 1988, BIFR declared GWL us a sick industrial company. BIFR appointed Industrial Reconstruction Bank of India as the operating agency for preparing a scheme for revival of the company. The Industrial Reconstruction Bank of India drafted a scheme for rehabilitation of GWL and submitted the same to BIFR. It was considered by the BIFR on September 21, 1988. On December 12, 1988, the board of directors of Shaw Wallace made a proposal to the BIFR, agreeing to invest Rs. 250 lakhs by way of subscription or purchase equity shares of the company. But it was felt that direct participation of the Shaw Wallace group in the equity shares of GWL, India above 25 per cent. would result in GWL losing the concessional rates of interest on the term loans. Therefore, the promoters contribution was envisaged in the scheme at Rs. 140 lakhs. A sum of Rs. 90 lakhs to be contributed on the expanded equity and the remaining Rs. 50 lakhs by way of interest-free unsecured loan. The proposal was accepted by the BIFR on January 19, 1989.
In the circumstances, on June 10. 11. 1989, an extraordinary general meeting of GWL, India was held to consider the further equity shares in the company on rights basis on the existing shareholders. It was further resolved to increase the issued capital of the company by issuing and allotting fresh 13,09,363 equity shares of Rs. 10 each to raise Rs. 1,30,93,630. Out of it 12,47,013 equity shares of Rs. 10 each was to be offered to the members of GWL, India, whose name was on the register of members as on the record date with a right of renunciation, and 62,350 equity shares at Rs. 10 each to the permanent employees of GWL, India for preferential allotment. After getting the permission from the Controller of Capital Issues on August 11, 1989, and on May 20, 1991, rights issue was issued to the shareholders of GWL, India, including GWL, UK, whose names were in the register of members as on May 16, 1991, which was the record date for the rights issue. At that stage it was decided by Shaw Wallace, as a promoter in the revival scheme of GWL that the three private limited companies namely, Chhabria Investment, Jaguar Investment and Orson Investment would transfer their shareholdings in GWL, India to the investment companies belonging to Shaw Wallace group. On May 23, 1991, Chhabria Investment and Jaguar Investment transferred their respective equity shares held by them in GWL, India to Tracstar. Thus on May 23, 1991, Tracstar acquired 6.52 per cent. and 0.26 per cent. of equity shares of Chhabria Investment and Jaguar Investment held by them in GWL, India. Orson Investment Private Limited continued to hold its 0.11 per cent. shares in GWL, India. However, on May 31, 1991, Orson Investment also transferred its 0.11 per cent. shares to Tracstar. Thus, on May 31, 1991, Tracstar came to hold 6.89 per cent. shares in GWL, India. However. as on May 16, 1991, the shares held by Tracstar in GWL, India, was not registered because only on May 25. 1991, and May 31, 1991, Chhabria Investment, Jaguar Investments and Orson Investment transferred their shares.
While the position was thus, on July 11, 1991, the group management committee of Shaw Wallace decided that the shares pertaining to the rights issue of GWL, India, to GWL, UK would be allotted to Tracstar. Further, on August 29, 1991, in view of the investment of the rights issue in Tracstar, Kishore Chhabria was appointed as director. By allowing the rights issue pertaining to the GWL, UK to be allotted to Tracstar, GWL, UK shares in GWL, India are reduced to 24.91 percent, from 39.23 per cent. On July 30, 1991, Tracstar applied for allotment of equity shares on rights basis to the extent of 84,580 shares. Again, Tracstar applied for additional 13,45,420 shares, i.e., more than fifteen times its rights. However, Tracstar by a letter dated August 24, 1991, requested that out of 14,30,000 shares applied for by Tracstar, 5,00,000 equity shares shall be allotted to SSPL and the balance 8,30,000 be allotted to Tracstar. In September, 1991, the allotments of rights issue of GWL was completed as requested by Tracstar and SSPL. Hence as on February 20, 1992, Tracstar and SSPL came to hold 24.91 per cent. and 12.73 per cent. to make a total of 37.64 per cent., while GWL, UK 24.90 per cent. shares. On April 11, 1992, and April 25, 1992, Kishore Chhabria ceased to be the managing director of Shaw Wallace. The term of Kishore Chhabria as additional director of GWL. India came to an end on August 14, 1992, as he was not elected as a director of the sixty-seventh annual general meeting. Thus, from April 25, 1992, Kishore Chhabria ceased to be the director and additional director of SWC, India an SWC, UK.
After April, 1992, misunderstandings developed between Kishore Chhabria, M.D. Chhabria and R.D. Chhabria on the one hand and M.R. Chhabria on the other. This resulted in several proceedings before the courts and the Company Law Board. C.S. No. 1503 of 1993 was filed by GWL, UK, Shaw Wallace, Chhabria Investment, Jaguar Investments and Orson Investments against Kishore Chhabria, Tracstar, SSPL and others in the High Court, Madras, for declaration that the transfer of shares by the three private limited companies were illegal and void. Subsequently, the said suit was transferred to the City Civil Court, Madras, and has been numbered as O.S. No. 10803 of 1996 on the file of the XIIth Assistant Judge, City Civil Court, Madras. C.P. No. 19 of 1992 was filed by M.R. Chhabria group for investigation regarding the shares in GWL, India and held by Tracstar, under sections 247 and 250 of the Companies Act. This petition was disposed of on February 28, 1993, by the Company Law Board. C.P. No. 45 of 1993 was filed by Tracstar under sections 397 and 398 of the Companies Act, 1956 in respect of GWL, India. O.S. No. 1471 of 1991 was filed by Tracstar in the City Civil Court. Madras, for injunction restraining the GWL. India from issuing further capital and O.S. No. 1472 of 1992 was also filed by Tracstar in the City Civil Court. Madras, to restrain GWL, India, from disposing of any of the immovable properties. C.P. No. 18 of 1993 was filed by GWL, India, under section 22A of the Securities Contracts (Regulation) Act in regard to rejection of the registration of shares lodged in the name of Trident Portfolio and Investments Private Limited.
Apart from the above, C.P. No. 45 of 1995 and C.P. No. 16 of 1994 were also filed for the reliefs already mentioned above and the civil miscellaneous appeals, now we are concerned have arisen, out of the orders passed in the aforesaid two petitions.
(Wherever the word appellant' or "appellants" are used in this judgment it will refer to Gordon Woodroffe Limited, Shaw Wallace and Company Limited, Manohar Rajaram Chhabria (third respondent) and group. Similarly wherever the word "respondent" or "respondents" used in this judgment it will refer to Tracstar Investments Private Limited, Kishore Chhabria (K. R. Chhabria)/fourth respondent and M. D. Chhabria/fifth respondent).
Mr. Anil B. Divan, senior counsel appearing for the appellants in C.M.A. No. 1071 of 1998, has raised the following contentions. The failure of the Company Law Board to go into the validity of the transfer of shares in favour of Tracstar and SSPL is failure to exercise the jurisdiction vested in the Company Law Board. Elaborating this point, he also contended that acquiring of shares by Tracstar was in violation of section 372 of the Companies Act. Further, Kishore Chhabria has committed breach of his fiduciary duty. Secondly he contended that after having found in favour of the petitioner in C.P. No. 16 of 1994 about the change of administration when the revival schemes are pending before the BIFR, and when SWL has taken active part in submitting a scheme and contributing about Rs. 240 lakhs, the Company Law Board ought not to have permitted the convening and conducting of the annual general meeting of the company after December 31, 1998, and within three months thereafter.
R. Krishnamoorthy, senior counsel appearing for the appellants in C.M.A. Nos. 1072 and 1073 of 1998, etc., contended that the Company Law Board ought to have decided the validity of the transfers in C.P. No. 16 of 1994. It has wider powers than the civil court with reference to the matters contemplated by the provisions of the Companies Act, 1956, and the refusal to go into the same on the ground that the petitioner refused to withdraw the suit, O.S. No. 10805 of 1996, in spite of an option given to him is improper and unjustified. Learned senior counsel further contended that C.P. No. 16 of 1994 filed under section 398(1)(b) of the Companies Act, is maintainable and there are sufficient ingredients available for the same. There was also a contention that if the management is allowed to continue and be taken over by the Kishore Chhabria group, the interest of the company as well as the public will suffer. It was also contended that Tracstar Investment Private Limited is not a financially sound company and such a company should not be allowed to have control over GWL.
A.L. Somayaji, senior counsel for the appellants in C.M.P. Nos. 1149 and 1208 of 1998, contended that C.P. No. 15 of 1994 is not maintainable under section 398(1)(b) of the Companies Act, as the requirements under the said section are not present in the case. According to him, after holding that corporate democracy should prevail, the Company Law Board erred in postponing the convening and conducting of the annual general meeting. He also in turn contended that Shaw Wallace is also in the doldrums and such a company cannot be allowed to have control over GWL, India. The learned senior counsel further contended that the idea of Shaw Wallace is to somehow absorb GWL and alienate the valuable properties owned by GWL, India. Learned senior counsel was also at pains to point out how the M.R. Chhabria group was preventing the majority shareholders to take charge by resorting to all sorts of improper and unjustifiable methods by initiating one proceeding or the other in different forums including the apex court.
C. Harikrishnan, learned senior counsel appearing for the appellants in C.M.A. Nos. 1209 and 1210 of 1998, for Shoe Specialities Private Limited, contended that the jurisdiction of the Company Law Board is not wider than the civil court. According to learned counsel, section 398 of the Companies Act is available for preventive relief while the suit is a comprehensive one and declaratory relief and consequential reliefs can be obtained. Further, learned counsel contended that there is no violation of section 372 of the Companies Act in the purchase of Tracstar and SSPL rights issue from GWL, India. He also denied that there was any breach of fiduciary duty by Kishore Chhabria.
Mr. Vedantham Srinivasan, another senior counsel appearing for the appellants in C. M. A. No. 1207 of 1998, contended that section 398(1)(b) of the Companies Act will be attracted only when the persons are holding the shares in a company legally and legitimately. Since the M.R. Chhabria group is not owning any share in GWL, India, he is not entitled to file a petition under section 398(1)(b) of the Act. He also contended that the reliefs claimed in C.P. No. 16 of 1994 are hit by the principle of estoppel by election. The allotment of shares to Tracstar and SSPL was made by persons in charge of the company, i.e., the M.R, Chhabria group, hence they cannot complain of transfer of shares. Learned counsel also contended that there was no breach of fiduciary duty involved in this case. Learned counsel argued the question of maintainability of C.P. No. 16 of 1994 under section 398(1)(b) of the Companies Act, 1956.
The contention of A.L. Somayaji, learned senior counsel on the question of maintainability is that the requirements of section 398(1)(b) of the Act are not satisfied in this case. Therefore, the petition C.P. No. 16 of 1994 is not maintainable. Section 398(1)(b) of the Companies Act, reads as follows:
"398. (1)(b) that a material change (not being a change brought about by, or in the interests of, any creditors including debenture holders, or any class of shareholders, of the company) has taken place in the management or control of the company, whether by an alteration in its board of directors (or, if its managing agent or secretaries and treasurers) (or manager) (or in the constitution or control of the firm or body corporate acting as its managing agent or secretaries and treasurers) or in the ownership of the company is shares, or if it has no share capital, in its membership, or in any other manner whatsoever, and that by reason of such change, it is likely that the affairs of the company (will be conducted in a manner prejudicial to public interest or) in a manner prejudicial to the interests of the company ; may apply to the (Company Law Board) for an order under this section provided such members have a right so to apply in virtue of section 399."
According to learned senior counsel A.L. Somayaji, a material change has not taken place in the management of GWL, even though Tracstar and SSPL have come to acquire the largest individual shares, the management continues to be in the hands of the M. R. Chhabria group. Therefore, when there is no material change in the management and control of the company, the first limb of section 398(1)(b) of the Companies Act, is not satisfied.
In this case in the statement of facts, we have seen that as on February 20, 1992, Tracstar and SSPL acquired 37.64 per cent. shares in the company while GWL, UK, held only 24.90 per cent. of shares. On March 31, 1991, GWL, UK held 39.23 per cent. of shares. It was the single largest shareholder. Chhabria Investment held 6.52 per cent. Jaguar Investment held 0.26 per cent. ; Orson Investment held 0.11 per cent. As on May 22, 1991, Tracstar acquired 6.52 per cent. shares and 0.26 per cent. from Jaguar Investment making' a total of 6.78 per cent. shares. By May 30, 1991, Tracstar acquired another 0.11 per cent. shares from Orson Investment. Hence, the Tracstar's share pattern increased to 6.98 per cent. shares. As on August 31, 1991, after the addition of shares, Tracstar percentage of shares increased to 24.91 per cent. and the SSPL share increased to 12.73. In addition to that Trident also acquired 6.84 per cent. shares. Therefore, Tracstar and SSPL acquired 37.64 per cent. shares ; in addition to Trident's 6.84 per cent. shares, Trident, another company belonging to Kishore Chhabria acquired the aforesaid 6.84 per cent. shares in the open market. As on August 31, 15191. Tracstar was under the control of the K.R. Chhabria group; 13. D.A. Ltd.. holding 40 per cent. and Bio Foods (P.) Ltd., and Standard Distilleries holding 30 per cent. and 30 per cent. respectively. As regards 40 per cent. held by B.D. A. it was controlled by M.D. Chhabria. In C.P. 19 of 1992 Shaw Wallace Company and another filed on May 5, 1992, before the Company Law Board for investigation into the acquisition of 44.48 per tent, shares by Tracstar, SSPL and Trident Investments and Portfolio Service Pvt. Ltd., no interim order was granted by the Company Law-Board. On February 25. 1993, C. P. No. 19 of 1992 was dismissed. Even though attempts were made to increase the shares in SSPL and transfer it to Bhankerpur Simbhaoli Beverages Pvt. Ltd., with a pledge to Malleswara Finance and Investments Company Private Ltd., the Company Law Board did not approve the same. Against the order in C.P. No. 29 of 1992 dated May 28, 1993, C.M.A. No. 473 of 1995 was filed on May 25, 1995, but no interim order was granted. Thereafter, Malleswara Finance and Investments Company Private Ltd., also filed a writ petition. Another attempt was made by Malleswara Finance and Investments by way of filing a writ petition in the Karnataka High Court against the order dated May 28, 1993, in C.P. No. 29 of 1992. As against the order dated February 27, 1993, in C.P. No. 18 of 1993 C.M.A. No. 232 of 1994 was filed in the High Court. An interim order has been passed granting injunction restraining, any other person, than Tracstar and Trident Investments from exercising voting rights of 6.08 per cent. of GWL.
From these facts, it is clear that the Tracstar group is able to command 44.48 per cent. of shares in GWL. The Company Law Board in its order dated May 12, 1998, said that Kishore Chhabria, Tracstar and SSPL together with Trident held 44 per cent. of shares in GWL. Out of this, the shares held by Tracstar and SSPL have been registered, while it was not so in the case of 6.67 per cent. of shares of Trident. In spite of it, the annual general meetings were not conducted and the Kishore Chhabria group is not in a position to be in the management of the company. Therefore, A. L. Somayaji's contention is that the allegation that there is a material change in the management, cannot be accepted.
Even though there is no change in the management, can it be said that there is a material change in the control of the company by an alteration in the board of directors or in the ownership of the company shares? Here again, it cannot be straightaway said that material change is there and the control of the company by an alteration in ownership of shares of the company. Two things are relevant, one is material change in control of the company; the second is an alteration in the ownership of the company's shares. No doubt, as we have seen above, the ownership of shares has undergone changes; but the ownership is under challenge by the petitioners in C.P. No. 16 of 1994 itself. According to them, the transfers of shares in favour of Tracstar and SSPL are illegal and void. The main challenge is to the transfer of shares and the purchase of shares by Tracstar.
In paragraph 104 of the C.P. No. 16 of 1994, it is averred as follows:
"The petitioner states that the entire transaction relating to the transfer of shares by Chhabria Investment. Jaguar Investment and Orson Investment to Tracstar and the allotment of shares by Gordon Woodroffe (India) to Tracstar and Shoe Specialities are liable to be declared as illegal and void. The said shares in Gordon Woodroffe (India) are liable to be vested in favour of Shaw Wallace and/or its nominees or in the alternative restored back to the said three private limited companies..."
As regards the shares allotted to Trident Investments and Portfolio Services Pvt. Ltd., the board of directors refused to register the same. On May 26, 1992, when there was a challenge in C.P. No. 19 of 1992 before the Company Law Board the decision of the board of directors was confirmed on February 28, 1993. Further, in the petition itself, the prayer in paragraph 126 is as follows:
"(a) Direct that notwithstanding anything contained in the memorandum and articles of association of Gordon Woodroffe (India) and notwithstanding any resolution which may be proposed to be passed at the annual general meeting or in the extraordinary general meeting of Gordon Woodroffe (India), there shall be no change in the present management of Gordon Woodroffe (India) at the instance of Tracstar and/or Shoe Specialities and that the board of directors of Gordon Woodroffe (India) shall continue to be by such nominees as may from time to time be designated by Shaw Wallace and Company Ltd., and Gordon Woodroffe (UK)
(b) direct Tracstar Investments and Shoe
Specialities to transfer their respective holding to Gordon Woodroffe (UK) and
or its nominees without prejudice to the rights and contentions of the
petitioners and others sup porting the petitioner in the other proceedings
pending.
(c) Restrain permanently Tracstar Investments
(P.) Ltd., and Shoe Specialities (P.) Ltd., (respondents Nos. 2 and 3) from
exercising any voting or other rights in respect of shares held in their names
in Gordon Woodroffe (India) or otherwise interfering with the affairs of Gordon
Woodroffe (India)."
That apart as we have seen above, the High Court has granted injunction with reference to the shares held by Trident Investments and Portfolio Services Pvt. Ltd. Hence, none other than Tracstar or Trident can exercise the voting rights of 6.84 per cent. In paragraph 120 of the petition there is an averment to the following effect:
"Even the amount paid by Tracstar and Shoe Specialities for acquisition of the shares in Gordon Woodroffe (India) were funded by Shaw Wallace."
Therefore, when the ownership of shares is seriously disputed with reference to 44.48 per cent. of shares, how the petitioner can claim that there is a material change in the control of the company by an alteration in the ownership of the company's share ? Even if we assume that there is change in the ownership of shares, there is no change in control of the company on account, of such change in ownership. The control of the company is undoubtedly with the appellants, i.e., the M.R. Chhabria's group.
The transfers of shares in favour of Tracstar and SSPL are challenged under section 372 of the Indian Companies Act and also lengthy arguments were advanced on this point by learned counsel for the appellants in C.M.A. Nos. 1071 to 1073 of 1998. According to them, purchase of shares by Tracstar on March 31, 1991, of 11.41 per cent. tantamounts to investment of more than 30 per cent. of subscribed equity share capital. There is no resolution by the board of directors of Tracstar and there is no prior approval from the Government of India. Further, it was also contended that as Tracstar was not a member of GWL, India, before the record date, namely, May 16, 1991, the acquisition was not valid. While elaborating the argument on this point Mr. Anil B. Divan, senior counsel cited the decision reported in Mannalal Khetan v. Kedar Nath Khetan [1977] 47 Comp Cas 185 (SC) and contended that if anything is done in violation of the condition in an enactment, the thing done is void. The provisions of the enactment must be construed to be mandatory. The transfers were also challenged on the ground of breach of fiduciary duty owed by Kishore Chhabria to GWL, India. Here again, learned senior counsel cited a number of decisions.
Another contention by learned senior counsel is that K.R. Chhabria committed breach of fiduciary duty by purchase of the shares for Tracstar from the three companies. Therefore, if the company is allowed to be in his control, it will not be in the interest of the company or the public. The decisions cited in support of the above contention are :
(1) Scottish Co-operative Wholesale
Society Ltd. v. Meyer [1958] 3 WLR 404 ; [1959] 29 Comp Cas 1 (HL) ;
(2) Cranleigh
Precision Engineering Ltd. v. Bryant [1964] 3 All ER 289 (QBD);
(3) Industrial
Development Consultants Ltd. v. Cooley [1972] 2 All ER 162 ; and
(4) Delhi Development Authority v.
Skipper Construction Co. (P.) Ltd. [1996] 4 SCC 622 ; [1997] 89 Comp Cas 362.
I will consider this argument at a later stage. But, however, I may add that the decision reported in Scottish Co-operative. Wholesale Society Ltd. v. Meyer [1958] 3 WLR 404 (HL). is not directly on the point. In this case, the minority shareholders in a subsidiary company on account of the conduct of the nominee directors of the company acted in an oppressive manner resulting in the reduction of the value of shares The minority shareholders applied for purchase of the shares at a price based on the previous value. The petition was allowed. On the face of it, the minority shareholders suffered some detriment or loss by the conduct of the nominees of the company. But however, I may add that "mere interest" of the company one cannot invoke section 398(1)(b) of the Act, unless there is material change in the management or control of the company.
Learned senior counsel, R. Krishnamoorthy, appearing for the appellants in C.M.A. Nos. 1072 and 1073 of 1998 also advanced his arguments on this point. However, it should be noted that there is no specific prayer in the petition itself to the effect that the transfer of shares in favour of Tracstar and SSPL is null and void. Even though, there is a prayer for directing the Tracstar and SSPL. to transfer their respective shares to GWL or its nominee, in the absence of a specific prayer for a declaration to declare the transfer of shares as null and void or to sot aside or cancel if. the prayer contained in the petition in paragraph 126 cannot be granted. However, the petitioners have admitted that they have filed the suit in the High Court viz., C. S. No. 1503 of 1993 (now numbered as O.S. No. 10803 of 1996 on the file of the XIIth Assistant Judge, City Civil Court, Madras) for declaration that the transfer of shares by the three private companies is void and is liable to be set aside, for the reasons and on the grounds stated in the suit. It is specifically stated by the petitioner in paragraph 87(b) of the petition in C.P. No. 16 of 1994 as follows:
"The petitioner says and submits that without prejudice to the rights and contentions of the parties in the above mentioned suit and independent of any orders that may be passed in the said other proceedings, in the facts and circumstances of the case, the petitioner is entitled to seek relief of this Hon'ble Board under section 398(1)(b) read with other applicable provisions of the Companies Act, 1956, to protect the interest of Gordon Woodroffe (India) and the public interest."
Therefore after having carefully avoided the relief of declaration that the transfer is void or to set aside the same in the company petition and after having specifically prayed for such reliefs in the suit, probably, the idea of the petitioners is that the issue of transfer of shares can be properly and fully adjudicated only in the suit and not in the company petition. That is why they have moved the Company Law Board half-heartedly with a prayer as contained in the petition.
The prayer claimed in the petition C.P. No. 16 of 1994 can be granted only when the main issue relating to transfer is decided. Without a specific prayer for avoiding or challenging the transfer of shares in the petition, they have chosen to advance their arguments on the validity of transfer.
Their contention that even though there is no specific prayer in the petition under section 111 of the Act and it is also not quoted in the petition, the court-can take note of facts and grant the relief with reference to the transfer of shares treating the petition as a composite one. Of course, section 111(1) and 111(4) of the Act enables the aggrieved person or any member of the company or the company to apply to the Company Law Board for rectification of the register. As stated above, there is no relief claimed by the petitioner under section 111 of the Act. Further, they have carefully reserved such relief in the suit stated in paragraph 87(b) as referred to above. This is a clear indication that the petitioners do not want the Company Law Board to decide the issue relating to transfer. They have reserved their rights to agitate the same in the suit. That is why when the Company Law Board insisted counsel to withdraw the suit, he avoided it by seeking a counter-assurance from the Company Law Board. The reference is to the following effect (page 427 supra):
"Shri Sarkar, time and again, raised the issue of the petitioner's pursuing parallel proceedings and had also prayed that unless otherwise the said suit is withdrawn, the petitioners should not agitate the same matter before us. Shri Ganesh wanted a categorical decision from us that these issues would be considered by us, as a precondition for withdrawing the suit. We decline to give a decision on this inasmuch as the petitioners' prerogative to choose a forum, i.e., either before us or before the High Court. Since the petitioner has not chosen to withdraw the suit since the suit, which is a comprehensive one, was filed prior in time, we are of the view that the matter relating to transfer and allotment of shares will have to be pursued in the High Court and we shall not consider the relief relating to setting aside the transfer/allotment of rights and additional shares or direction that the shares be transferred to the petitioner."
In the reply filed by respondents Nos. 2,5 and 6 in C.S. No. 1503 of 1993, they have pointed out that the petitioner was seeking more or less the same relief as claimed in the petition. A rejoinder has been filed to the reply filed on behalf of the appellants. In paragraph 14, it is stated as follows:
"...the reliefs claimed in the said suit are independent of the reliefs prayed for in the present petition. Both the proceedings are maintainable in law. The two proceedings are for different purposes. There is nothing inconsistent in maintaining the two proceedings. It is wrong and denied that the petitioner is in any way estopped from filing the present petition."
Even after making such a statement in the rejoinder, learned counsel, who appeared before the Company Law Board advanced arguments on the validity of transfer of shares. Even though the Company Law Board was ready to decide the issue, the advocate maintained that he would not withdraw the suit and wanted assurance by the Company Law Board categorically stating that the issue should be decided. I am not in a position to appreciate the request of the counsel for the petitioner. What prevented the petitioner from agreeing to withdraw the suit and inform the Board to decide the same. Some excuses are given in this court, relying upon the preliminary objection on the maintainability of the petition under section 398(1)(b) of the Act; But, however, the Board advised counsel for the parties to argue both on the preliminary objection as well as the merits to pass a composite order on the merits and only for that purpose they wanted to withdraw the suit. But counsel wanted a categorical decision and an assurance that the issue could be decided by the Board. When the Board was ready to decide the issue and advised the counsel on both sides, it is beyond even an ordinary man's comprehension as to why the advocate demanded an assurance from the Company Law Board. As I have already indicated, the petitioner has not chosen to move the Board with a definite case. It has moved the Board without prejudice to its rights to have a decision in the suit before the civil court. That is why, learned counsel who appeared before the Company Law Board was evasive. Therefore, as rightly pointed out by the Company Law Board, I am also not in a position to go into the question of validity of transfer of shares.
The jurisdiction of this court under section 10F of the Act is limited. It can go into the question of law arising out of such an order. When the Board has not discussed the issue in detail and given a decision on the transfer, this court acting as an appellate authority under section 10F of the Act, having limited jurisdiction with reference to law, cannot as a court of law embark upon the consideration of evidence with reference to the transfer of shares.
The examination of parties may be necessary because several allegations contained in the petition with reference to transfer of shares require the parties to be examined in the witness box. Further, the documents also have not been marked in this case before the Company Law Board. How many documents were actually produced and whether they are originals or copies; whether they are admissible or not under the Evidence Act, are all matters to be taken note of. Before this court, not even a single scrap of original document is produced, even though a number of volumes of papers are produced purporting to be the pleadings, documents etc.
One more vital aspect that prevents this court from going into the validity of transfer is the absence of the transferor parties, namely, Chhabria Investment Private Limited, Jaguar Investment and Orson Investment. They are the parties, who actually transferred the shares to Tracstar. When they are not before this court, this court cannot go into the validity of their transfer at the request of a third party, which would be in effect a futile exercise of the jurisdiction vested in this court. I am told that the aforesaid three companies are parties in the suit filed by the appellant in C. M.A. No. 1071 of 1998. In such circumstances, this court cannot go into the facts and evidence as a trial court and decide the validity of question of transfer of shares.
At this stage learned senior counsel Mr. Anil B. Divan, addressed his arguments at length that the Company Law Board and this court as an appellate court, have wider powers than the civil court. Learned senior counsel for the respondents A.L. Somayaji, C. Harikrishnan and Mr. Vedantham Srinivasan, on the other hand cited the decisions taking a contrary view.
The constitution of the Company Law Board is governed by section 10E of the Companies Act, 1956 The Act by itself has not provided legal qualifications or judicial experience for the members to be appointed. But however under the Company Law Board (Qualifications, Experience and Other Conditions of Service of Members) Rules, 1993, legal qualifications of judicial experience are prescribed for judicial members, nine members can be appointed to the Company Law Board, but the Board is empowered to constitute Benches from out of the nine members to discharge the functions of the Board. When such constitution takes place, whether it is mandatory to have a judicial member in the Bench or not, is not stated either in the provisions of the Act or in the rules mentioned above. It is possible that technical members themselves can constitute a Bench. The Bench constituted shall have powers of a court under the Civil Procedure Code, 1908, in respect of discovery and in respect of documents, enforcing" attendance of witnesses, compelling production of documents, examining the witnesses on oath, granting" adjournments and receiving evidence on affidavits. The Board while discharging its powers, shall be guided by principles of natural justice and shall also act at its discretion. As per section 10E(4) of the Act, no act done by the Company Law Board shall be called in question on the ground only of any defect in the constitution of the Board. This section gives wide powers to the Government to ignore the qualification of the members of the Board when they are selected. Therefore, it cannot be said that the Company Law Board or a Bench constituted by the Board can be said to be a civil court. Further, no finality is given to the orders passed by the Company Law Board. High Courts as well as the District Courts, in some case, are also having jurisdiction in respect of certain matters relating to the affairs of the company.
Learned senior counsel cited the following decisions:
(1) Sindhri
Iron Foundry (P.) Ltd., in re [1964] 34 Comp Cas 51(1 (Cal).
(2) Hungerford
Investment Trust Ltd. v. Turner Morrison and Co. Ltd. (1972] ILR 1 Cal 286.
(3) Thiruvalluvar
Velanmai Kazlwuam (P) Ltd. v. M. K. Seethai Achi [1988] 64 Comp Cas 304 (Mad).
(4) V.
Balaclurndran v. Union of India [1995] 76 Comp Cas 67 (Mad).
(5) Stridewell Leathers (P.) Ltd. v.
Bhankerpur Simbhoali Beverages (P.) Ltd. [1994] 79 Comp Cas 139 (SC).
(6) Vankamamidi Venkata Subba Rao v. Chatlapaili S. Ranganayakarnma [1997] II CTC 686 ; and
(7) K. Radhakrishnan v. Thirumani Asphalts and Felts (P.) Ltd. [1998] 91 Comp Cas 51 (Mad); [1998] 1 CTC 682.
In the first cited decision, a single judge of the Calcutta High Court has held that sections 397 and 398 should be liberally interpreted to remedy the mischief. At the same time, the learned judge has also indicated that only when the facts justify interference by the court in the exercise of its powers under the two sections and if the conditions prescribed by the sections are fulfilled, the court ought not to relegate the parties to protract costly litigation. Hence, only when the facts justify the interference and the conditions contained in the provisions are satisfied, the Company Law Board must decide the question brought before it. This decision is not helpful because there is no justification for the interference as the appellants have specifically reserved their right to have an adjudication before the civil court. Further, the said decision does not state anywhere the powers of the Company Law Board are wider.
In the second cited decision, a learned single judge of the Calcutta High Court has observed in paragraph 55 as follows:
"Serious and disputed questions of title and controversies, already the subject of pending legal proceedings, should not generally in my view be adjudicated in this summary proceeding under section 397 of the Companies Act. Section 397 is in the nature of a summary proceeding by way of an application. Serious questions have been raised in the controversies between the parties, for instance, (i) question, whether certain shares are forged or not, (ii) different judgments in pending suits from which appeals are going on and (iii) the 707 shares whether rightly or wrongly withheld which is the subject of criminal proceeding as well as lien suit proceedings."
In the third cited decision, Justice S.A. Kader, has taken the view that the civil court will have no jurisdiction, only in respect of matters falling exclusively within the jurisdiction of the court (company court) having jurisdiction under the Companies Act. Further, the learned judge has also held, at page 307, as follows:
"It is well-settled that every presumption should be made in favour of the jurisdiction of the civil court. In other words, the exclusion of jurisdiction of the civil court is not to be readily inferred. Such exclusion must be either explicitly expressed or clearly implied A provision of law ousting the jurisdiction of the civil court must be strictly construed and The onus lies on the party, seeking to oust the jurisdiction, to establish his right to do so "
I have already referred to the jurisdiction of the Company Law Board and found that the decision with reference to title as regards the shares is only incidental, while considering the application for rectification of the register. Hence, it cannot be said that the decision with reference to title is exclusively within the jurisdiction of the Company Law Board.
The fourth cited decision is a Division Bench decision of this court. The Division Bench has upheld the validity of the constitution of the Company Law Board in lieu of the courts on the ground that judicial review is provided. The Division Bench has also taken note of section 10F of the Companies Act, 1956, providing for the appeal to the High Court on question of law. From this, I am not in a position to hold that the Company Law Board has wider powers than the courts. In this judgment, the Bench has indicated that unless judicially trained independent persons of proven integrity are appointed to adjudicate suet; questions, one may get a feeling that there is an attempt to create not a parallel and independent mechanism for the purposes that were noticed by the experts namely, the Joint Parliamentary Committee and the Sachar Committee, but for unknown reasons to trammel the adjudicatory mechanism, and the litigants, who hitherto were entitled to move the courts, thus may get a feeling that the decision-making process might be affected by reason of dependence upon the executive. The Bench has also considered the Company Law Board Members Qualifications, Experience and Other Conditions of Service Rules, 1989, and also observed as follows (page 99):
"We, however, feel constrained to observe that the respondents shall be duty-bound to reframe the rules as observed above and such reframing must be completed within a framework of a time schedule. For the exercise in this behalf, a period of nine months from the date of receipt of a copy of this order will be reasonable and proper."
Pursuant to this only, we find that the new rules of the year 1993, have been framed. Even after the framing of the Rules in 1993, as indicated above, there is no mandatory provision to include the judicial member in the Bench to be constituted by the Company Law Board.
In the decision fifth cited above, it is stated that the original jurisdiction of the High Court in respect of such matters has been transferred to the Company Law Board formed under the newly inserted section 10E of the Companies Act. From this, it cannot be inferred that the powers of the High Court are vested with the Company Law Board.
In the decision sixth cited above, the apex court, has held that it was equally settled that when jurisdiction was conferred on a Tribunal, the courts examine whether the essential principles of jurisdiction had been followed and decided by the Tribunals leaving the decision on the merits 10 the Tribunal. It was also equally settled legal position that where a statute gives finality to the orders of the special tribunal, the civil court's jurisdiction must be held to be excluded, if there was adequate remedy to do what the civil court would normally do in a suit. Such a provision, however does not exclude those cases where the provisions of the particular Act have not been complied with or the statutory Tribunal had not acted in conformity with the fundamental principles of judicial procedure. Where there was an express bar of jurisdiction of the court, an examination of the scheme of the particular Act to find the adequacy or the sufficiency of the remedies provided may be relevant but was not decisive to sustain the jurisdiction of the civil court. Where there was no express exclusion, the examination of the remedies and the scheme of the particular Act to find out the intendment becomes necessary and the result of the inquiry may be decisive. In the latter case, it was necessary that the statute creates a special right or liability and provides procedure for the determination of the right or liability and further lays down that all questions about the said right or liability shall be determined by the Tribunal so constituted and whether remedy was normally associated with the action in civil courts or prescribed by the statutes or not. Therefore, each case requires examination whether the statute provides rights and remedies and whether the scheme of the Act was that the procedure provided would be conclusive and thereby excludes the jurisdiction of the civil court in respect thereof.
The aforesaid statement of the apex court has left open the question of finality to be decided depending upon the scheme of the Act. As regards the position relating to the title to shares, sub-section (7) of section 111 of the Act, reads as follows:
"On any application under this section, the Company Law Board—
(a) may decide any question relating to the title of any person who is a party to the application to have his name entered in, or omitted from, the register;
(b) generally, may decide any question which it is necessary or expedient to decide in connection with the application for rectification."
The expression used in the above sub section is "may". That itself is an indication that Parliament decided the decision of title relating to the shares should be incidental. Further, as regards title, it is well known that the decision by the civil court is always preferable. As indicated by the Supreme Court, there is no implication in section 10E or in any other sections of the Companies Act to exclude the jurisdiction of the civil court.
In the decision seventh cited, a learned single judge of this court has held that the Companies Act does not bar jurisdiction of the civil courts in respect of matters which are expressly made subject to the jurisdiction of the company court. The learned judge has considered a number of decisions and has held in paragraph 11 as follows (page 34 of 91 Comp Cas.:
"The enactment of a special statute like the Companies Act does not have the effected of barring the jurisdiction of the civil court unless the statute expressly prohibits the jurisdiction of the civil court in relation to all matters arising under the statute or the scheme of the statute is such that such prohibition is necessarily to be implied. There is no provision in the Act expressly barring the jurisdiction of the civil court with respect to all matters arising under the Act. The bar of jurisdiction is implied and is in respect of some matters only."
In this case, the learned judge was concerned with the scope of section 283 of the Companies Act. The question involved was whether the director of the company was validly removed or not? The applicant in that case moved the company court for declaration that he has not vacated the office. The question was whether the petitioner ought to have moved the Company Law Board or the company court? After considering the provisions, the learned judge took the view that the company court had jurisdiction to maintain the company petition. The question in the said case was not whether a civil suit can be maintained with reference to a matter which has to be adjudicated by the Company Law Board.
We have already seen that in paragraph 55 in Hungerford Investment Trust Ltd. v. Turner Morrison and Co. Ltd. [1972] ILR 1 Cal 286 there is a statement that section 397 is in the nature of a summary proceeding by way of an application. On a consideration of the aforesaid decisions, I am not in a position to agree with counsel for the appellants that jurisdiction of the Company Law Board is very wide and serious dispute with reference to title has to be decided only by the Company Law Board and the civil court cannot adjudicate upon such questions.
Senior counsel, Mr. Anil B. Divan, further contended that if a decision is rendered by the Company Law Board on the question of validity of transfer of shares, it will operate as res judicata and the parties will be bound by the same. Therefore, there will be no necessity for the civil court to go into this aspect. He cited the decision reported in Sulochana Amma v. Narayanan Nair [1994] 2 SCC 14 and Ashok Kumar Srivastav v. National Insurance Co. Ltd. [1998] 4 SCC 361. No doubt the apex court has held that a decision rendered by a court or Tribunal will operate as res judicata. In paragraph 5, the apex court has clearly stated that the principle of res judicata will apply to all proceedings either civil or criminal. It equally applies to Boards and tribunals other than civil courts. In the latter decision cited above also the apex court has reiterated the above said principle. But in the absence of transferors before the Company Law Board, how the decision of the Company Law Board will be binding upon them is beyond one's comprehension.
Another contention raised by learned senior counsel is that even if the Company Law Board finds that the petitioner failed to establish a case under sections 397 and 398(1)(b) of the Act substantially, justice can be done by it. Learned counsel cited the decision reported in Needle Industries (India) Ltd. v. Needle Industries Newey (India) Holding Ltd. [1981] 51 Comp Cas 743 ; AIR 1981 SC 1298. According to learned counsel, the purchase of shares of the three companies by Tracstar can be scrutinised in view of the violation of section 372 of the Act. All these contentions, I am not able to appreciate at all, as I have already indicated as above. The three companies, from which the shares were purchased were not before the Company Law Board or before this court. In their absence if a finding is given by the Company Law Board or this court, can it be said that it will be binding on those companies? Is it not open to those companies to contend that inasmuch as they are parties in the suit O.S. No. 10803 of 1996 pending on the file of the XIIth Assistant Judge, City Civil Court, Madras, orders in C.P. No. 16 of 1994 are not binding on them. Chhabria Investments Ltd., Jaguar Investments and Orson Investment Private Ltd., arc parties in the above suit as plaintiffs Nos. 2 to 5. They have produced 47 documents along with the plaint. The prayer in the plaint is that the transfer of 1,62,710 equity shares of Rs. 10 each bearing distinctive Nos. 2331316 to 2494025 held by Chhabria Investment Private Ltd., in Gordon Woodroffe Ltd., India, on May 25, 1991, to Tracstar Investment Private Ltd., is illegal and void and the benefit of the said shares shall continue to vest in Chhabria Investment Private Ltd. Similarly, with reference to the shares transferred by Jaguar Investment Private Ltd., with reference to 6,450 equity shares of Rs. 10 each, they are sought to be declared as illegal and void. Similar relief is claimed with reference to the 2,700 equity shares of Rs. 10 each transferred to Tracstar Investment Pvt. Ltd., by Orson Investment Pvt. Ltd., is null and void. Apart from the prayer it is further prayed that the shares mentioned above continued to be vested with those three companies. Injunction is also prayed for in the suit against the Tracstar from exercising the rights with reference to those shares.
Not only the transferor companies are not before this court and were not before the Company Law Board, but the petitioner in C.P. No. 16 of 1994 who is the first plaintiff in the said suit has specifically reserved its rights to have an adjudication in the suit in paragraph 87(b) of the petition.
Learned senior counsel for the appellants, A.L. Somayaji, C. Hari-krishnan and Mr. Vedantham Srinivasan, contended that after having filed a suit specifically claiming the relief with reference to the transfers made in favour of Tracstar by three companies, it is not open to the appellant in C. M.A. No. 1071 of 1998 to request the Company Law Board to go into the very same question in C.P. No. 16 of 1994. They further contended that the record date was extended to August 31, 1991. They also contended that there is an exemption granted under section 81 by virtue of the proviso contained in sub-section (4) of section 372 read with sub-section (1A) of section 81 of the Companies Act. It was also contended that the fiduciary duty in fact tantamounts to breach of trust and such a question can be decided finally and fully by the civil court. Mr. Vedantham Srinivasan raised the plea of estoppel by election of remedies. According to learned counsel, the relief claimed in the civil suit C.S. No. 1503 of 1993 and in C.P. No. 16 of 1994 are identical. Therefore, after having chosen a forum for relief and initiated proceedings, one cannot choose another forum for the very same relief. Such forum shopping is prevented by the principle of estoppel by election of the remedies. He cited section 115 of the Indian Evidence Act and also page 1151 of Sarkar on Evidence, in support of his contention. As I have already held that the Company Law Board was right in not trying to issue of the transfer of shares, I need not discuss the aforesaid contentions of learned counsel.
Learned senior counsel, Mr. Anil B. Divan, contended that the BIFR has to decide which of the group of management is to be entrusted and, therefore, the Company Law Board felt that they should not decide such issue at that stage and allow the respondent to disturb the present management especially when M.R. Chhabria/SWC have funded the company with substantial amount of nearly Rs. 4 crores. After having found so at the end the Company Law Board has permitted to convene the annual general meeting after December 31, 1998. Therefore, according to learned counsel, the Company Law Board has committed serious error of law. He also cited Tracstar Investments Pvt. Ltd. v. Deputy Commissioner of Commercial Taxes [1994] ILR 1181 (Kar) to show that in the said decision the Tracstar was commented upon about its financial position by the Karnataka High Court. As regards this aspect I have to only say that from the records placed before me, I do not think that the BIFR proceedings will reach a finality in the near future.
Already the BIFR has passed an order directing the board not to dispose of the assets of the company. Further, with reference to the schemes proposed by SWC and the Kishore Chhabria group have been considered and passed orders by the BIFR. Before the BIFR, the Tracstar group proposed a stand alone basis scheme, while the SWC group proposed a merger scheme for rehabilitation. On June 10. 1994, the BIFR passed an order accepting the scheme known as stand alone scheme proposed by the Tracstar group, but on appeal the AAFIR has set aside that order on October 10, 1995, and remanded the matter to the BIFR. It also directed to give opportunity to Tracstar Investment Pvt. Ltd., to formulate their scheme also. Again on January 1, 1996, the BIFR passed an order to finalise the rehabilitation report on the proposal received from SWC. On appeal, the Appellate Authority for Industrial and Financial Reconstruction, New Delhi, the appellate authority, directed the BIFR to take a decision on the rehabilitation scheme based on amalgamation of OWL with .SWC. The matter was taken to this court by way of W. P. Nos. 5278 of 1996 and 5279 of 1996. On April 29, 1997, a learned single judge of this court has set aside the order dated March 19. 199b, passed by AAIFR on May G, 1997, and directed the BIFR to consider the proposal of Tracstar also. Thereupon W. A. Nos. 631 to 634 of 1997 were preferred. In C.M.P. Nos. 7228 to 7231 of 1997 a Division Bench of this court directed the BIFR to go without prejudice to the rights and contentions of the parties, but there shall not be any final order pending further order in the writ appeals. Subsequent to the order of the Bench, the BIFR. directed the operating agency to consider the proposal of SWC and GWL and submit a report in four weeks. And again an appeal was preferred against the said order to the AAFIR. The appeals were dismissed. Then W.P. No. 10881 of 1998 and another writ petition were filed in the High Court. Interim stay has been granted and it has been extended on August 28, 1998. Therefore, in my view, the Company Law-Board was right in giving a direction to convene the holding of the annual general meeting.
The relief claimed in C.P. No. 16 of 1994 is to direct the Tracstar Investments and Shoe Specialities to transfer their respective holding to GWL, UK or its nominees without prejudice to the rights and contentions of the petitioners and others supporting the petitioner in the other proceedings pending. This is the prayer (b) in paragraph 126 of the petition. Even here, the petitioners are very particular to get their rights adjudicated by the civil court. Their intention is clear that final adjudication has to come from the civil court and the relief claimed in the petition, C.P. No. 16 of 1994 is temporary.
If the civil court finally decides the issue with reference to the shares and the petitioner succeeds in the suit, it will be automatically entitled to have the relief granted. Even if the annual general meeting is convened and there is a change of management of the company as result of the decision taken in the annual general meeting, that will be subject to the result of the suit. Therefore, there is nothing wrong in the convening of the annual general meeting for which a direction has been issued by the Company Law Board. Further, the proceedings before the BIFR have not reached the stage of section 13 of the Sick Industrial Companies (Special Provisions) Act, 1985. No scheme has been approved, only when the BIFR sanctioned scheme it shall be binding on the company and the shareholders, etc. Further, the BIFR can fix a date for the enforcement of the scheme. As per section 17(2) of the Sick Industrial Companies (Special Provisions) Act, 1985, an opportunity should be given to the board of directors to make the net worth of the company exceed the accumulated losses. All along the company has been under the control of the present management. It cannot be ruled out that if by virtue of convening the annual general meeting a new set of board of directors is elected, it is possible that new board is likely to make a request to the BIFR to give them an opportunity to make the net worth of the company exceed the accumulated losses. It is worthwhile to mention here that as per section 18(3)(a), the scheme was prepared by the operating agency and the Board has to consider the objections of the company before the scheme is sanctioned.
Learned senior counsel contended that the refusal of the Company Law Board to decide the question of the validity of transfer of shares on the grounds of violation of the provisions contained in section 373 of the Act and breach of fiduciary duty and failure to exercise jurisdiction is unfair and, therefore, this court can interfere with the order passed by the Company Law Board and decide the question of validity of transfer of shares in favour of Tracstar. After making such a submission in the beginning, later on learned counsel contended that this court as court of appeal has to correct only the error of law and not facts. Therefore, this court has to accept the finding of the Company Law Board and then grant the relief which the appellant is entitled to. Therefore, learned senior counsel, Mr. Anil B. Divan, relied on the following findings of the Company Law Board : (1) "that the position has changed and Tracstar and SSPL are under the control of Kishore Chhabria, which means the control of 39 per cent. of shares in GWL. That this change in control, it is also apparently clear that the controlling interest in GWL has come to Kishore Chhabria, in other words, the control is by both Kishore Chhabria and SWC". (2) that "we should not direct the board at this stage and allow the respondents to disturb the present management especially when MRC/SWC have funded the company with substantial amount of nearly Rs. 4 crores. We consider inappropriate at this point of time to allow a change in the management which may in all probability alienate MRC/SWC from the revival process which would be in the interest of the company". Learned senior counsel repeatedly contended that Kishore Chhabria has committed breach of his fiduciary duty and, therefore, the Company Law Board ought to have gone into that question, and granted the reliefs prayed for in the petition. As regards the finding with reference to control and ownership of shares by the Kishore Chhabria group, the finding is based on the fact that Tracstar and SSPL are under the control of 39 per cent. of shares in GWL. One group as per the figures after the transfer as on May 31, 1995, the position is that GWL, UK is holding 39.23 per cent. of shares. As on August 31, 1998, the shareholding pattern of the company is as follows: GWL, UK 24.90 per cent., Tracstar 24.91 per cent. SSPL 12.73 per cent., Trident 6.84 per cent. others 6.84 per cent. Tracstar and SSPL are holding only 37.64 per cent. of shares. They are not holding 51 per cent. Only when such is the position, it can be asserted that Tracstar and SSPL are in a position to control the company. No authority was cited before me to show that simply because one minority group is having larger shares than the other minority group, it can be assumed that the minority group having larger shares to be in control. Such a presumption is possible ii the group is owning somewhere near 50 per cent. or so. Similarly no authority was also cited before me to show in all cases invariably the minority group having more shares than the other minority group will be able to succeed in getting its members alone elected to the board of directors, it all depends upon how the minority groups are able to canvass and gain support of other large number of shareholders. In this case, itself there is an example that when Kishore Chhabria contested for the post of director, he could not succeed. This is admitted in the petition itself. In paragraph 83 of the petition, C. P. No. 16 of 1994, the following statement is found:
"The term of Kishore Chhabria as additional director of Gordon Woodroffe (India) came to an end on August 14, 1992, i.e., on which date the 67th annual general meeting of Gordon Woodroffe (India) was held, Kishore Chhabria was not elected as a director at the said annual general meeting."
This has taken place after the purchase of shares by Tracstar and SSPL in GWL, India. In my view, the Company Law Board has made only an observation and it has not given a finding on consideration of all the relevant facts and circumstances. As regards the investment of about Rs. 4 crores by MRC/SWC for the purpose of revival scheme, there is also a finding by the Company Law Board in paragraph 25 of the order, which reads thus:
"While as per the orders of the BIFR, Tracstar has deposited a sum of Rs. 1 crore, a group company of MRC has remitted a similar amount on behalf of SWC."
That apart, no details have been given as to how the amount of Rs. 4 crores were invested by MRC/SWC. The statement that MRC/SWC have funded sufficient amount of nearly Rs. 4 crores is also not a finding arrived at after discussion of evidence. It also appears to be only an observation. So, the contention of learned counsel for the appellant that the Company Law Board has given a specific finding on the aforesaid facts is not correct.
Based on the question of breach of fiduciary duty, it is lastly contended that K.R. Chhabria's continuing in Tracstar, which in turn will control GWL, is not in the interest of the company. In the petition in paragraph 36, it is stated that Kishore Chhabria was in the position of a fiduciary, and trustee both in law and in fact, of SWC as well as the other companies in the group and concerns wherein Shaw Wallace group had interest and/or involvement including Gordon Woodroffe (India). Kishore Chhabria being a trustee and in the dominant position was required to perform his fiduciary duties and obligations scrupulously, and protect, preserve, maintain and develop the business interest, assets and properties of Shaw Wallace and the companies in the group and the opportunities available to the said companies in their best interests.
Similarly, paragraphs 37 and 38 of the petition contain statements about fiduciary duty. But the specific instances are not mentioned, i.e., how he committed the breach of trust or the fiduciary duty reposed in him by the other group of companies of GWL. That apart, the breach of fiduciary duty is a question of fact that has to be established both by documentary and oral evidence. Breach of trust or fiduciary duty cannot be established without examination of the parties alleging and denying such allegations. What is mainly stated is that when the shares of GWL were transferred to Tracstar and SPL, Kishore Chhabria acquired control over these two companies and they were removed from the control of SWC. SWC in turn was in control of GWL. It is no doubt true that Kishore Chhabria was the managing director of SWC till April 25, 1992. It is also stated in the petition that from April 25, 1992, he ceased to be the managing director of SWC by virtue of the application of section 299 of the Act read with section 293 of the Act, i.e., on account of failure to disclose his conflicting interest.
The allegation of breach of fiduciary duty is made only after M.R. Chhabria went out of the family of Chhabrias, on account of a dispute in April, 1992. At that time M.R. Chhabria parted company with his father, uncle and brother, viz., M.D. Chhabria, R.D. Chhabria and K.R. Chhabria. He went to the press regarding the family dispute. Thereafter, notice came to be issued on April 25, 1992, by the father and uncle against M.R. Chhabria, if M.R. Chhabria had continued to be with the father, uncle and brother, the question of breach of trust or fiduciary duty would not have arisen.
Mere breach of fiduciary duty resulting in the suffering of the interest of the company or public interest is not a ground for calling for interference by the Company Law Board or this court, under section 398(1)(b) of the Companies Act, 1956. As already indicated, there must be material change in the management or control of the company. However, as the appellants' counsel repeatedly urged this point, I chose to go into that question also.
Learned senior counsel Mr. Anil B. Divan, relied upon the following decisions:
(1) Cranleigh Precision Engineering Ltd. v. Bryant [1964] 3 All ER 289 (QBD);
(2) Industrial Development Consultants Ltd. v. Cooley [1972] 2 All ER 162; and
(3) Delhi Development Authority v. Skipper Construction Co. (P.) Ltd. [1996] 4 SCC 622; [1997] 89 Comp Cas 362.
Apart from the passages in pages 118, 125, 126 and 129 of Gower's Principles of Modern Company Law, fifth edition, the passages cited show that a group of companies managed by a group of persons or individuals must be treated as a single economic unit. At page 118, it is stated as follows:
"Nevertheless, it has long been recognised that in relation to financial disclosure, the phenomenon cannot be ignored if a 'true and fair' view of the overall position of the group is to be presented and that accordingly when one company (the parent or holding company) controls others (the subsidiary and sub-subsidiary companies) the parent company must present group financial statements as well as its own individual statements."
At page 126, the statement is to the following effect:
"Admittedly there is no general principle that all companies in a group of companies are to be regarded as one; on the contrary the fundamental principle is unquestionably that 'each company in a group of companies ... is a separate legal entity possessed of separate rights and liabilities. Nevertheless, it was argued, the court will, in appropriate circumstances, ignore the distinction between them, treating them as one. For this proposition a number of authorities were cited."
After considering a number of judgments, at page 129, it is stated as follows:
"It seems, therefore, that in aid of interpretation the court may (and indeed should) have regard to the economic realities in relation to the companies concerned."
To find out whether the group is a single economic unit or not it is stated at page 125 as follows:
"Nevertheless, there have been exceptional cases in which the courts have felt able to lift the veil and until recently there were perhaps signs of a greater willingness to do so."
Again at page 126 it is stated as follows:
"The House of Lords had no hesitation in rejecting this argument since 'every step taken by (the subsidiary) was determined by the policy of (the parent) and the section warrants the courts in looking at the business realities of the situation and does not confine them to a narrow legalistic view."
No doubt, the aforesaid statements indicate that a group of companies controlled by a controlling company can be treated as a single economic unit for the purpose of business of the company and every action taken by the controlling company must be in the interest of all the shareholders of the group of companies
Cranleigh Precision
Engineering Ltd.. v. Bryant [1964] 3 All ER 289 (QBD) is a case where one Bryant, an engineer and an inventor of above
ground swimming pool, with the knowledge of the right type of the clamping
strip to use, how to define to a plastic manufacturer what was required and
which manufacturer would readily supply the strip; the method, purpose and
particular size and shape, etc. was the managing director of the
plaintiff-company. When the plaintiff-company applied for a patent for
invention of above ground swimming pool, the plaintiff-company's patent agents
communicated the information of a prior grant of British letters patent for a
foreign invention of a similar swimming pool. This information was concealed by
Bryant and the failed to disclose the same to the company's board.
Specification of the plaintiff's application was not published. Bryant left the
plaintiff-company and started the defendant-company. In the suit filed by the
plaintiff company for among other reliefs, an injunction to restrain the
defendant company from making use of confidential information obtained by
Bryant whilst employed by or acting as an officer of the plaintiffs concerning
the design, manufacture and distribution of their swimming pools and from
making use of the Bisehoff patent, Roskill J., of the Queen Bench Division held
at page 302 as follows:
"I have no doubt that Bryant acted in grave dereliction of his duty to the plaintiffs in concealing from the plaintiffs' board the information which he received from the plaintiffs' patent agents, and in taking no steps whatsoever to protect the plaintiffs against the possible consequences of the existence and publication of the Bischoff patent. I also have no doubt that Bryant acted in breach of confidence in making use, as he did as soon as he left the plaintiffs, of the information regarding the Bischoff patent which he had acquired in confidence and about its various effects on the plaintiffs' position, for his own advantage and for that of the defendant-company."
Industrial Development Consultants Ltd. v. Cooky [1972] 2 All ER 162 is a case where the defendant appointed as a managing director in order to use contracts in gas industry and to secure contracts from public under takings, was offered contracts by the Gas Board in respect of depots to the defendant in private capacity as architect. The defendant failed to inform the company about the offer. The defendant secured release from the company's service by misrepresenting his state of health. Then he secured the contract from the Board for himself. In this case also the very same learned judge, Roskill J., at page 175, held as follows:
"The defendant had one capacity and one capacity only in which he was carrying on business at that time. That capacity was as a managing director of the plaintiffs. Information which came to him while he was managing director and which was of concern to the plaintiffs and was relevant for the plaintiffs to know, was information which it was his duty to pass on to the plaintiffs because between himself and the plaintiffs a fiduciary relationship existed as defined in the passage I have quoted from Buckley. 13th Edition, pages 876-77 and, indeed, in the speech of Lord Cranworth L.C. in [1854] 2 Eq. Rep. 1286."
In Delhi Development Authority v. Skipper Construction Co. (P.) Ltd. 11996] 4 SCC 622; [1997] 89 Comp Cas 362. at paragraph 28, the apex court has ruled as follows (page 381):
"The concept of corporate entity was evolved to encourage and pro mote trade and commerce but not to commit illegalities or to defraud people. Where, therefore, the corporate character is employed for the purpose of committing illegality or for defrauding others, the court would ignore the corporate character and will look at the reality behind the corporate veil so as to enable it to pass appropriate orders to do justice between the parties concerned."
The English cases cited above show that a person who was in control of a company must not gain an advantage for himself by securing a benefit for himself without making the benefit available to the company, which he is controlling. The emphasis is that an advantage or benefit must have been gained and the person has secured the benefit or the advantage by concealment of certain facts or knowledge which he acquired not in his individual capacity but as acting on behalf of the company. In the last cited decision the apex court has held that such acquiring benefit for himself by such a person tantamounts to committing fraud.
In the present case what is the position? The allegation is that before Tracstar acquired shares in GWL, Kishore Chhabria who was acting as managing director of Shaw Wallace group company failed to disclose that Tracstar came to be under his control. But hitherto it remained under the control of the SWL group. If he had disclosed the fact that Tracstar came to be under his exclusive control and was no longer in the group, the shares would not have been transferred to Tracstar.
GWL was already a sick company. It was a sinking company. There are a lot of difficulties in reviving it as is evidenced from the record. The revival process has been prolonging and nobody was certain that the revival could be achieved in the near future. In such circumstances if a person acquires shares even assuming it to be so for the sake of argument, can it be said that he has gained the benefit or advantage. Such a person has really taken a risk.
That apart, the mere failure to disclose certain facts cannot tantamount to breach of trust. Some amount of mental state of affairs has to be spelt out from the conduct of the person, i.e., such a failure to disclose must be a mala fide act on the part of the person who owed a duty to disclose. This is made clear from the statement of the Supreme Court which used the word "defraud". There must be an intentional violation on the part of the person to gain advantage for himself and to deprive that advantage to other shareholders or members of other group of companies. To my knowledge there is no allegation that the failure on the part of Kishore Chhabria to disclose that Tracstar and SSPL came to be under his control was deliberate or wilful.
Unless the act by itself conveys the element of mala fides on the part of the person who acted in a particular circumstance mala fides cannot inferred. Sometimes mala fides will be reflected from the conduct or from the records available relating to the conduct of the person in a particular case.
In this case, one V. Subramanian has sworn to the affidavit of verification. He has been authorised to do so as it is mentioned in the affidavit. He had no direct knowledge as to why or how M.R. Chhabria and others gained the impression that Kishore Chhabria failed to disclose that he got control of Tracstar and SSPL before the two companies acquire share in GWL. Further, the statements, in C.P. No. 16 of 1994 are argumentative and do not appear to be a pleading as contemplated under the Civil Procedure Code. No person has been examined in this case to show that Kishore Chhabria failed to disclose the position of Tracstar and SSPL deliberately, wilfully and with any mala fide intention. Therefore, it is very difficult to infer that Kishore Chhabria acted with any intention of defrauding the other members of the board of directors of SWL or the shareholders of that company. Therefore, I am not in a position to hold that Kishore Chhabria committed any breach of fiduciary duty in this case and on that account, his continuing in the control and management of GWL through Tracstar is not in the interest of the company.
On a consideration of the relevant facts and circumstances of the case, I am of the view that C.P. No. 16 of 1994 is not maintainable and the prayer in it cannot be granted. However, it is made clear that it is open to the appellants to have a decision with reference to the transfer of shares in the civil court in O.S. No. 10803 of 1996, which they have already instituted, and thereafter move the Company Law Board for appropriate relief, since, in my view, the validity of transfer of shares can be fully and finally adjudicated in the suit. Hence, the appeals preferred by the appellants are dismissed.
The Company Law Board has held that the board of management of GWL should not be disturbed pending proceeding's before the BIFR. But at the same time it has also held that corporate democracy should prevail. As I have already indicated, the proceedings before the BIFR have not reached the stage of section 18 of the Act. The schemes proposed have not been accepted. Only when the schemes are accepted and declared, it will be binding on the board as well as the shareholders of the company. In the circumstances, there is nothing wrong in allowing the corporate democracy to prevail. Hence, the direction that annual general meeting should be held only after December 51, 1998, is set aside. The appeals preferred by the respondents are allowed to the extent of the prayer for setting aside the direction of the Company Law Board that the shareholders should be allowed to exercise their rights in electing the board of directors of the company in the annual general meeting to be held within three months after December 31, 1998. The shareholders of the company are entitled to exercise their right in electing the board of directors and it is for the company to hold the annual general meeting at any time, in accordance with the procedure contemplated by the provisions of the Companies Act, 1956. However, excepting to this extent the other prayers contained in C.P. No. 45 of 1993 cannot be granted. If the annual general meeting is conducted and the board of directors are elected, it is for them to seek appropriate relief in appropriate forums. Since the petitioners in C.P. No. 45 of 1993 apprehend that the annual general meeting cannot be conducted in a fair and proper manner, they are given the liberty to obtain suitable direction from the Company Law Board for appointment of some official to converse and conduct the annual general meeting. The petition is allowed to this extent. Relief No. 3 cannot be granted because the matter is pending adjudication in civil court. As regards relief No. 2, when the board of directors is constituted in the annual general meeting to be conducted, it would be open to them to take appropriate steps for recovery of properties by initiating appropriate proceedings. The other reliefs claimed are not granted. In the result, C.P. No. 45 of 1993 is allowed partly.
In the result, C.M.A. Nos. 1207 to 1210 and 1149 of 1998 are allowed in part as indicated above. C.M.A. Nos. 1071 to 1073 of 1998 are dismissed. However, there will be no order as to costs in all the appeals. Consequently C.M.P. Nos. 10835 and 10836 of 1998 are dismissed.
Punjab & Haryana High
Court
Companies Act
[2003]
43 scl 501 (punj. & Har.)
v.
Vijay Kumar Chopra
J.S.
Khehar and V.K. Bali, JJ.
Company Appeal No. 2 of 2001
April 24,
2002
Section 10F of the Companies Act, 1956, read with section 8 of the
Arbitration and Conciliation Act, 1996 - Company Law Board - Appeals against
orders of - Pending applications filed by respondents under sections 397 and
398 before CLB, appellants filed application under section 8 of Arbitration Act
for reference to arbitrator - Whether since CLB did not adjudicate dispute
between parties under sections 397 and 398, it could not be regarded that in
disposing of application filed under section 8 of Arbitration Act, CLB was
exercising jurisdiction vested in it under Companies Act - Held, yes - Whether
CLB while deciding aforesaid application of appellant acted as judicial
authority under section 8 of Arbitration Act - Held, yes - Whether when an
issue is stated to be referred to an established court ‘without more’, ordinary
incidence of procedure of that court will get attached including general right
of appeal from its decision - Held, yes - Whether ordinary incidence of
procedure including right of appeal flowing out of rule of attachment can be
excluded, expressly or impliedly, by referring statute - Held, yes - Whether
remedy of appeal against an order passed by ‘judicial authority’ while deciding
claim for reference to an arbitrator made under section 8 of Arbitration Act is
excluded - Held, yes
The respondents filed a company petition before the Company Law Board
(CLB) under sections 397 and 398 praying for relief on account of alleged
oppression/mismanagement at the hands of the appellants. During the course of
the proceedings before the CLB, the appellants sought permission of the CLB to
move an application under section 8 for reference of the controversy raised by
the respondents in company petition to arbitration. The CLB while deciding the
application, concluded that firstly, there was no binding arbitration agreement
between the parties and, secondly, reference under section 8 could be sought by
a party only if it sought reference before submitting its first statement of
defence which was not so in the instant case as the appellants had already
placed before the CLB their first statement of defence and, accordingly, the
CLB declined to refer the dispute to arbitration.
On appeal:
Undoubtedly, when the petition was filed by the respondents before the
CLB, the CLB was exercising jurisdiction under the provisions of sections 397
and 398. However, when the appellants moved an application under section 8
before the CLB, the CLB while deciding the said application acted in its
capacity as ‘judicial authority’ under section 8. There could be no doubt that
the impugned order determined rights flowing out of the provisions of the 1996
Act and not the provisions of the Companies Act, 1956. Since the CLB did not
adjudicate the dispute between the parties under sections 397 and 398, it was
not possible to accept the contention advanced by the appellants that in
disposing of the application filed under section 8 the CLB was exercising
jurisdiction vested in it under the Companies Act. [Para 9]
The conclusion had to be, that the right to prefer an appeal against an
order passed by the CLB in its capacity as ‘judicial authority’ while deciding
an application filed under section 8 must be searched for, from within the
provisions of 1996 Act, more so, because the impugned order was not referable
to any provision of the Companies Act. [Para 9]
No merit was found in the submission relating to grant of preference to
the statute laying down substantive law over a statute laying down adjective,
incidental, supplemental or procedural law. There is no conflict between the
provisions of the Companies Act, and the Arbitration and Conciliation Act and,
therefore, the question whether the Companies Act, would have an overriding
effect over the provisions of the Arbitration and Conciliation Act, does not
arise. In order to ascertain substantive rights, reference must be made to the
statute laying down substantive rights; and likewise, for determination of
procedural rights, one must resort to the enactment laying down the procedure.
In the absence of conflict between the two, it is unnecessary to determine
which of the two would have overriding effect over the other. [Para 10]
When an issue is stated to be referred to an established court ‘without
more’, the ordinary incidence of procedure of that court would get attached
including the general right of appeal from its decision; secondly, the ordinary
incidence of procedure including the right of appeal flowing out of the rule of
attachment can be excluded, expressly or impliedly, by the referring statute.
[Para 15.3]
The 1996 Act, is an exhaustive and comprehensive code on the law of
arbitration in India, and section 5 of the 1996 Act, makes it exclusive on
matters contained in Part I of the 1996 Act, by excluding intervention of
‘judicial authorities’ on matters regulated therein through a non obstante
clause. [Para 38.1]
Section 37 of the 1996 Act, excludes, by use of the words ‘and from no
other’, the remedy of appeal against an order passed by a ‘judicial authority’
while deciding the claim for reference to an arbitrator made under section 8.
[Para 38.2]
On a conjoint reading and comparison of sections 8 and 37 on the one
hand, with sections 54 and 57 of the 1996 Act on the other, the legislative
intent to exclude the remedy of appeal against an order passed by a ‘judicial
authority’ while deciding a claim for reference to an arbitrator under section
8, is clearly in the affirmative. [Para 38.3]
The appeal was dismissed, accordingly, as not maintainable.
Vijay Kumar Chopra v. Hind Samachar Ltd. [2001] 2 Comp. LJ 133 (CLB -
New Delhi) (Para 3), Moulvi Ali Hossain Mian v. Rajkumar Haldar AIR 1943 Cal.
417 ((Para 7), India Hosiery Works v. Bharat Woollen Mills Ltd. AIR 1953 Cal.
488 (Para 7), K. Sasidharan v. Kerala State Film Development Corpn. [1994] 4
SCC 135 (Para 7), Allahabad Bank v. Canara Bank [2000] 4 SCC 406 (Para 11),
Damji Vaiji Shah v. Life Insurance Corpn. of India AIR 1966 SC 135 (Para 11.1),
National Telephone Co. Ltd. v. Postmaster General [1913] AC 546 (HL) (Para 14),
Adaikappa Chettiar v. Chandresekhara Thevar AIR 1948 PC 12 (Para 14.1),
National Sewing Thread Co. Ltd. v. James Chadwick & Bros. Ltd. AIR 1953 SC
357 (Para 14.2), Vanita M. Khanolkar v. Pragna M. Pai AIR 1998 SC 424 (Para
14.3), State of Orissa v. Commissioner of Land Records & Settlement AIR
1998 SC 3067 (Para 14.4), Orma Impex (P.) Ltd. v. Nissai Asb Pte. Ltd. [1999] 2
SCC 541 (Para 15.2), Kinetic Engg. Ltd. v. Unit Trust of India AIR 1995 Bom.
194 (Para 16), Union of India v. Mohindra Supply Co. AIR 1962 SC 256 (Para
19.1), Upadhyaya Hargovind Devshankar v. Dhirendrasing Virbhadrasinhji Solanki
AIR 1988 SC 915 (Para 21), N.P. Ponnuswami v. Returning Officer, Namakkal
Constituency [1952] SCR 218 (Para 21), Shah Babulal Khimji v. Jayaben D. Kania
AIR 1981 SC 1786 (Para 21), National Thermal Power Corpn. v. Singer Co. [1992]
3 SCC 551 (Para 22), Sundaram Finance Ltd. v. NEPC India Ltd. AIR 1999 SC 565
(Para 22), Smt. Kalpana Kothari v. Smt. Sudha Yadav [2002] 1 SCC 203 (Para
22.1), Thakur Das v. State of Madhya Pradesh [1978] 1 SCC 27 (Para 25), Konkan
Railway Corpn. Ltd. v. Mehul Construction Co. [2000] 7 SCC 201 (Para 25), Modi
Korea Telecommunication Ltd. v. Appcon Consultants (P.) Ltd. [2000] Suppl. Arb.
LR 618 (Cal.) (Para 25), Union of India v. Mohindra Supply Co. AIR 1962 SC 256
(Para 27.3), Mohindra Supply Co. v. Governor General in Council AIR 1954 Punj.
211 (Para 27.3), State of West Bengal v. Gaurangalal Chatterjee [1993] 3 SCC 1
(Para 28), Gauri Singh v. Ram Lochan Singh AIR 1948 Pat. 430 (Para 28.1), S.N.
Srikantia & Co. v. Union of India AIR 1967 Bom. 47 (Para 28.1), Surekha
Steel Ltd. v. Union of India [1998] CWN 287 (Para 28.1) and Konkan Railway
Corpn. Ltd. v. Rani Construction (P.) Ltd. 2002 JT (1) SC 587 (Para 32.1).
A.S. Chandhok, H.L. Tikku, Santosh Paul, Ms. Manmeet Arora, Ms. Sandeepa
Trehan, Kamal Nijhawan and Sumeet
Goel for the Appellant. Arun Kathpalia, S.N. Mukherjee and Ms.
Jaishree Thakur for the Respondent.
Khehar, J. - The
respondent (herein) on the basis of a dispute, which had arisen between them
and the appellants, filed Company Petition No. 76 of 1999 before the Company
Law Board (‘CLB’), Principal Bench, New Delhi, under sections 397 and 398 of
the Companies Act, 1956 praying for relief on account of alleged
oppression/mismanagement at the hands of the appellants. During the course of
the proceedings before the CLB, the appellants, on 24th August, 1999, sought
permission of the CLB to move an application under section 8 of the Arbitration
and Conciliation Act, 1996 (hereinafter referred to as ‘Arbitration Act, 1996’)
for reference (of the controversy raised by the respondents in Company Petition
No. 76 of 1999) to arbitration. On the aforesaid request, the CLB granted the
appellant time up to 4th September, 1999 to move an application under section 8
of the Arbitration Act, 1996. No such application was, however, filed within
the allotted time. After all efforts made by the parties to settle their
dispute amicably during the subsistence of proceedings before the CLB proved
futile, the appellants, on 16th May, 2000, presented an application under
section 8 of the Arbitration Act, 1996, before the CLB. It is not necessary for
the purposes of this order to refer to any further details of the proceedings
before the CLB.
2. The CLB Principal Bench, New Delhi, while
deciding the application moved by the appellants (herein) under section 8 of
the Arbitration Act, 1996, vide its order dated 8th December, 2000, arrived at
two conclusions; firstly, that there was no binding arbitration agreement
between the parties in the instant case satisfying the provisions of section 7
of the Arbitration Act, 1996; and, secondly, that reference under section 8 of
the Arbitration Act, 1996, can be sought by a party only if it seeks reference
before submitting its first statement of defence on the substance of, the
dispute, and since the application for reference of the dispute (to arbitration
and under section 8 of the Arbitration Act, 1996) had been filed by the
appellants after they had placed before the CLB their first statement of
defence on the substance of the dispute (by way of an interim reply, and also,
by way of interlocutory applications), the application was not sustainable. On
the aforesaid two counts, the CLB declined to refer the dispute to arbitration.
3. Dissatisfied by the order passed by the CLB,
Principal Bench, New Delhi, dated 8th December, 2000 Vijay Kumar Chopra v. Hind
Samachar Ltd. [2001] 2 Comp. LJ 133 (CLB), the appellants (herein) have
challenged the same through the instant appeal. On 22nd August, 2001, this
court passed the following order:
“Having heard learned counsel, appearing for the parties, it appears to
us that the questions of law involved in the case will require detailed
hearing. Admit. Meanwhile, stay further proceedings before the Company Law
Board. List the case for hearing on 22nd October, 2001.”
4. It was brought to the notice of this court
during the course of subsequent hearings that the order dated 22nd August, 2001
(extracted above) had been challenged by the respondents (herein) by filing a
petition for special leave to appeal before the Supreme Court. Accordingly,
further proceedings in the instant appeal were deferred sine die to await the
decision of the Supreme Court, so as to: “be guided in the matter of hearing of
the main appeal by such directions as may be given by the Supreme Court.”
On 19th November, 2001, during the course of hearing, the Supreme Court
passed an order expressing its desire that this court should hear objections as
to the maintainability of the appeal raised by the respondents (herein) and
also to hear the application seeking vacation/modification of the interim
directions issued on 22nd August, 2001. In its order, the Apex Court required
this court to dispose of the aforesaid two issues by a reasoned order. It is,
therefore, that this Bench was specially constituted to hear the instant
appeal.
5. Learned counsel have, thus in the first
instance, limited their submissions to the issue of maintainability of the
instant appeal and the continuation/vacation/modification of the interim order
dated 22nd August, 2001. Briefly stated, the contention of the learned counsel
for the appellants is that for an answer to the issue of jurisdiction,
reference must be made to the provisions of the Companies Act, 1956, whereunder
a remedy of appeal against an order passed by the CLB stands provided under
section 10F of the Companies Act, 1956. The contention of the learned counsel
for the respondents, on the other hand, is that the answer to the controversy
in respect of the issue of jurisdiction must emerge from the provisions of the
Arbitration Act, 1996, which exclude the remedy of appeal from an order passed
under section 8 of the Arbitration Act, 1996. Our first endeavour, therefore,
is to determine which of the two statutes is applicable to determine the
maintainability of the instant appeal.
6. Mr. A.S. Chandhok, learned senior advocate
representing the appellants (herein), seriously controverted the pleas advanced
by the learned counsel for the respondents, that for determining the
maintainability of the instant appeal, reference must be made to the provisions
of the Arbitration Act, 1996.
7. It is first submitted by learned counsel that
the impugned order dated 8th December, 2000 Vijay Kumar Chopra’s case (supra)
was passed by the CLB exercising powers vested in it under the Companies Act,
1996 and, therefore, in the search for a remedy of appeal, resort must be
confined to the provisions of the Companies Act, 1956. According to the learned
counsel, the Arbitration Act, 1996 is merely a procedural legislation for
enforcement of contractual obligations. It is pointed out that the Arbitration
Act, 1996 lays down an alternative procedure for settlement of disputes,
arising out of contractual obligations (under the Indian Contract Act, 1872) at
the option of the contracting parties. It is submitted that the Arbitration
Act, 1996 can, therefore, be described as an adjective legislation, which would
govern parties to a contract, who had agreed to subject themselves to
arbitration for the settlement of their disputes. Illustratively, on the same
analogy, reference is made to the connection between the Indian Contract Act,
1872 and the Specific Relief Act, 1963. In this behalf, it is submitted that
‘an agreement to sell’ flows out of the Indian Contract Act, 1872 (which is
describable as the substantive law), whereas the enforcement of ‘an agreement
to sell’ flows from the provisions of the Specific Relief Act, 1963 (which is
merely an adjectival, incidental, supplemental or procedure law). On the basis
of the aforesaid submission, it is contended that the Companies Act, 1956,
under which the respondents (herein) had approached the CLB, Principal Bench,
New Delhi for relief on account of alleged oppression and mismanagement at the
hands of the appellants under sections 397 and 398 of the Companies Act, 1956
must (on the aforesaid analogy), be treated as the substantive law. The
application moved by the appellants (herein) under section 8 of the Arbitration
Act, 1996 in the aforesaid proceedings must be considered to be a prayer made
by the respondents before the CLB, under a procedural/supplemental/adjectival
law. It is, therefore, the case of the appellants that the provisions of the
Companies Act, 1956 cannot be read subservient to the provisions of the
Arbitration Act, 1996. In order to further advance the aforesaid contention,
learned counsel for the appellants has placed reliance on Moulvi Ali Hossain
Mian v. Rajkumar Haldar AIR 1943 Cal. 417 wherein it has been held as under:
“...the Specific Relief Act embodies what in essence is adjective law and
the substantive law must be looked for elsewhere. In our judgment, the
substantive law, the foundation for specific relief provided for in section
27(b), Specific Relief Act, is to be found in para 2 of section 40, Transfer of
Property Act...” (P. 426)
Reliance has also been placed on India Hosiery Works v. Bharat Woollen
Mills Ltd. AIR 1953 Cal. 488 wherein the court observed as under:
“The Arbitration Act does not in fact purport of its own force to
restrict the contractual rights of parties, but only gives effect to
restrictions which they may choose to impose on themselves as regards the forum
to which their disputes shall be taken.”
In the same context, reference was also made to the decision rendered by
the Apex Court in K. Sasidharan v. Kerala State Film Development Corpn. [1994]
4 SCC 135 and the following observations made by the Apex Court were brought to
the notice of this court:
“The arbitration agreement is collateral to the substantial stipulation
of the contract. It is merely procedural and ancillary to the contract and it
is a mode of settling the disputes, though the agreement to do so is itself
subject to the discretion of the court. Arbitration is distinguishable from
other clauses in the contract. The other clauses set out the obligations which
the parties have undertaken towards each other binding them but the arbitration
clause does not impose on one of the parties an obligation towards the other.
It embodies an agreement of both parties with consensus ad idem that if any
dispute arises with regard to the obligations undertaken therein which one
party has undertaken towards the other, such a dispute shall be settled by a
tribunal of their own constitution.”
Having laid the aforesaid foundation, learned counsel for the appellants
submitted that the CLB, Principal Bench, New Delhi, vide its order dated 8th
December, 2000 Vijay Kumar Chopra’s case (supra) had disposed of an application
filed by the appellants during the course of the proceedings in Company
Petition No. 76 of 1999 (under sections 397 and 398 of the Companies Act, 1956)
and as such, the order passed by the CLB on 8th December, 2000 must be accepted
as an order passed under the provisions of the Companies Act, 1956.
Additionally, it is contended that where two legislative enactments were
involved, the substantive legislation must be resorted to and not the
adjective, incidental, supplemental or procedural legislation. Learned counsel
for the appellants has drawn the attention of this court to section 10F of the
Companies Act, 1956 wherein an appeal lies to this court against orders passed
by the CLB.
8. In our view, in order to adjudicate upon the
aforesaid contention, it would be imperative for us to first determine the
legislative provision under which the impugned order dated 8th December, 2000
has been passed. If in the aforesaid determination, this court arrives at the
conclusion that the order was passed by the CLB in exercise of its jurisdiction
to settle a dispute flowing out of the provisions of the Companies Act, 1956, then
and only then, the instant plea advanced on behalf of the appellants would
merit acceptance. In such an eventuality, it would have to be concluded that
the search for the appellate forum would have to be restricted to the Companies
Act, 1956. However, if this court arrives at the conclusion that the impugned
order dated 8th December, 2000 had been passed by the CLB in its capacity of
‘judicial authority’ in exercise of obligations flowing out of the Arbitration
Act, 1996, in furtherance of the provisions of the Arbitration Act, 1996, then
certainly, the remedy must be searched for, from within the provisions of the
Arbitration Act, 1996. In such an eventuality, the contention advanced on
behalf of the appellants would not merit acceptance.
9. Undoubtedly, when the petition was filed by
the respondents (herein) before the CLB, the CLB was exercising jurisdiction
under the provisions of sections 397 and 398 of the Companies Act, 1956.
However, when the appellants (herein) moved an application under section 8 of
the Arbitration Act, 1996 before the CLB, the CLB while deciding the said
application acted in its capacity as ‘judicial authority’ under section 8 of
the Arbitration Act, 1996. There can be no doubt that the impugned order
determines rights flowing out of the provisions of the Arbitration Act, 1996
and not the provisions of the Companies Act, 1956. Since the CLB did not
adjudicate the dispute between the parties under sections 397 and 398 of the
Companies Act, 1956 (which was really the subject-matter of Company Petition
No. 76 of 1999) through the order impugned before us it is not possible for us
to accept the contention advanced on behalf of the appellants that in disposing
of the application filed under section 8 of the Arbitration Act, 1996 the CLB
was exercising jurisdiction vested in it under the Companies Act, 1956. The
conclusion has to be, as noticed in the foregoing paragraphs, that the right to
prefer an appeal against an order passed by the CLB in its capacity as
‘judicial authority’ while deciding an application filed under section 8 of the
Arbitration Act, 1996 must be searched for, from within the provisions of the
Arbitration Act, 1996, more so, because the impugned order is not referable to
any provision of the Companies Act, 1956.
10. We find no merit also in the submission
relating to grant of preference to the statute laying down substantive law over
a statute laying down adjective, incidental, supplemental or procedural law. In
our view, there is no conflict between the provision of the Companies Act, 1956
and the Arbitration Act, 1996, therefore, the question whether the Companies
Act, 1956 would have an overriding effect over the provisions of the
Arbitration Act, 1996 does not arise. In our view, in order to ascertain
substantive rights, reference must be made to the statute laying down
substantive rights; and likewise, for determination of procedural rights, one
must resort to the enactment laying down the procedure. In the absence of
conflict between the two, it is unnecessary to determine which of the two would
have overriding effect over the other. By our aforesaid conclusion, it must not
be assumed that we have accepted the submission that the Arbitration Act, 1996
is merely an adjective, incidental, supplemental and procedural legislation,
when compared with the Companies Act, 1956. The instant question simply does
not arise and, therefore, need not be gone into.
11. Despite having already drawn a conclusion on
the first submission advanced by learned counsel for the appellant, we consider
it our duty to notice one of the contentions advanced by learned counsel for
the respondents connected therewith. Learned counsel for the respondents has
placed reliance on the decision rendered by the Supreme Court in Allahabad Bank
v. Canara Bank [2000] 4 SCC 406 wherein while interpreting sections 17 and 18
of the Recovery of Debts Due to Banks and Financial Institutions Act, 1993
(hereinafter referred to as the RDB Act), the Supreme Court arrived at the
conclusion that the aforesaid provisions vested in the Debt Recovery Tribunal
jurisdiction to decide applications of banks and financial institutions for
recovery of debts due to them and further that the jurisdiction of the Company
Court to proceed with or to examine issues which were vested with the Debts
Recovery Tribunal stood excluded. In the aforesaid case, the Apex Court had
interpreted sections 17, 18 and 34 of RDB Act. It was on the basis of the
aforesaid provisions that the jurisdiction of the Company Court under the
provisions of the Companies Act, 1956 was held to be excluded. It is,
therefore, necessary to extract hereunder the aforesaid provisions:
“17. Jurisdiction, powers and authority of Tribunals.—
(1) A
Tribunal shall exercise, on and from the appointed day, the jurisdiction, powers
and authority to entertain and decide applications from the banks and financial
institutions for recovery of debts due to such banks and financial
institutions.
(2) An
Appellate Tribunal shall exercise, on and from the appointed day, the
jurisdiction, powers and authority to entertain appeal against any order made,
or deemed to have been made, by a Tribunal under this Act.
18. Bar of jurisdiction.—On and from the appointed day, no court or
other authority shall have, or be entitled to exercise, any jurisdiction,
powers or authority (except the Supreme Court, and a High Court exercising
jurisdiction under articles 226 and 227 of the Constitution) in relation to the
matters specified in section 17.
34. Act
to have overriding effect.—
(1) Save
as provided under sub-section (2), the provisions of this Act shall have effect
notwithstanding anything inconsistent therewith contained in any other law for
the time being in force or in any instrument having effect by virtue of any law
other than this Act.
(2) The
provisions of this Act or the rules made thereunder shall be in addition to,
and not in derogation of, the industrial Finance Corporation Act, 1948 (15 of
1948), the State Financial Corporation Act, 1951 (63 of 1951), the Unit Trust
of India Act, 1963 (52 of 1963), the Industrial Reconstruction Bank of India
Act, 1984 (62 of 1984) and the Sick Industrial Companies (Special Provisions)
Act, 1985 (1 of 1986).”
11.1 In addition, it is emphasised that the
Allahabad Bank’s case (supra), accepted the conclusions drawn by the Supreme
Court in Damji Vaiji Shah v. Life Insurance Corpn. of India AIR 1966 SC 135,
while interpreting the provisions of Life Insurance Corporation Act, 1956,
wherein there was no provision similar to section 34 of the RDB Act. The overriding
effect was given to the Life Insurance Corporation Act by holding that the same
was a ‘special Act’ and would override the provisions of the ‘general Act’. In
doing so, the provision of the Companies Act, 1956 was held to be a ‘general
Act’ in relation to the provisions of the Life Insurance Corporation Act.
Despite the fact that the provisions of the Companies Act, 1956 on which
reliance has strongly been placed by the learned counsel for the appellant has
been described as a ‘general Act’, it is conceded by the learned counsel for
the respondents that it is only on a comparison between the two conflicting
statutes that a conclusion has to be drawn which of the enactments answers the
description of a ‘special Act’ and ‘general Act. And, further, that the same
statute may, in comparison with a particular legislative enactment, be
considered as a ‘general Act’ but may be considered as a ‘special Act’ when
compared with another statute. In this behalf, relying on Allahabad Bank’s case
(supra), learned counsel for the appellants has drawn the attention of this
court to the following observations made therein:
“39. There can be a situation in law where the same statute is treated
as a special statute vis-a-vis one legislation and again as a general statute
vis-a-vis yet another legislation. Such situation do arise as held in Life
Insurance Corporation of India v. D.J. Bahadur AIR 1980 SC 2181. It was there
observed:
“...for certain cases, an Act may be general and for certain other
purposes, it may be special and the court cannot blur a distinction when
dealing with the finer points of law...” (p. 426)
11.2 Various illustrations in this behalf as
noticed in the aforesaid judgment were also brought to our notice. Insofar as
the present case is concerned, it is asserted by the learned counsel for the
respondents that the issue under controversy relates to arbitration and,
therefore, the Arbitration Act, 1996 can alone be described as the ‘special
Act’ when compared with the Companies Act, 1956.
11.3 In view of the law laid down by the Apex Court
in the aforesaid judgment, it is, therefore, sought to be concluded that, in
such a situation, the ‘special Act’, i.e., the Arbitration Act, 1996 would have
overriding effect over the ‘general, Act’, i.e., the Companies Act, 1956. On
the basis of the aforesaid conclusion, learned counsel for the respondents
rules out the reliance on the provisions of the Companies Act, 1956 for the
determination of the present controversy. Additionally, it is contended that
the judgment in Allahabad Bank’s case (supra) also recognises a situation where
both statutes may be classified as ‘special Acts’. In this behalf, it is the
contention of the learned counsel or the respondents that even if the Companies
Act, 1956 for the sake of arguments, is taken as a ‘special Act’, the issue of
supremacy of one over the other would have to be resolved in view of the
following observations made by the Apex Court in Allahabad Bank’s case (supra)
:
“Special Law v. Special Law ;
46. Alternatively, the Companies Act, 1956 and the RDB Act can both be
treated as special laws, and the principle that when there are two special
laws, the latter will normally prevail over the former if there is a provision
in the latter special Act giving it overriding effect can also be applied. Such
a provision is there in the RDB Act, namely, section 34. A similar situation
arose in Maharashtra Tubes Ltd. v. State Industrial & Investment
Corporation of Maharashtra Ltd. [1993] 2 SCC 144, where there was inconsistency
between two special laws, the State Financial Corporation Act, 1951, and the
Sick Industrial Companies (Special Provisions) Act, 1985. The latter contained
section 32 which gave overriding effect to its provisions and was held to
prevail over the former. It was pointed out by Ahmadi, J. that both special
statutes, contained non obstante clauses, but that the 1985 Act.
Being a subsequent enactment, the non obstante clause therein would
ordinarily prevail over the non obstante clause in section 46B of the 1951 Act,
unless it is found that the 1985 Act is a general statute and the 1951 statute
is a special one. (See p. 157) (Para 9)
Therefore, in view of section 34 of the RDB Act, the said Act overrides
the Companies Act, to the extent there is anything inconsistent between the
Acts...” (p. 427)
11.4 On the basis of the aforesaid conclusion,
learned counsel for the respondents asserts that the Arbitration Act, 1996
which came to be promulgated later in point of time, viz., the Companies Act,
1956, the former would have an overriding effect.
12. We find no substance in the aforesaid
contention of the learned counsel for the respondents. In our view, the
judgment rendered in Allahabad Bank’s case (supra), caters to a situation where
two different statutory provisions legislate in respect of a common issue. The
aforesaid judgment resolves conflicts in the provisions contained in two
different statutes on the same subject-matter. It is not understandable how the
aforesaid proposition can be applied to the present controversy. Neither the
subject-matter of the two statutes under reference is the same, nor is there
any apparent over-lapping or conflict between them, accordingly, in the absence
of any conflict between the two provisions, in our view, the judgment rendered
in Allahabad Bank’s case (supra), is not relevant to resolve the controversy
before us.
13. In the same strain and in order to arrive at
the same conclusion, namely, that for the determination of the remedy of appeal
in the present case, reference must be made to the provisions of the Companies
Act, 1956, and not to the Arbitration Act, 1996, learned counsel for the
appellants has advanced another independent submission.
14. It is contended by the learned counsel for the
appellants that whenever an issue is referred for adjudication to an
established court under a statute, the ordinary incidence of procedure of the
court to which reference is made, would automatically get attached, including
the right of appeal from its decision. Stated in reference to the present controversy,
the instant contention is sought to be explained by pointing out, that the
impugned order has been passed by the CLB on the basis of authority vested in
it under section 8 of the Arbitration Act, 1996 (i.e., the referring statute);
in such a case, according to the learned counsel for the appellants the
procedure of the court to which reference is made, i.e., the procedure of the
CLB would get attached, and that would include the right of appeal (as laid
down by law) against an order passed by the CLB. Learned counsel for the
appellant wished this court to accept that the search for the appellate remedy
must, therefore, be confined to the provision of the Companies Act,1956. If the
submission is accepted, all ordinary incidence of procedure of the CLB including
the general right of appeal from its decision would get attached to a decision
rendered by the CLB while dealing with an application under section 8 of the
Arbitration Act, 1996. To substantiate the aforesaid contention, learned
counsel for the appellant has placed reliance, first of all, on a decision
rendered by the House of Lords in National Telephone Co. Ltd. v. Postmaster
General [1913] AC 546 (HL), wherein the aforesaid rule was expressed by
Viscount Haldane LC, in the following terms:
“When a question is stated to be referred to an established court,
without more, it, in my opinion, imports that the ordinary incidents of the
procedure of that court are to attach, and also that any general right of
appeal from its decision likewise attaches.”
14.1 Reliance was also placed on a decision of the
Privy Council in Adaikappa Chettiar v. Chandresekhara Thevar AIR 1948 PC 12,
wherein the principle enunciated in National Telephone Co. Ltd.’s case (supra)
was reiterated in the following terms:
“Where a legal right is in dispute and the ordinary courts of the
country are seized of such dispute, the courts are governed by the ordinary
rules of procedure applicable thereto and an appeal lies if authorised by such
rules, notwithstanding that the legal right claimed arises under a special
statute which does not, in terms, confer a right of appeal.”
14.2 It is submitted that the legal position of the
rule enunciated by the House of Lords as well as the Privy Council noticed
above find affirmation in the decision rendered by the Supreme Court in
National Sewing Thread Co. Ltd. v. James Chadwick & Bros. Ltd. AIR 1953 SC
357 wherein (after placing reliance on the aforesaid judgments), the Apex Court
observed:
“Though the facts of the cases laying down the above rule were not
exactly similar to the facts of the present case, the principle enunciated
therein is one of general application and has an apposite application to the
facts and circumstances of the present case. Section 76 of the Trade Marks Act
confers a right of appeal to the High Court and says nothing more about it.
That being so, the High Court being seized as such of the appellate
jurisdiction conferred by section 76 it has to exercise that jurisdiction in
the same manner as it exercises its other appellate jurisdiction and when such
jurisdiction is exercised by a Single Judge, his judgment becomes subject to
appeal under clause 15 of the Letters Patent, there being nothing to the
contrary in the Trade Marks Act.”
14.3 It is further submitted that the aforesaid
principle was reiterated by the Supreme Court in Vanita M. Khanolkar v. Pragna
M. Pai AIR 1998 SC 424 wherein the question under consideration was whether an
appeal would lie to a Division Bench of the High Court against an order passed
by a Single Judge under section 6 of the Specific Relief Act, 1963. In
examining the aforesaid issue, a Division Bench of the Bombay High Court had
held that an appeal would not lie before the Division Bench. The Bombay High
Court, after interpreting sub-section (3) of section 6 of the Specific Relief
Act, 1963, arrived at conclusion that the aforesaid provision barred any appeal
or revision against an order passed under section 6 of the Specific Relief Act,
1963. The aforesaid judgment of the Division Bench was set aside after holding
that a statutory provision contained in a legislative enactment could not
override the constitutional power of the High Court. In arriving at the
aforesaid conclusion, the court observed as under:
“Now it is well-settled that any statutory provision barring an appeal
or revision cannot cut across the constitutional power of a High Court. Even
the power flowing from the paramount character under which the High Court
functions would not get excluded unless the statutory enactment concerned expressly
excludes appeals under Letters Patent. No such bar is discernible from section
6(3) of the Act. It could not be seriously contended by learned counsel for the
respondents that if clause 15 of the Letters Patent is invoked then the order
would be appealable. Consequently, in our view, on the clear language of clause
15 of the Letters Patent which is applicable to Bombay High Court, the said
appeal was maintainable as the order under appeal was passed by learned Single
Judge of the High Court exercising original jurisdiction of the court. Only on
that short ground the appeal is required to be allowed.” (p. 425)
14.4 Reliance was also placed on another judgment
of the Apex Court in State of Orissa v. Commissioner of Land Records & Settlement
AIR 1998 SC 3067 wherein the Apex Court had concluded as under:
“23. Learned senior counsel for the respondent 2, Shri T.L. Vishwanath
Iyer, argued that the same conclusion can be reached by the application of
another well-known principle, namely, that if a Court is constituted by law and
matters go before it under a special law, then that Court can also exercise
various other general powers attached to the Court by other statutes. In
National Sewing Thread Co. Ltd. v. James Chadwick & Bros. Ltd. AIR 1953 SC
357, it was held by this Court that once a matter under the Trade Marks Act,
1940, comes before the High Court, the powers available to the High Court under
Letters Patent can also be exercised by the High Court to correct errors in
orders passed by the learned Single Judges of that Court. The same principle,
it is contended, will apply to quasi-judicial Tribunals also. Once the revision
goes to the Board under section 15 of the 1958 Act, the Board can, it is
contended, exercise its review powers under the 1951 Act. This submission, in
our view, is correct and is required to be accepted as an additional ground to
support the review powers of the Board.” (p. 3073)
15. The question to be determined by us,
therefore, is whether the appellate remedy provided under section 10F of the
Companies Act, 1956, would get attached to the proceedings which came to be
decided by the CLB under section 8 of the Arbitration Act, 1996. So far as the
decision rendered by the House of Lords in National Telephone Co. Ltd.’s case
(supra), is concerned, it is also necessary to notice the observations of Lord
Shaw of Dunfermline, while dealing with the issue presently under
consideration, he made the following observations:
“The argument is that the Railway and Canal Commission only became
possessed of the reference as arbitrators privately agreed to by the parties.
It would, of course, have been open under the indenture for the parties to put
such limits upon the powers of their arbitrator, namely, the Commission, thus,
selected, or to settle the points of finality or procedure which they agreed to
be specially observed, and it would have been open to Parliament to permit the
Commission to Act within such limits. But where these things have not been
done, the court of record must follow its own and its authorised lines.”
15.1 From the aforesaid, it is evident that it
would be permissible under the referring legislative enactment (in the present
case, the Arbitration Act, 1996) to limit/exclude the rules of attachment. This
conclusion is clearly discernible from the words ‘...and it would have been
open to Parliament to permit the Commission to act within such limits...’ In
National Sewing Thread Co. Ltd.’s case (supra), wherein the Supreme Court,
while affirming the rule of attachment, clearly recorded the exception to the
aforesaid rule through the following observations:
“It is a well-known rule of construction that when a power is conferred
by a statute, that power may be exercised from time to time when occasion
arises unless a contrary intention appears.”
15.2 In fact, even the judgment in Vanita M.
Khanolkar’s case (supra), which, according to the counsel for the appellants,
completely covers the controversy in the present case, it is apparent from the
extract already reproduced above that the procedure including the right of
appeal would not get attached ‘...unless the statutory enactment concerned
expressly excludes appeals...’ Additionally, in Vanita M. Khanolkar’s case
(supra), the observations of the Supreme Court in respect of the jurisdiction
of the High Court must necessarily be noticed to the limited scope of its
examination by the Supreme Court, namely, whether a legislative enactment could
override the constitutional power of the High Court. In the instant appeal, the
appellants are seeking to invoke section 10F of the Companies Act, 1956 in
order to substantiate their plea in respect of the legality of appellant
jurisdiction said to be vested in this court against the impugned order passed
by the CLB under section 10F of the Companies Act, 1956, and not the
constitutional authority vested in this court under article 226 of the
Constitution of India. It would be pertinent to notice that despite suggestions
of the counsel representing the respondents to the appellants during the
proceedings before us, the appellants did not make a prayer, that the instant
appeal be treated as a writ petition. Therefore, while deciding the issue of
jurisdiction in the present case, we are certainly not dealing with the
constitutional authority vested in this court to examine the validity of an
order passed by a judicial authority while deciding a claim under section 8 of
the Arbitration Act, 1996. Since the parameters of the issue decided in Vanita
M. Khanolkar’s case (supra), were clearly different from the issue before us in
view of the fact that constitutional authority of this court is not an issue at
all, in our view, the aforesaid case is not relevant for adjudication of the
dispute before us. Shorn of the conclusion drawn by the Supreme Court in Vanita
M. Khanolkar’s case (supra), it is clear that the rule of attachment canvassed
on behalf of the appellants would be subject to a contrary intention in the
referring statute. It would also be pertinent to mention that the decision rendered
by the Apex Court in Vanita M. Khanolkar’s case (supra), is under
reconsideration in view of the order passed by the Supreme Court in Orma Impex
(P.) Ltd. v. Nissai Asb Pte. Ltd. [1999] 2 SCC 541, wherein the court in the
short order passed by it noticed as under:
“...In State of W.B. v. Gaurangalal Chatterjee [1993] 3 SCC 1, this
Court relied upon an earlier decision of the Court in Union of India v.
Mohindra Supply Co. AIR 1962 SC 256. The said decision was rendered with
reference to the appealability of an order passed by the High Court in an
appeal from the order of the subordinate Court and not from the order passed by
a learned Single Judge sitting on the original side of the High Court. There is
also another decision of a two-Judge Bench of this Court in Vanita M. Khanolkar
v. Pragna M. Pai [1998] 1 SCC 500 which appears to have taken a contrary view
relying upon clause 15 of the Letters Patent applicable to the High Court of
Bombay. Thus, there appears to be conflict of decisions on this question.” (p.
542)
15.3 In view of the legal position noticed above,
it is imperative for us to arrive at the following conclusions: Firstly, when
an issue is stated to be referred to an established court ‘without more’, the
ordinary incidence of procedure of that court will get attached including the
general right of appeal from its decision; secondly, the ordinary incidence of
procedure including the right of appeal flowing out of the rule of attachment
can be excluded, expressly or impliedly, by the referring statute.
16. Another submission advanced in continuation of
the aforesaid contention, by the learned counsel for the appellants, is that
the impugned order dated 28th December, 2000 passed by the CLB cannot relate
for the purpose of jurisdiction to the Arbitration Act, 1996. Pointed attention
of this court has been invited to section 10E(1A) of the Companies Act. The
aforesaid provision is being reproduced hereunder:
“10E. (1A) The CLB shall exercise and discharge such powers and
functions as may be conferred on it, by or under this Act or any other law, and
shall also exercise and discharge such other powers and functions of the
Central Government under this Act or any other law as may be conferred on it by
the Central Government, by notification in the Official Gazette under the
provisions of this Act or that other law.”
On the basis of section 10E(1A) of the Companies Act, 1956, it is
submitted that the CLB has been vested with the authority under the Companies
Act, 1956 itself to discharge powers/functions conferred on it by any other
law. It is the contention of the appellants and rightly so, that the authority
to decide an application under section 8 of the Arbitration Act, 1996, flows
jointly from the provisions of section 10E(1A) of the Companies Act, 1956, and
section 8 of the Arbitration Act, 1996. On the basis of the aforesaid
contention, it is sought to be concluded that the order passed in exercise of
such authority must be deemed to be an order passed on the basis of
jurisdiction vested in the CLB by section 10E(1A) of the Companies Act, 1956
and not by any provision under the Arbitration Act, 1996. In this behalf,
reliance has been placed by learned counsel for the appellants on a decision
rendered by a learned Single Judge of Bombay High Court in Kinetic Engg. Ltd.
v. Unit Trust of India AIR 1995 Bom. 194, wherein, dealing with a controversy
similar to one in hand, the court observed as under:
“On behalf of the respondents, the maintainability of the appeal itself
is challenged, and, therefore, it would be proper to decide the said question
before I go to the merits of the appeal. On behalf of the respondents, it is
contended that the appeal is purported to have been filed under section 10F of
the Companies Act. According to the respondents, the right of appeal has to be
restricted to the statute which gives the right of appeal. Under the Companies
Act also, the CLB is assigned several functions under the Companies Act. The
present impugned order is obviously an order passed under section 22A of the
Securities Contracts (Regulation) Act, 1956, as amended in 1985, and,
therefore, it is tried to be contended that section 10F provides that any
person aggrieved by any decision or order of the Company Law Board may file an
appeal to the High Court within sixty days from the date of communication of
the decision or order of the Company Law Board to him on any question of law
arising out of such order, which, apparently, would cover the impugned order
being an order passed by the Company Law Board, but as a right of appeal has to
be restricted to the statute which gives the right of appeal, the impugned
order being not an order passed under the Companies Act, but under the
Securities Contracts (Regulation) Act, it would not be covered under the said
section 10F of the Companies Act. Thereafter, it is contended that even if
section 10E of the Companies Act is taken into consideration, it is clear that
the said section is only to provide jurisdiction to the Company Law Board. For
this purpose, reliance is placed on the wording of sub-section (1A) of section
10E that the Company Law Board shall exercise and discharge such powers and
functions as may be conferred on it, by or under the Companies Act or any other
law and shall also exercise and discharge such other powers and functions of
the Central Government under the Companies Act or any other law as may be
conferred on it by the Central Government, by notification in the Official
Gazette under the provisions of this Act or that other law. The submission tried
to be made is that the said provision only gives power to the Company Law Board
of exercising and discharging the powers and functions as may be conferred on
it by or under the Companies Act or any other law, but that would not mean that
the decision given by the Company Law Board under any other law could be
appealed against under section 10F of the Companies Act. According to Shri
Kapadia appearing for the respondents, if the impugned decision is under the
Companies Act, then an appeal would lie under section 10F, but if the impugned
decision is under any other law, that law must provide for an appeal and, in
the present case, admittedly, the decision is under the Securities Contracts
(Regulation) Act, 1956, and, under the said law, there is no provision of
appeal against the decision of the Company Law Board arrived at under section
22A of the said Act. It is also pointed out that this becomes clear if one
looks at the provisions of section 55 of the Monopolies and Restrictive Trade
Practices Act, 1969, which provides for an appeal. It is contended that under
the said section 55 of the said Act, an appeal is provided against the decision
of the Company Law Board taken under the said Act. Shri Kapadia contended that
if under the said Act also the decision is taken by the Company Law Board, then
if an appeal was envisaged to be provided under section 10F of the Companies
Act, being a decision of the Company Law Board, there was no necessity of
providing any appeal under section 55 of the Monopolies and Restrictive Trade
Practices Act, 1969. Now it is true that the provision of section 10E of the
Companies Act gives jurisdiction to the Company Law Board and the Company Law
Board is by the said provision empowered with a jurisdiction to exercise and
discharge such powers and functions as may be conferred upon by or under the
Companies Act, and also any other law. The said section, according to the
appellants, has to be read with section 10F of the Companies Act and when,
under the Securities Contracts (Regulation) Act, 1956, the Company Law Board
has been conferred with a power of confirmation of the opinion of the Board of
directors under section 22A(4)(c) of the Securities Contracts (Regulation) Act
and, therefore, the decision given by the Company Law Board in exercise of the
said powers under the said provisions of the said Act would in any event become
a decision of the Company Law Board, and, therefore, according to the
appellants, section 10F of the Companies Act which provides for an appeal
against any decision or order of the Company Law Board is wide enough to cover
such a decision also. On behalf of the appellants, it is contended that merely
because in the Monopolies and Restrictive Trade Practices Act, 1969, a
provision for appeal is made under section 55 against the decision of the
Company Law Board, it would not necessarily mean that if in any other law no
such provision is made, then no appeal would lie under section 10F. Now even if
the provision of sub-section (1A) of section 10E is considered as a section
empowering the Company Law Board to take a decision in respect of any other
law, also, it would become a decision of the Company Law Board and then,
normally, one would consider that the said decision is appealable under section
10F. Though the argument sought to be advanced by Shri Kapadia is no doubt
attractive, on reading sections 10E and 10F together, I find that the appeal
would be maintainable under section 10F of the Companies Act against the
decision of the Company Law Board under the powers conferred on it under any
other law also. Hence, I am answering in favour of the appellants on this
point.” [pp. 423-240 of 15 CLA]
17. It is not possible for us to accept the
conclusion drawn above, since neither the contention canvassed on behalf of the
respondents was dealt with, nor the principle on the basis of which the court
arrived at the conclusion that the appeal was maintainable, was spelt out. In
view of the able assistance afforded to us by the learned counsel representing
the parties, we have been able to examine the scope of the aforesaid contention
closely. The only rule/principle which can be invoked to accept that an appeal
would be maintainable against an order passed by the CLB under section 10F is
the rule of attachment (already deliberated upon above). The conclusion drawn
therein as recorded above, therefore, must follow.
18. The submissions advanced by the learned
counsel for the appellants renders it obligatory on our part to consider all
the contentions raised on behalf of the respondents based on the provisions of
the Arbitration Act, 1996, in order to arrive at the conclusion whether or not
the Arbitration Act, 1996 excludes the general right of appeal claimed, by the
learned counsel for the appellants, based on the rule of attachment on account
of express and/or implied exclusion of the remedy of appeal under the
Arbitration Act, 1996. In case, in the process of our deliberation, we arrive
at the conclusion that the remedy of appeal against an order passed under
section 8 of the Arbitration Act is not excluded either expressly or impliedly
by the Arbitration Act, 1996, the instant plea based on the rule of attachment
would merit acceptance. In such an eventuality, the instant appeal would be
maintainable in view of section 10F of the Companies Act, 1956. If the
conclusion, however, is to the contrary, the contention advanced on the basis
of the rule of attachment would be liable to be rejected.
19. Mr. Arun Kathpalia, learned counsel
representing the respondents, has vehemently contended that the answer to the
question whether the instant appeal is maintainable against the order dated 8th
December, 2000 Vijay Kumar Chopra’s case (supra) passed by the CLB must flow
from the provisions of the Arbitration Act, 1996, alone. In this behalf, he has
made the following submissions.
19.1 Attention of this court has been invited to
the statement of objects and reasons of the Arbitration Act, 1996, wherein the
Parliament has described the aforesaid legislation as :
“An Act to consolidate and amend the law relating to domestic
arbitration, international commercial arbitration and enforcement of foreign
arbitral awards as also to define the law relating to conciliation and for
matters connected therewith or incidental thereto.”
It is pointed out from the statement of objects and reasons that the
Arbitration Act, 1996 is a consolidating and amending statute through which the
Legislature repealed the Arbitration Act, 1940, which in turn and in the same
manner, had repealed the Arbitration Act, 1899, Schedule 2 of the Code of Civil
Procedure, and clauses (a) to (f) of section 104(1) of the Code of Civil
Procedure. The point canvassed is that of a statute is a complete code all
remedies, from orders passed and actions taken thereunder must flow from the statute
itself. Learned counsel for the respondents in this behalf has extensively read
to us observations made in Union of India v. Mohindra Supply Co. AIR 1962 SC
256 wherein the historical advancement of the law of arbitration in this
country has been traced and, on the basis thereof, the Apex Court concluded
that the Arbitration Act, 1940 was a consolidating and amending statute
(relevant extracts from the aforesaid judgment have been reproduced in this
order at a later stage). Bringing to the notice of this court, the objects and
reasons of the Arbitration Act, 1996 extracted above, it is submitted that if
the Arbitration Act, 1940 was considered as an exhaustive and comprehensive
code by the Apex Court, the same conclusion deserves to be drawn even for the
Arbitration Act, 1996, since the instant Act is clearly and unambiguously an
effort on the part of the Legislature to amend and further consolidate the
Arbitration Act, 1940.
20. In order to substantiate his submission that
the Arbitration Act, 1996, is an exclusive code governing the subject of
arbitration, learned counsel has invited the attention of this court to section
5 of the Arbitration Act, 1996 which is extracted hereunder:
“5. Extent of judicial intervention.—Notwithstanding anything contained
in any other law for the time being in force, in matters covered by this part,
no judicial authority shall intervene except where so provided in this part.”
On the strength of the aforesaid provision, it is submitted that Part I
of the Arbitration Act, 1996 (which deals with domestic arbitration and awards)
excludes all judicial authorities (including this court) from intervening in
matters provided for under Part I of the Arbitration Act, 1996 except to the
extent permissible under Part I itself. It is the submission of the learned
counsel for the respondents that even section 5 of the Arbitration Act, 1996
leaves no room for doubt that all judicial authorities are restrained from
intervening in matters governing domestic arbitration except where so provided.
It is, therefore, contended that an order passed in response to an application
filed under section 8 of the Arbitration Act, 1996 (which falls in Part I
thereof) would be appealable only if a specific provision for appeal therefrom
is provided in Part I of the Arbitration Act, 1996, and not otherwise.
21. Having laid down the aforesaid foundation, it
is submitted that the right of appeal must necessarily flow out of the statute,
under which the order sought to be appealed from has been passed. Relying on a
decision of the Constitution Bench of the Supreme Court in Mohindra Supply
Co.’s case (supra), it is emphasised that the right to appeal is a creature of
a statute and further that no litigant has an inherent right to appeal against
a decision of a court unless provided for by law. Reliance has also been placed
on Upadhyaya Hargovind Devshankar v. Dhirendrasing Virbhadrasinhji Solanki AIR
1988 SC 915. In the aforesaid judgment, the question considered was whether a
Division Bench of a High Court could hear an appeal against an order of a
Single Judge against an interlocutory order passed in the course of the trial
of an election petition (by the Single Judge). In this behalf, it would be
pertinent to mention that under the Representation of People Act, 1951, the
High Court is vested with the rights to decide election petitions (under
sections 98 and 99). Section 116(A)(1) of the Representation of People Act,
1951, provides as under:
“116A. Appeal to Supreme Court.—(1) Notwithstanding anything contained
in any other law for the time being in force, an appeal shall lie to the
Supreme Court on any question (whether of law or fact) from every order made by
a High Court under section 98 or section 99.”
In the aforesaid judgment, relying on an earlier decision rendered by it
in N.P. Ponnuswami v. Returning Officer, Namakkal Constituency [1952] SCR 218,
the Apex Court noticed the following observations from N.P. Ponnuswami’s case
(supra):
“Obviously, the Act is a self contained enactment so far as elections
are concerned, which means that whenever we have to ascertain the true position
in regard to any matter connected with election. We have only to look at the
Act and the rules made thereunder.”
And also:
“It is now well-recognised that where a right or liability is created by
a statute which gives a special remedy for enforcing it, the remedy provided by
that statute only must be availed of.”
Thereupon, it referred to the conclusions drawn in Shah Babulal Khimji
v. Jayaben D. Kania AIR 1981 SC 1786, wherein it was held:
“An appeal no doubt lies under that clause from an order of a Single
Judge of the High Court exercising original jurisdiction to the High Court
itself irrespective of the fact that the judgment is preliminary or final or
that it is one passed at an interlocutory stage provided it satisfies the
conditions set out in the above decision, but the said provision cannot be
extended to the election petition filed under the Act.”
On the basis of the judgments, referred to above, the Apex Court in
Upadhyaya Hargovind Devshankar’s case (supra) declared the following view as
the correct expression of law:
“...We are of the view that as regards the jurisdiction to try an
election petition and the right of appeal of their parties to an election
petition, the provisions of the Act (apart from the provisions in the
Constitution) constitute a complete code and no other Judge or Judges other
than the Single Judge of the High Court who is asked to try an election
petition and the Supreme Court exercising appellate powers under section 116A
of the Act in respect of orders passed under section 98 or section 99 of the
Act or under article 136 of the Constitution in respect of other orders can
have any jurisdiction to deal with any matter arising out of an election
petition filed under the Act.” (p. 921)
22. The contention of the learned counsel for the
appellants in response to the submissions of the learned counsel for the
respondents is that the Arbitration Act, 1996, cannot be treated as a complete
and exhaustive code. In this behalf, the stance adopted is that the Arbitration
Act, 1996, is merely a procedural law, whereas the substantive law is contained
in the Indian Contract Act, 1872. To substantiate the aforesaid aim, he has
placed reliance on National Thermal Power Corpn. v. Singer Co. [1992] 3 SCC 551
wherein the court has observed as under:
“It is true that an arbitration agreement may be regarded as a
collateral or ancillary contract in the sense that it survives to determine the
claims of the parties and the mode of settlement of their disputes even after
the breach or repudiation of the main contract. But it is not an independent
contract, and it has no meaningful existence except in relation to the rights
and liabilities of the parties under the main contract. It is a procedural
machinery which is activated when disputes arise between parties regarding
their rights and liabilities. The law governing such rights and liabilities is
the proper law of the contract, and unless otherwise provided, such law governs
the whole contract including the arbitration agreement, and particularly so,
when the latter is contained not in a separate agreement, but, as in the
present case in one of the clauses of the main contract.” [para 44 at p. 267 of
Comp. LJ]
In order to controvert the submission advanced by the learned counsel
for the respondents and more particularly, to overcome the judgments relied
upon by him, learned counsel or the appellants has referred to the decision
rendered in Sundaram Finance Ltd. v. NEPC India Ltd. AIR 1999 SC 565. In order
to assert that the provisions of the Arbitration Act, 1940, are substantially
distinct and different from the provisions of the Arbitration Act, 1996, and as
such, the provisions of the 1940 Act could not be taken into consideration
while arriving at a conclusion in the instant case. On the same basis, to is
submitted that any judgment rendered by any court in respect of the
interpretation of the provisions of the Arbitration Act, 1940 cannot be taken
into consideration. It is pointed out that the judgments relied upon by the
counsel representing the respondents (herein) are primarily in respect of the
provisions of the Arbitration Act, 1940. Attention of this court has been invited
to the observations made by the Apex Court in paragraphs 8 and 9 of the
aforementioned judgment:
‘8. Prior to the promulgation of the 1996 Act, the law on arbitration in
India was substantially contained in three enactments, namely, the Arbitration Act,
1940, the Arbitration (Protocol and Convention) Act, 1937, and the Foreign
Awards (Recognition and Enforcement) Act, 1961. In the Statement of Objects and
Reasons appended to the Bill, it was stated that the 1940 Act which contained
the general law of arbitration had become outdated. The said objects and
reasons noticed that the United Nations Commission on International Trade Law
(UNCITRAL) adopted in 1985 the Model Law on International Commercial
Arbitration. The General Assembly had recommended that all countries give due
consideration to the said Model Law which, along with the Rules, was stated to
have harmonised concepts on arbitration and conciliation of different legal
systems of the world and, thus, contained provisions which were designed for universal
application. The abovesaid statement of objects and reasons in para 3 states
that:
“3. Though the said UNCITRAL Model Law and Rules are intended to deal
with international commercial arbitration and conciliation, they could, with
appropriate modifications, serve as a model for legislation on domestic
arbitration and conciliation. The present Bill seek to consolidate and amend
the law relating to domestic arbitration, international commercial arbitration,
enforcement of foreign arbitral awards and to define the law relating to
conciliation, taking into account the said UNCITRAL Model Law and Rules.”
9. The 1996 Act is very different from the Arbitration Act, 1940. The
provisions of this Act have, therefore, to be interpreted and construed
independently, and in fact, reference to the 1940 Act may actually lead to
misconstruction. In other words, the provisions of the 1996 Act have to be
interpreted being uninfluenced by the principles underlying the 1940 Act. In
order to get help in construing these provisions, it is more relevant to refer
to the UNCITRAL Model Law rather than the 1940 Act.’ [paras 8 and 9]
22.1 Reliance has also been placed on the judgment
rendered by the Supreme Court in Smt. Kalpana Kothari v. Smt. Sudha Yadav
[2002] 1 SCC 203, wherein it has been observed in:
“8. ...We are of the view that the High Court did not properly
appreciate the relevant and respective scope, object and purpose as also the
consideration necessary for dealing with and disposing of the respective
application envisaged under section 34 of the 1940 Act and section 8 of the
1996 Act. Section 34 of the 1940 Act provided for filing an application to stay
legal proceedings instituted by any party to an arbitration agreement against
any other party to such agreement, in derogation of the arbitration clause and
attempts for settlement of disputes otherwise than in accordance with the
arbitration clause by substantiating the existence of an arbitration clause and
the judicial authority concerned may stay such proceedings on being satisfied
that there is no sufficient reason as to why the matter should not be referred
to for decision in accordance with the arbitration agreement, and that the
applicant seeking for stay was at the time when the proceedings were commenced
and still remained ready and willing to do all things necessary to the proper
conduct of the arbitration. This provision under the 1940 Act had nothing to do
with actual reference to the arbitration of the disputes and that was left to
be taken care of under sections 8 and 20 of the 1940 Act. In striking contrast
to the said scheme underlying the provisions of the 1940 Act, in the new 1996
Act, there is no provision corresponding to section 34 of the old Act and
section 8 of the 1996 Act mandates that the judicial authority before which an
action has been brought in respect of a matter, which is the subject-matter of
an arbitration agreement, shall refer the parties to arbitration if a party to
such an agreement applies not later than when submitting his first statement.”
(p. 208)
And further as under :
“9. ...having regard to the distinct purposes, scope and object of the
respective provisions of law in these two Acts, the plea of estoppel can have
no application to deprive the appellants of the legitimate right to invoke an
all comprehensive provisions of mandatory character like section 8 of the 1996
Act to have the matter relating to the disputes referred to arbitration, in
terms of the arbitration agreement.” (p. 209)
It is, therefore, pointed out that the provisions of the Arbitration
Act, 1940 and those of the Arbitration Act, 1996 are not comparable, and
specially for interpreting the provisions of section 8 of the 1996 Act the
provisions of the 1940 Act cannot be relied upon.
23. We shall first make an endeavour to determine
on the basis of the submissions advanced before us whether or not the
Arbitration Act, 1996, is an exclusive, exhaustive and comprehensive code. For
the aforesaid issue, it is not necessary to examine the differences between the
provisions of the Arbitration Act, 1940 and the Arbitration Act, 1996. It is
also not necessary to examine the scope of any particular provision contained
in the aforesaid statute including section 8 of the Arbitration Act, 1996. The
Supreme Court in Mohindra Supply Co.’s case (supra), had held that the
Arbitration Act, 1940 was an exhaustive and comprehensive code, which had
consolidated the law relating to arbitration in this country. Since the
Arbitration Act, 1996 is another effort on the part of the Legislature to
further consolidate and amend the provisions of the Arbitration Act, 1940, it
must necessarily follow that the law in respect of arbitration has been further
crystallised after the coming into force the Arbitration Act, 1996. It must,
therefore, follow that the amendment in 1996 has taken the process of
consolidation even further. In view of the abovestated consideration, there is
no doubt in our mind that the Arbitration Act, 1996 is, indeed, an exhaustive
and comprehensive code. Section 5 of the Arbitration Act, 1996 makes the Act
exclusive in respect of the subject of domestic arbitration, which has been
dealt with in Part I of the said Act, since by a non obstante clause it
excludes all judicial authorities from intervention in matters regulated under
Part I of the Arbitration Act, 1996.
24. It would however, be pertinent to mention that
learned counsel for the appellants has also disputed the conclusions which were
sought to be drawn on the basis of section 5 of the Arbitration Act, 1996. In
this behalf, it is the contention of the learned counsel for the appellants
that section 5 excludes the right only of a judicial authority to intervene in
matters covered by Part I of the Arbitration Act, 1996. It is submitted that
the expression ‘judicial authority’ would not include an appellate court. And
since an appellate court is separate and distinct from judicial authority
referred to in section 5 of the Arbitration Act, 1996, section 5 would not have
the effect on ousting the jurisdiction of an appellate court.
25. To understand the scope of the instant
contention, it is necessary to understand the exact purport of the term
‘judicial authority’. The term ‘judicial authority’ has not been defined under
the provisions of the Arbitration Act, 1996. One of the means to understand the
scope of the term ‘judicial authority’ is by reference to judicial precedent.
Reference in this behalf, therefore, may be made to the decision rendered by
the Supreme Court in Thakur Das v. State of Madhya Pradesh [1978] 1 SCC 27,
wherein the term ‘judicial authority’ came to be interpreted by the Apex Court.
In reference to the term ‘judicial authority’ the court observed as under:
“The appellate authority under section 6C must be a judicial authority.
By using the expression “judicial authority” it was clearly indicated that the
appellate authority must be one such pre-existing authority which was
exercising judicial power of the State. If any other authority as persona
designata was to be constituted there was no purpose in qualifying the word
“authority” by the specific adjective “judicial”. A judicial authority
exercising judicial power of the State is an authority having its own hierarchy
of superior and inferior court, the law of procedure according to which it
would dispose of matters coming before it depending upon the nature of
jurisdiction exercised by it acting in judicial manner. In using the compact
expression “judicial authority” the legislative intention is clearly manifested
that from amongst several pre-existing authorities judicial powers of the State
and discharging judicial functions, one such may be appointed as would be
competent to discharge the appellate functions as envisaged by section 6C.”
In reference to section 5 of the Arbitration Act, 1996, the Apex Court
in Konkan Railway Corpn. Ltd. v. Mehul Construction Co. [2000] 7 SCC 201 made
the following observations:
“5. A bare comparison of different provisions of the Arbitration Act of
1940 with the provisions of the Arbitration and Conciliation Act, 1996, would
unequivocally indicate that the 1996 Act limits intervention of court with an
arbitral process to the minimum and it is certainly not the legislative intent
that each and every order passed by an authority under the Act would be a
subject-matter of judicial scrutiny of a court of law...” [p. 5 of 2000
CLA-BL-Supp]
In Modi Korea Telecommunication Ltd. v. Appcon Consultants (P.) Ltd.
[2000] Suppl. Arb. LR 618 (Cal.), a Division Bench of the Calcutta High Court
has also in paragraph 28 opined that the term ‘judicial authority’ expressed in
section 5 of the Arbitration Act, 1996 refers to a court.
26. There can be no room for any doubt specially
in view of the judgments referred to above, that ‘judicial authority’ is an authority...
exercising judicial power of the State...’ and ‘...discharging judicial
functions...’. In the aforesaid view of the matter, it is evident that the term
‘judicial authority’ will necessarily include ‘court’ as defined in section
2(e) of the Arbitration Act, 1996 as well as an appellate court. In such a
situation, while interpreting section 5 of the Arbitration Act, 1996, it is
evident that the remedy of appeal to an appellate court would be permissible
only if so expressed, specially or by necessary implication, in Part I of the
Arbitration Act, 1996, and not otherwise.
27. Having arrived at the conclusion that the
Arbitration Act, 1996 is an exclusive, exhaustive and comprehensive code and
further that the mandate of section 5 of the Arbitration Act, 1996 does not
permit any judicial authority which as noticed above would include a court or
an appellate court to intervene in a matter specified under the provisions of
the Arbitration Act, 1996, except where so provided. It, therefore, becomes
imperative to determine whether or not the Arbitration Act, 1996 provides for a
remedy of appeal against an order passed by a judicial authority while deciding
a claim for reference to an arbitrator made under section 8 of the Arbitration
Act, 1996. Reference in this behalf has been made to section 37 of the
Arbitration Act, 1996 by learned counsel for the respondents. The aforesaid
provision is reproduced hereunder:
“37. Appealable orders.—(1) An appeal shall lie from the following orders
(and from no others) to the court authorised by law to hear appeals from
original decrees of the court passing the order, namely:—
(a) granting or refusing to grant any measure
under section 9;
(b) setting aside or refusing to set aside an
arbitral award under section 34.
(2) An
appeal shall also lie to a court from an order of the arbitral Tribunal—
(a) accepting the plea referred to in
sub-section (2) or sub-section (3) of section 16; or
(b) granting or refusing to grant an interim
measure under section 17.
(3) No
second appeal shall lie from an order passed in appeal under this section, but
nothing in this section shall affect or take away any right to appeal to the
Supreme Court.”
While interpreting section 37(1) of the Arbitration Act, 1996, learned
counsel for the respondents has made out the following points:
27.1 Firstly, appeals from orders passed under the
provisions of Part I of the Arbitration Act, 1996 are only permissible against
orders specified in section 37. In this behalf, it is pointed out that remedy
by way of appeal has not been provided for against an order passed under
section 8 of the Arbitration Act, 1996.
27.2 Secondly, the expressions used in sub-section
(1) of section 37 of the Arbitration Act, 1996 clarifies the legislative intent
to exclude the remedy of appeal against an order passed by a judicial authority
under section 8 of the Arbitration Act, 1996. In this behalf, it is pointed out
that any other interpretation would render the words ‘(and from no others)’
used in section 37 nugatory.
27.3 To buttress the aforesaid submission, reliance
has been placed on a decision rendered by a Constitution Bench of the Apex
Court in Union of India v. Mohindra Supply Co. AIR 1962 SC 256. In the
aforesaid case, the Apex Court was to determine a controversy arising out of
the interpretation of section 9 of the Arbitration Act, 1940. The pointed
question was whether a Letters Patent appeal was competent against an order
passed by a Single Judge of the High Court, in terms of the provisions of
section 39(2) of the Arbitration Act, 1940. The Supreme Court in the aforesaid
case examined the validity of the conclusions drawn in the judgment rendered by
a Full Bench of this court in Mohindra Supply Co. v. Governor General in
Council AIR 1954 Punj. 211, wherein this court had held that a Letters Patent
appeal was merely a inter-court appeal and not an appeal to a superior court
and was as such not barred under section 39 of the Arbitration Act, 1940. In
order to fully understand the conclusion drawn by the Apex Court in the
aforesaid case, it is necessary to extract herein section 39 of the Arbitration
Act, 1940 which reads as under:
“39. Appealable orders.—(1) An appeal shall lie from the following
orders passed under this Act (and from no others) to the court authorised by
law to hear appeals from original decrees of the court passing the order:
An order—
(i) superseding an arbitration;
(ii) on an award stated in the form of a
special case;
(iii) modifying or correcting an award;
(iv) filing or refusing to file an arbitration
agreement;
(v) staying of refusing to stay legal
proceedings where there is an arbitration agreement;
(vi) setting aside of refusing to set aside an
award:
Provided that the provisions of this section
shall not apply to any order passed by a small cause court.
(2) No second appeal shall lie from an order passed in appeal under this
section, but nothing in this section shall affect or take away any right to
appeal to the Supreme Court.”
27.4 While examining rival contentions, the Apex
Court in the aforesaid case, inter alia, noticed, firstly, that Arbitration
Act, 1940 was a consolidating and an amending statute; secondly, the said Act
was enacted in order to set up an alternative machinery for all contractual arbitration
and its provisions would apply (subject to some exceptions) even to arbitration
under any other enactment as if the arbitration was pursuant to an arbitration
agreement; thirdly, that the Arbitration Act, 1940, specifically provided for a
remedy by way of appeal from orders passed in arbitration proceedings whereas
section 39(2) expressly barred second appeal except to the Supreme Court;
fourthly, if the Legislature intended by enacting section 39(2) merely to
prohibit the appeals under section 100 of the Code of Civil Procedure, it was
unnecessary to enact an express provision showing appeals only to the Supreme
Court. On the basis of the aforesaid conclusions, the Apex Court in Mohindra
Supply Co.’s case (supra), while reversing the judgment rendered by a Full
Bench of this court [in AIR 1954 Punj. 211] held that the expression ‘second
appeal’ used in section 39(2) of the Arbitration Act, 1940, meant a further
appeal from an order passed in appeal under section 39(1) and not an appeal
under section 100 of the Code of Civil Procedure. It, therefore, concluded that
the term second appeal refers to a further appeal which numerically would be a
second appeal. In arriving at the aforesaid conclusions, the Supreme Court in
paragraph 5 noted as under:
“...Under section 39(1), an appeal lies from the orders specified in
that sub-section and from no others. The Legislature has plainly expressed
itself that the right of appeal against orders passed under the Arbitration Act
may be exercised only in respect of certain orders. The right to appeal against
other orders is expressly taken away. If by the express provision contained in
section 39(1), a right to appeal from a judgment which may otherwise be
available under the Letters Patent is restricted, there is no ground for
holding that clause (2) does not similarly restrict the exercise of appellate
power granted by the Letters Patent...” (p. 259)
And in para 6:
“...The qualifying expression ‘to the court authorised by law to hear
appeals from original decrees of the Court passing the order’ in section 39(1)
does not import the concept that the Appellate Court must be distinct and
separate from the Court passing the order or the decree. The Legislature has
not so enacted and the context does not warrant such an interpretation. The
clause merely indicates the forum of appeal. If from the decision of a Court
hearing a suit or proceeding an appeal will lie to a judge or more judges of
the same Court, by virtue of section 39(1) the appeal will lie from the order
passed under the Arbitration Act, if the order is appealable, to such judge or
judges of that court...” (p. 260)
And again in para 6:
“...If the order is not one falling within
section 39(1), no appeal will evidently lie...” (p. 260)
27.5 After making a reference to the legislative
history in respect of the law of arbitration, in paragraphs 16 and 18, the
Supreme Court observed:
“16. Prior to 1940, the law relating to contractual arbitration (except
insofar as it was dealt with by the Arbitration Act of 1899) was contained in
the Code of Civil Procedure and certain orders passed by courts in the course
of arbitration proceedings were made appealable under the Code of 1877 by
section 588 and in the Code of 1908 by section 104. In 1940, the Legislature
enacted Act X of 1940, repealing Schedule 2 and section 104(1) clauses (a) to
(f) of the Code of Civil Procedure, 1908 and the Arbitration Act of 1899. By
section 39 of the Act, a right of appeal was conferred upon litigants in
arbitration proceedings only from certain orders and from no others and the
right to file appeals from appellate orders was expressly taken away by
sub-section (2) and the clause in section 104 of the Code of 1908 which
preserved the special jurisdiction under any other law was not incorporated in section
39. The section was enacted in a form which was absolute and not subject to any
exceptions. It is true that, under the Code of 1908, an appeal did lie under
the Letters Patent from an order passed by a Single Judge of a Chartered High
Court in arbitration proceedings even if the order was passed in exercise of
appellate jurisdiction, but that was so, because, the power of the court to
hear appeals under a special law for the time being in operation was expressly
preserved.
18. Under the Code of 1908, the right to appeal under the Letters Patent
was saved both by section 4 and the clause contained in section 104(1), but by
the Arbitration Act of 1940, the jurisdiction of the Court under any other law
for the time being in force is not saved; the right of appeal can, therefore be
exercised against orders in arbitration proceedings only under section 39, and
no appeal (except an appeal to this Court) will lie from an appellate order.”
(p. 262)
27.6 And in ultimate analysis concluded in the
following manner:
“...The Arbitration Act which is a consolidating and amending Act, being
substantially in the form of a code relating to arbitration must be construed
without any assumption that it was not intended to alter the law relating to
appeals. The words of the statute are plain and explicit and they must be given
their full effect and must be interpreted in their natural meaning,
uninfluenced by any assumptions derived from the previous state of the law and
without any assumption that the Legislature must have intended to leave the
existing law unaltered. In our view, the Legislature has made a deliberate
departure from the law prevailing before the enactment of Act X of 1940 by
codifying the law relating to appeals in section 39.” (p. 263)
28. Learned counsel for the respondents has also
invited the attention of this court to the similarities of section 39 of the
Arbitration Act, 1940 and section 37 of the Arbitration Act, 1996 (both of
which have been extracted above). Learned counsel has also relied upon the decision
rendered by the Supreme Court in State of West Bengal v. Gaurangalal Chatterjee
[1993] 3 SCC 1, on the basis of which he has tried to bridge the gap between
the present controversy and the determination of the Apex Court in Mohindra
Supply Co.’s case (supra). While referring to Mohindra Supply Co.’s case
(supra), the Apex Court in Gaurangalal Chatterjee’s case (supra) observed:
“The learned counsel for the appellant vehemently argued that since the
decision by the Supreme Court was in respect of an appeal directed against an
order passed by a learned Single Judge in exercise of appellate jurisdiction,
no second appeal lay but that principle could not be applied where the order of
learned Single Judge was passed not in exercise of appellate jurisdiction but
original jurisdiction.”
28.1 The Supreme Court on the basis of the
provisions of section 39(1) arrived at the conclusion that the aforesaid
argument was without substance. In the same context, learned counsel has also placed
reliance on Gauri Singh v. Ram Lochan Singh AIR 1948 Pat. 430, S.N. Srikantia
& Co. v. Union of India AIR 1967 Bom. 47 and Surekha Steel Ltd. v. Union of
India [1998] CWN 287.
29. Conclusions drawn in Mohindra Supply Co.’s
case (supra), have been extensively reproduced above, lest counsel may have an
impression that all their submissions have not been noted. According to learned
counsel for the respondents, the present controversy is squarely covered by the
aforesaid decision in his favour, whereas, counsel for the appellants pleads
that it has no nexus therewith. Portions of the extracts from the aforesaid
judgment may be relevant for other issues dealt with in this order, but does
the judgment deal with the issue before us? The answer to the aforesaid query
in our view is in the negative. The issue under consideration in this case is
whether an appeal against the impugned order is at all competent. In the
aforesaid case, there was no dispute that an appeal was competent. The question
deliberated upon in the aforesaid case pertained to the permissibility of an
appeal against the appellate order, i.e., a second remedy of appeal. That is
certainly not the issue before us, we, therefore, are in agreement with learned
counsel for the appellants that the decision in Mohindra Supply Co.’s case
(supra), would not be sufficient by itself to arrive at a final conclusion in
the instant case.
30. We have yet to notice the solitary contention
advanced by the learned counsel for the appellants in order to substantiate his
claim that the order passed under section 8 of the Arbitration Act, 1996, as
per legislative intent, is not meant to be final. In this behalf, learned
counsel for the appellants has placed reliance on section 11(7) of the
Arbitration Act, 1996. The aforesaid provision is being extracted hereunder:
“11(7). A decision on a matter entrusted by sub-section (4) or
sub-section (5) or sub-section (6) to the Chief Justice or the person or
institution designated by him is final.”
31. Learned counsel for the appellants has
required us to read section 8 as well as section 11(7) of the Arbitration Act,
1996, in conjunction with one another. Placing reliance on the words used in
sub-section (7) of section 11, it is submitted that finality has been given to
an order passed by the Chief Justice (or the person designated by him). In the
absence of a similar expression in section 8 of the Arbitration Act, 1996, it
is the contention of the learned counsel for the appellants, that it must be
assumed that it was not the legislative intent to give finality to the order
passed by a ‘judicial authority’ under section 8 of the Arbitration Act, 1996.
It is further argued that there was no difficulty at all for the Legislature to
have recorded a similar finality in respect of an order passed by a ‘judicial
authority’ deciding a claim for reference to arbitration under section 8 of the
Arbitration Act, 1996.
32. Learned counsel for the respondents seeks to
distinguish an order passed under section 11(7) of the Arbitration Act, 1996,
from other orders (passed under Part I of the aforesaid Act) by submitting that
the order passed by the Chief Justice (or by the person designated by him) to
appoint an arbitrator under section 11(6) of the Arbitration Act, 1996, is
merely an administrative function assigned to the Chief Justice. An order
passed under section 11(6) of the Arbitration Act, 1996, cannot be treated as a
judicial or a quasi-judicial order. It is, therefore, submitted that an order
passed by ‘judicial authority’ under section 8 of the Arbitration Act, 1996,
cannot be compared with an order passed by the Chief justice (or by the person
designated by him) under section 11(7) of the Arbitration Act, 1996. Reliance
in this behalf has been placed by the learned counsel for the appellants on a
decision rendered by the Apex Court in Konkan Railway Corporation Ltd.’s case
(supra). Certain observations made in the aforesaid judgment is paragraph 4 are
being reproduced hereunder:
“Courts must not ignore the objects and
purpose of the enactment of the 1996 Act.
5. A bare comparison of different provisions of the Arbitration Act of
1940 with the provisions of the Arbitration and Conciliation Act, 1996, would
unequivocally indicate that the 1996 Act limits intervention of court with an
arbitral process to the minimum and it is certainly not the legislative intent
that each and every order passed by an authority under the Act would be a
subject-matter of judicial scrutiny of a court of law. Under the new law, the
grounds on which an award of an arbitrator could be challenged before the court
have been severally cut down and such challenge is now permitted on the basis
of invalidity of the agreement, want of jurisdiction on the part of the
arbitrator or want of proper notice to a party of the appointment of the
arbitrator or of arbitral proceedings. The powers of the arbitrator have been
amplified by insertion of specific provisions of several matters. Obstructive
tactics adopted by the parties in arbitration proceedings are sought to be
thwarted by an express provision inasmuch as if a party knowingly keeps silent
and then suddenly raises a procedural objection, it will not be allowed to do
so. The role of institutions in promoting and organising arbitration has been
recognised. The power to nominate arbitrators has been given to the Chief
Justice or to an institution or person designated by him... Under the new law,
unless the agreement provides otherwise, the arbitrators are required to give
reasons for the award. The award itself has now been vested with the status of
a decree, inasmuch as the award itself is made executable as a decree and it
will no longer be necessary to apply to the court for a decree in terms of the
award. All these aim at achieving the sole object to resolve the dispute as
expeditiously as possible with the minimum intervention of a court of law so
that the trade and commerce is not affected on account of litigations before a
court.
7. The statement of Objects and Reasons of the Act clearly enunciates
that the main objective of the legislation was to minimise the supervisory role
of courts in the arbitral process...
8. Conferment of such power on the arbitrator under the 1996 Act
indicates the intention of the Legislature and its anxiety to see that the
arbitral process is set in motion. This being the legislative intent, it would
be proper for the Chief Justice or his nominee just to appoint an arbitrator
without wasting any time or without entertaining any contentious issues at that
stage, by a party objecting to the appointment of an arbitrator. If this
approach is adhered to, then there would be no grievance of any party and in
the arbitral proceeding, it would be open to raise any objection, as provided
under the Act.
9. But certain contingencies may arise where the Chief Justice or his
nominee refuses to make an appointment of an arbitrator and in such a case, a
party seeking appointment of an arbitrator cannot be said to be without any
remedy. Bearing in mind the purpose of legislation, the language used in
section 11(6) conferring power on the Chief Justice or his nominee to appoint
an arbitrator, the curtailment of the powers of the court in the matter of
interference the expanding jurisdiction of the arbitrator in course of the
arbitral proceeding, and above all the main objective, namely, the confidence
of the international market for speedy disposal of their disputes, the
character and status of an order appointing an arbitrator by the Chief Justice
or his nominee under section 11(6) has to be decided upon.
10. If it is held that an order under section 11(6) is a judicial or
quasi-judicial order, then the said order would be amenable to judicial
intervention and any reluctant party may frustrate the entire purpose of the
Act by adopting dilatory tactics in approaching a court of law even against an
order of appointment of an arbitrator. Such an interpretation has to be avoided
in order to achieve the basic objective for which the country has enacted the
Act of 1996 adopting the UNCITRAL Model. If on the other hand, it is held that
the order passed by the Chief Justice under section 11(6) is administrative in
nature, then in such an event in a case where the learned Chief Justice or his
nominee refuses erroneously to make an appointment, an intervention could be
possible by a court in the same way as an intervention is possible against an
administrative order of the executive. In other words, it would be a case of
non-performance of duty by the Chief Justice or his nominee, and therefore, a
mandamus would lie. If such an interpretation is given with regard to the
character of the order that has been passed under section 11(6), then in the
event an order of refusal is passed under section 11(6), it could be remedied
by issuance of a mandamus. We are persuaded to accept the second alternative
inasmuch as in such an event, there would not be inordinate delay in setting
the arbitral process in motion...” [pp. 256-59 of 2000 CLA-BL-Supp.]
32.1 Reliance was also placed on the decision
rendered by the Apex Court Konkan Railway Corpn. Ltd. v. Rani Construction (P.)
Ltd. 2002 JT (1) SC 587. It is not necessary to extract the conclusion drawn by
the Apex Court in the aforesaid judgment, in view of the fact that the view
earlier expressed in Konkan Railway Corpn. Ltd. (supra) was endorsed by the
Supreme Court in the instant case by a Constitution Bench.
33. We have deliberated on the effect of section
11(7) of the Arbitration Act, 1996. We are, however, not in agreement that an
inference can be drawn therefrom that it was not the legislative intent to
attach finality to the order passed by a ‘judicial authority’ under section 8
of the Arbitration Act, 1996. The observations made in Konkan Railway Corpn.
Ltd.’s case (supra), extracted above delineate one of the primary objectives of
the Arbitration Act, 1996, i.e., to minimise the supervisory role of courts.
The aforesaid intent is apparent from section 5 of the Arbitration Act, 1996 in
respect of which conclusions have already been drawn hereinabove, and also from
conclusions independently drawn in respect of section 37 of the Arbitration
Act, 1996.
34. Learned counsel for the appellants has
strongly contested the conclusion drawn by the learned counsel for the
respondents on the basis of the interpretation of section 37(1) of the
Arbitration Act, 1996. Striking at the root of the argument, counsel for the
appellants has submitted that a closer examination of the provisions of section
37 of the Arbitration Act, 1996 reveals that appealable orders referred to in
section 37(1) can only be such orders which have been passed by a court; and
cannot be an order passed by a ‘judicial authority’. In order to arrive at the
aforesaid conclusion, reliance has been placed by learned counsel for the
appellants on the following words used in section 37(1) of the Arbitration Act,
1996: ‘...from decrees of the court passing the order...’ Inviting the
attention of the court to section 2(e) of the Arbitration Act, 1956, wherein
the word ‘court has been defined, learned counsel for the appellants vehemently
argued that the term ‘court’ used in section 37(1) would include a civil court
of original jurisdiction in a district, and the High Court in exercise of its
original civil jurisdiction, and no other ‘court’. It is submitted that the
orders passed by a ‘judicial authority’ are clearly not within the ambit of
section 37(1) of the Arbitration Act, 1996. It is, therefore, suggested that
the expression ‘orders’ used in section 37(1) will not include an order passed
under section 8 of the Arbitration Act, 1996 because an order passed under
section 8 is not passed by a court as defined in section 2(e) of the
Arbitration Act, 1996.
35. The aforesaid argument, on first blush, seems
to be attractive. It is, however, clearly misconceived. In our view, the words
relied on by learned counsel for the appellants (extracted above) are being
read out of context. In order to examine the exact effect of the aforesaid
words, it is necessary to notice the following words in conjunction with the
words relied upon by the learned counsel for the appellants ‘...to the court
authorised by law to hear appeals from original decrees of the court passing
the order...’ It is evident from the above reproduced extract that the instant
portion of section 37(1) of the Arbitration Act, 1996 is merely limited to
determine the forum of appeal and not the authority which passed by the orders
which are appealable. In our view, the term order used in section 37(1) of the
Arbitration Act, 1996 would necessarily include all orders which can be based
under Part I of the Arbitration Act, 1996. It is not possible for us to accept
the contention of the learned counsel for the appellants that the impugned
order under reference having not been passed by a court, but having been passed
by a ‘judicial authority’, would not be governed by section 37 of the
Arbitration Act, 1996.
36. Having dealt
with all issues canvassed by learned counsel, we now endeavour to draw
conclusions based on our interpretation of section 37 of the Arbitration Act,
1996. In the absence of judicial precedent on the pointed issue, we will embark
upon the controversy on first principles. We have already concluded above that
even a remedy of appeal would not be available unless expressly provided for,
while interpreting section 5 of the Arbitration Act, 1996. We have also
concluded that the term ‘orders’ referred to in section 37 of the Arbitration
Act, 1996 refers to orders passed under Part I of the Arbitration Act, 1996.
The question then is whether the remedy of appeal is excluded against an order
passed by a ‘judicial authority’ under section 8 of the Arbitration Act, 1996?
In our view, it is the reasons for the aforesaid conclusion are the words ‘and
from no others’ qualifying the word ‘orders’. It leaves no doubt that section
37(1) of the Arbitration Act, 1996 does not delineate an inclusive list of
appealable orders, but defines the exhaustive list of orders from which an
appeal under the provisions of the Arbitration Act, 1996 is competent. Since
the list is exhaustive, and since an order passed by a ‘judicial authority’
under section 8 of the Arbitration Act, 1996 is not included therein, it would
be inevitable to conclude that the remedy of appeal therefrom is expressly
excluded.
37. Learned
counsel for the respondents (independent of the submissions noticed above),
advanced yet another argument to substantiate his claim that an appeal from an
order under section 8 of the Arbitration Act, 1996 was excluded by the
Legislature consciously and deliberately. In this behalf, attention of this court
has been invited to Part II of the Arbitration Act, 1996 (which deals with the
enforcement of certain foreign awards). It would be relevant to notice that
Part I and Part II are two exclusive self-contained and independent parts of
the Arbitration Act, 1996. Placing reliance on section 54 of the Arbitration
Act, 1996, it is submitted that section 54 in Part II of the Arbitration Act,
1996 has the same scope and effect as section 8 has in Part I of the
Arbitration Act, 1996. In order to ascertain the similarity between the two
provisions, section 54 is being reproduced below:
“54. Power of judicial authority to refer parties to
arbitration.—Notwithstanding anything contained in Part I or in the Code of
Civil Procedure, 1908 (5 of 1908), a judicial authority, on being seized of a
dispute regarding a contract made between persons to whom section 53 applies
and including an arbitration agreement, whether referring to present or future
differences, which is valid under that section and capable of being carried
into effect, shall refer the parties on the application of either of them or
any person claiming through or under him to the decision of the arbitrators and
such reference shall not prejudice the competence of the judicial authority in
case the agreement or the arbitration cannot proceed or becomes inoperative.”
37.1 A plain reading of section 8 and section 54
leaves no doubt that the scope of these two provisions is similar; while the
former applies to the domestic arbitration, the latter applies to foreign
arbitrations. It is pointed out that section 59 provides for appeals in respect
of orders passed under Part II. Section 59 is also being reproduced hereunder:
“59. Appealable orders.—(1) An appeal shall
lie from the order refusing—
(a) to refer the parties to arbitration under
section 54; and
(b) to
enforce a foreign award under section 57, to the court authorised by law to
hear appeals from such order.
(2) No
second appeal shall lie from an order passed in appeal under this section, but
nothing in this section shall affect or take away any right to appeal to the
Supreme Court.”
37.2 The contention
of the learned counsel for the respondents is that when an appeal has been
provided for against an order passed under section 54 and not an order passed
under section 8 of the Arbitration Act, 1996, it is clear that it was the
legislative intent not to provide for an appeal against an order passed under
section 8 of the Arbitration Act, 1996.
38. Based on the
issues dealt with above we have already recorded our conclusions which we again
endeavour to summarise as under:
38.1 Firstly, the
Arbitration Act, 1996 is an exhaustive and comprehensive code on the law of
arbitration in India, and section 5 of the Arbitration Act, 1996 makes it
exclusive on matters contained in Part I of the Arbitration Act, 1996 by
excluding intervention of ‘judicial authorities’ on matters regulated therein
through a non obstante clause.
38.2 Secondly,
section 37 of the Arbitration Act, 1996 excludes, by use of the words ‘and from
no others’, the remedy of appeal against an order passed by a ‘judicial
authority’ while deciding the claim for reference to an arbitrator made under
section 8 of the Arbitration Act, 1996.
38.3 Thirdly, on a
conjoint reading and comparison of sections 8 and 37 of the Arbitration Act,
1996, on the one hand with sections 54 and 57 of the said Act, on the other,
the legislative intent to exclude the remedy of appeal against an order passed
by a ‘judicial authority’ while deciding a claim for reference to an arbitrator
under section 8 of the Arbitration Act, 1996 is clearly in the affirmative.
39. By the order of the Supreme Court dated 19th
November, 2001, referred to above, we were required to hear and decide
objection as to the maintainability of the instant appeal raised by the
respondents and also to hear and decide the application seeking
vacation/modification of the interim directions issued on 22nd August, 2001 by
a reasoned order. Through the aforesaid deliberations, we have concluded that the
instant appeal is not maintainable. It is, therefore, not necessary to dwell
upon the second aspect of the matter.
40. For the reasons recorded above, the instant
appeal is dismissed as not maintainable.
41. Since the proceedings before the CLB had been
stayed, parties through their counsel are directed to appear before the CLB on
1st May, 2002.
[1994] 80 COMP. CAS. 267 (RAJ)
HIGH COURT OF RAJASTHAN—JAIPUR BENCH
v.
Daulat Ram Kashyap
G.S. SINGHVI J.
S.B. Company Appeal No. 1 of 1993
JANUARY 11, 1994
C.K. Garg and G.K. Garg for
the appellant.
Arvind Khullar for the respondents.
G.S. Singhvi J.—This company appeal has been filed under
section 10F of the Companies Act, 1956 (for short, "the Act"), with a
prayer to quash the order dated July 30, 1993, passed by the Company Law Board
in Company Petition No. 6 of 1993, Gharib Ram Sharma v. Daulat Ram Kashyap.
Respondent No. 3 is a private
limited company incorporated with the object to carry on business as
manufacturers, exporters, importers and dealers in plywood, hardwood, veneer,
blocks of flooring and various other purposes. The authorised capital of the
company is Rs. 4 lakhs only divided into 4,000 equity shares of Rs. 100 each. These shares are divided into
two groups, one led by respondent No. 2 and the other led by respondent No. 1.
Respondents Nos. 1 and 2 were the first two directors of the company and this
position continued till May 7, 1991. On May 7, 1991, respondent No. 2 ceased to
be a director because he absented himself from three consecutive meetings of
the board of directors held on December 15, 1990, February 28, 1991, and April
10, 1991. On May 7, 1991, the appellant was taken as a director on the board of
directors of the company. After the appellant took over as one of the directors
of respondent No. 3, a number of developments have taken place. A criminal case
has also been instituted between the parties. According to the appellant,
respondent No. 1 took steps for revival of the unit, and since the company has
been making steady progress, respondent No. 2, who had gone out of the picture,
filed a petition under sections 397 and 398 of the Act against respondents Nos.
1 and 3 alleging mismanagement and oppression. The appellant has not been
impleaded as a party in the said petition even though he has been described as
a stranger in the petition filed by respondent No.2. In the reply filed by
respondent No. 1, it came to be alleged that the appellant has been inducted as
director of the company. A rejoinder came to be filed by respondent No. 2
before the Company Law Board. But he did not take any step to implead the
appellant as a party before the Company Law Board. Final arguments were heard
by the Company Law Board even in the absence of the appellant and after hearing
the final arguments, the Company Law Board passed the impugned order dated July
30, 1993, directing that the petitioner, O.S. Dhawan (respondent No. 2 in the
appeal), and Daulat Ram Kashyap (respondent No. 1 in the appeal), who are only
directors of the company will jointly manage the business and no transaction,
including sale or purchase of any raw material or finished product, disposal of
the assets of the company and any other matter arising out of the ordinary
course of business can be conducted unless it is approved by both the
directors.
This order has been assailed by
the appellant on the ground that the Company Law Board has acted without
jurisdiction and that this order is contrary to the principles of natural
justice apart from being arbitrary and unreasonable.
Shri C.K. Garg, learned counsel
for the appellant, has argued that once the appellant has been lawfully
inducted as a director of the company, no order could be made by the Company
Law Board affecting the business of the company without a notice to the
appellant. Shri Garg argued that the
Company Law Board had no authority to pass an order in the nature of one passed
on July 30, 1993. Shri Garg drew the attention of the court to the provisions
of section 10 of the Act and submitted that section 10E of the Act contains a
statutory adoption of the principles of natural justice and this provision has
been breached by the Company Law Board.
Shri Arvind Khullar, learned
counsel for respondent No. 2, argued that the appeal against the order dated
July 30, 1993, is not maintainable under section 10F of the Act and, therefore,
the appellant cannot seek any remedy from this court. Shri Kullar argued that
an order to be appealable under section 10F must be an order which finally
decides the rights of the parties and since the impugned order does not decide
the rights of the parties, the appeal filed by the appellant, Gharib Ram
Sharma, is liable to be dismissed. He further argued that the removal of
respondent No. 2 from the board was itself unlawful. A fraud had been played by
respondent No. 1 and such fraudulent act cannot be made the basis for making a
claim before this court.
In order to decide the
controversy between the parties, it will be necessary to make a brief reference
to the documents which have been placed on record. Annexure A filed along with
this appeal is a photostat copy of the minutes book containing the minutes of
the meeting of the board of directors, held on May 7, 1991, at Bhiwandi. In
paragraph 1 of these minutes, it has been noted that as per article 51 of the
articles of association of the company and under section 283(1)(g) of the
Companies Act, 1956, Shri O.S. Dhawan, who has absented himself without leave
during the three consecutive meetings held on December 15,1990, February 28,
1991, and April 10, 1991, has ceased to be the director of the company. Para 2
of the minutes shows that in terms of article 33 of the articles of
association, the appellant has been inducted as a director. The second document
is the copy of the minutes of the fifth annual general meeting of respondent
No. 3. Para 8 of these minutes shows that a resolution was passed to the effect
that the appellant shall be appointed as a director, not liable to retire by
rotation. The third document is Form No. 32. This form contains information
regarding induction of the appellant as a director and cessation of respondent
No. 2 as a director. The next three documents are minutes of meetings of the
directors held on December 15, 1990, February 28, 1991, and April 10, 1991. All
these minutes show that the meetings had been adjourned for want of quorum.
Another document is the first information report lodged by Gautam, son of Ram
Bharat, against respondent No. 2 alleging commission of offences under sections
461, 382, 279 and 342 of the
Indian Penal Code. Annexure G is the petition filed by respondent No. 2, before
the Company Law Board under sections 397 and 398 of the Act. Annexure H is an
application filed by respondent No. 2 under regulation 46 of the Company Law
Board Regulations, 1991.
Sections 10E and 10F of the Act
deserve to be quoted for the purpose of proper appreciation of the contentions
raised by learned counsel for respondent No. 2 that the appeal is not
maintainable against an order passed by the Company Law Board which does not
finally decide the controversy raised before :
"10E. Constitution of Board
of Company Law Administration.— (a) As soon as may be after the commencement of
the Companies (Amendment) Act, 1963, the Central Government shall, by
notification in the Official Gazette, constitute a board to be called the Board
of Company Law Administration to exercise and discharge such powers and
functions conferred on the Central Government by or under this Act or any other
law as may be delegated to it by that Government".
"10F. Any person aggrieved
by any decision or order of the Company Law Board may file an appeal to the
High Court within sixty days from the date of communication of the decision or
order of the Company Law Board to him on any question of law arising out of
such order :
Provided that the High Court may,
if it is satisfied that the appellant was prevented by sufficient cause from
filing the appeal within the said period, allow it to be filed within a further
period not exceeding sixty days".
A look at the provisions, quoted
hereinabove, clearly shows that the Company Law Board has been empowered to
exercise the powers and discharge functions as provided by the Act, or any
other law as also those powers and functions which are conferred upon it by the
Central Government by a notification issued in the Official Gazette either
under the Act or under any other law. Sub-section (5) of section 10E provides
that the Company Law Board shall be guided by the principles of natural
justice. Sub-section (6) of section 10E of the Act empowers the Company Law
Board to regulate its own procedure, but power conferred under this provision
is subject to other clauses. Section 10F provides for an appeal to the High
Court against any decision or order of the Company Law Board against which any
person may be aggrieved. The period of limitation of appeal is 60 days with
power to the High Court to extend the period of limitation by another sixty days on showing of sufficient
cause by the appellant. The expression "any person aggrieved by any
decision or order of the Company Law Board" shows that any person
aggrieved against any decision or order passed by the Company Law Board can
file an appeal and that appeal is maintainable. Shri Khullar wants this court
to give a restrictive and narrow meaning to the words "any other
order" by applying the principle of ejusdem generis. He submits that the
language employed in section 10F is in pari materia to section 18 of the
Rajasthan High Court Ordinance, 1949, and since under the High Court Ordinance
an appeal against interlocutory order is not maintainable, the appeal filed by
the appellant against the order, which is interlocutory in nature, should be
dismissed without considering it on merits. I am of the considered view that
there is no justification for importing the interpretation which has been
placed on section 18 of the Rajasthan High Court Ordinance, 1949, for the
purpose of interpreting section 10F of the Act. The language employed in
section 18 shows that an appeal is maintainable to the High Court against the
judgment of one judge of the High Court. This jurisdiction is also not
available in cases where the judgment has been passed in exercise of appellate
jurisdiction in respect of a decree or order made in exercise of appellate
jurisdiction by a court subject to the superintendence of the High Court. Such
appeal is also not maintainable against an order made in exercise of revisional
jurisdiction, or a sentence or order passed under section 43 in exercise of
criminal jurisdiction. It is, therefore, clear that no expression like
"any decision or order" has been incorporated in section 18 of the
Rajasthan High Court Ordinance, 1949. The very use of the words "any
decision or order" shows that an appeal can be filed against any order of
the Company Law Board. That would obviously include an order which may not
finally decide the rights of the parties. Thus, I hold that the appeal filed by
the appellant under section 10F is maintainable as against the order dated July
30, 1993, passed by the Company Law Board.
On the merits of the case, I may
observe that a number of arguments have been advanced by either side, but in my
opinion, it is not necessary to deal with all of them. In my opinion, the
appeal deserves to be allowed on the short ground that the Company Law Board
has passed the impugned order in violation of the principles of natural
justice. The allegations levelled by respondent No. 2 in the petition show that
they relate to the alleged oppression and mismanagement. Respondent No. 1 has
contested the petition and, in his reply, respondent No. 1 has categorically
stated that while the petitioner has ceased to be a director, the appellant in this
appeal has been appointed as a director
on the board of directors in accordance with section 260 of the Act and article
47 of the articles of association. It can, thus, be said that while respondent
No. 2 is fully aware of the fact that the appellant is one of the directors of
the company and the Company Law Board has been appraised of the fact that the
appellant is the director of respondent No. 3, so far as respondent No. 2 is
concerned, he has not taken any step to implead him as appellant in the proceedings.
The Company Law Board proceeded on the erroneous assumption that Shri O.S.
Dhawan continues to be a director of the company. In fact, the Company Law
Board has passed the order by presuming that only respondents No. 1 and 2 are
directors of the company. Clearly, the Company Law Board has ignored the basic
principles of natural justice. The Company Law Board has failed to act in
consonance with the requirement of the principles of natural justice while
passing the impugned order. Once the appellant has been inducted on the board
of the company, it was imperative for the Company Law Board to have issued a
notice to the appellant before making an order which could affect the position
of the appellant as a director. If there is any dispute regarding the validity
of the resolution passed on May 7, 1991, declaring that respondent No. 2 has
ceased to be on the board and induction of the appellant as director is
challenged by respondent No. 2, the minimum which was required to be done by
the Company Law Board was to give an opportunity of hearing to the appellant.
This having not been done, there is no escape from the conclusion that the
impugned order is liable to be set aside on the ground of breach of principles
of natural justice.
For the reasons stated above, the
appeal succeeds and it is hereby allowed. The order dated July 30, 1993, passed
by the Company Law Board is declared illegal and it is hereby quashed. The
parties are left to bear their own costs.
COMPANIES ACT
[1995] 4 SCL 42 (SC)
SUPREME COURT OF
v.
Nuclear Power Corporation of India Ltd.
AND K.S. PARIPOORNAN, JJ.
CIVIL APPEAL NO. 3206 OF 1995
[ARISING OUT OF S.L.P. (C) NO.
17009 OF 1994]
TRANSFER PETITION (CIVIL) NO.
559 OF 1994
MARCH 6, 1995
Section 10E of the
Companies Act, read with Special Court (Trial of Offences relating to
Transactions in Securities) Act, 1992 - Company Law Board -Whether jurisdiction
of Company Law Board to deal with matters relating to securities, provided by
the Companies Act, 1956, has remained unaffected by the Special Court Act -
Held, no
Section 9A of the Special
Court (Trial of Offences relating to Transactions in Securities) Act, 1992 -
Special Court - Jurisdiction of - Whether CLB is a 'Court' for purposes of
section 9A of Special Court Act - Held, yes - Whether when section 9A(2) speaks
of the transfer of 'every suit, claim or other legal proceeding (other than an
appeal)', it excludes the 'application' or appeal made under the provisions of
section 111 of the Companies Act from the purview of section 9A(1) of the
Special Court Act - Held, no
Section 111 of the Companies
Act, 1956 - Transfer of shares - Refusal of -Whether words 'appeal' and
'application' in the context of the provisions of section 111 have, the same
meaning and it is, plainly, an original application that is made - Held, yes
FACTS
The appellant bank had made an
application before the CLB under section 111 of the Companies Act seeking
relief against (the first respondent), which had refused to register in its
books in the name of the appellant bank bonds of the NPC purchased by the
appellant bank. The fourth respondent had also claimed ownership of the said
bonds. The appellant bank alleged that it had acquired the said bonds from the
third respondent through the second respondent who had acted as a broker. The
broker was a person notified under the provisions of section 3(2) of the
Special Court Act. The application of the appellant bank was pending disposal
before the CLB when, on 25-1-1994, the Special Court Act was amended by the Special Court (Trial of
Offences Relating to Transactions in Securities) Amendment Ordinance, 1994, and
section 9A was introduced. The appellant bank and the NPC took the stand that
the application of the appellant bank stood transferred to the Special Court by
virtue of the provisions of section 9A(2) of the Special Court Act. The CLB
held that it was not a Court within the meaning of the Companies Act nor was it
a civil court. Its jurisdiction was, therefore, unaffected by the provisions of
section 9A(2) of the Special Court Act.
On appeal:
HELD
Sub-section (2) of section 9A of
the Special Court Act mandates transfer to the Special Court of 'every suit,
claim or other legal proceedings (other than an appeal) 'which is pending
before any Court on the commencement of the Amendment Ordinance in which the
cause of action, Inter alia, arises out of a transaction in securities entered
into between the stated dates in which a notified person is involved. It is, therefore,
the proceeding in the Court of first instance that stands transferred. If the
Court of first instance has finally disposed of the proceeding and its order
thereon is the subject of an appeal, the appeal does not stand transferred.
The word 'Court 'must be read in
the context in which it is used in a statute. It is permissible, given the
context, to read it as comprehending the courts of civil judicature and Courts
or some tribunals exercising curial, or judicial, powers. In the context in
which the word 'court' is used in section 9A of the Special Court Act, it is
intended to encompass all curial or judicial bodies which have the jurisdiction
to decide matters or claims, Inter alia, arising out of transactions in
securities entered into between the stated dates in which a person notified is
involved Under section 111 as amended with effect from 31-5-1991, the CLB
performs the functions that were theretofore performed by courts of civil
judicature under section 155. It is empowered to make orders directing
rectification of the company's register, as to damages, costs and incidental
and consequential orders. It may decide any question relating to the title of
any person who is a party before it, to have his name entered upon the
company's register and any question which it is necessary or expedient to
decide. It may make interim orders. Failure to comply with any order visits the
company with a fine. In regard to all these matters it has exclusive
jurisdiction (except under the provisions of the Special Court Act). In
exercising its function under section 111 the CLB must, and does, act
judicially. Its orders are appealable. The CLB, further is a permanent body
constituted under a statute. It is difficult to see how it can be said to be
anything other than a court, particularly for the purposes of section 9A of the
Special Court Act.
Sub-sections (2) and (3) of
section 111 of the Companies Act term the pleading that the person aggrieved
has to file before the CLB an 'appeal', sub-section (4) requires the person aggrieved to apply, sub-section (5)
speaks of it as an 'appeal' or an 'application', sub-section (7) as an
'application' and sub-section (10) as an 'appeal or application 'which shall be
made by a 'petition in writing'. The words 'appeal' and 'application' in the
context of the provisions of section 111 have, the same meaning and it is,
plainly, an original application that is made. When section 9A(2) of the
Special Court Act speaks of the transfer of 'every suit, claim or other legal
proceeding (other than an appeal)' it does not exclude the 'application' or
'appeal' made under the provisions of section 111 of the Companies Act from the
purview of section 9A(1) of the Special Court Act.
Accordingly, the application
of the appellant pending before the CLB should stand transferred to the Special
Court constituted under the provisions of the Special Court (Trial of Offences
relating to Transactions in Securities) Act.
Decision of the Company Law Board
in Canara Bank v. Nuclear Power Corpn. of India Ltd [1994] 2 SCL 52 reversed.
CASES REFERRED TO
Harinagar Sugar Mills Ltd v.
Shyam Sundar Jhunjhunwala [1962] 2 SCR 339, Kihota Hollohan v. Zachillhu [1992]
Suppl. 2 SCC 651 and Thakur Jugal Kishore Sinha v. Sitamurhi Central
Co-operative Bank Ltd. AIR 1967 SC 1494.
Harish N. Salve, Ms. Sunita
Dutt and Ms. Meenakshi
Grover for the Appellant. J.C. Seth, Ms. Rachana Joshi Issar, F.S.
Nariman, M.H. Baig, Ms. Ritu Bhalla, Ms. Monika Sharma and S.S. Shroff for
the Respondent.
JUDGMENT
Bharucha, J. - Leave granted.
1. This is an appeal from the judgment and order of the Company Law Board
'CLB' which raises an interesting question as to the exclusive jurisdiction of
the Special Court constituted under the provisions of the Special Court (Trial
of Offences relating to Transactions in Securities) Act, 1992. The CLB has held
that its jurisdiction to deal with matters relating to securities provided by
the Companies Act, 1956, is not affected by the Special Court Act*.
The question arose in these
circumstances. The Canara Bank (the appellant) had made an application before
the CLB under section 111 of the Companies Act seeking relief against the
Nuclear Power Corporation of India Ltd. (the first respondent), which had
refused to register in its books in the name of the Canara Bank bonds of the
Nuclear Power Corporation purchased by the Canara Bank. The Standard Chartered
Bank (the fourth respondent) had also claimed ownership of the said bonds. The
Canara Bank alleged that it had acquired the said bonds from the Andhra Bank
Financial Services Ltd. (the third respondent) through one Hiten P. Dalai, (the
second respondent) who had acted as a broker. Hiten P. Dalai is a person
notified under the provisions of section 3(2) of the Special Court Act and was,
as the application of the Canara Bank before the CLB showed, involved as a
broker in the transaction relating to the said bonds. The application of the
Canara Bank was pending disposal before the CLB when, on 25-1-1994, the Special
Court Act was amended by the Special Court (Trial of Offences Relating to
Transactions in Securities) Amendment Ordinance, 1994, and section 9A was
introduced. The Canara Bank and the Nuclear Power Corporation took the stand
that the application of the Canara Bank stood transferred to the Special Court
by virtue of the provisions of section 9A(2). The Standard Chartered Bank
(Stanchart) contended that the CLB retained the jurisdiction to deal with the
application. The CLB held that it was not a Court within the meaning of the
Companies Act nor was it a civil court. Its jurisdiction was, therefore,
unaffected by the provisions of section 9A(2).
The Special Court Act
2. The
Special Court Act was enacted to provide for the establishment of a Special
Court for the trial of offences relating to transactions in securities and
matters connected therewith or incidental thereto. Securities were defined in
section 2(c) to include shares, scrips, stocks, bonds, debentures, debenture
stock, units and other marketable securities of a like nature, Government
securities and rights or interests in securities. Section 3(1) provided for the
appointment by the Central Government of a Custodian. By reason of section 3,
the Custodian was empowered, on being satisfied on information received that
any person had been involved in any offence relating to transactions in
securities after 1-4-1991, and before 6-6-1992 (the stated dates), to notify
the name of such person in the Official Gazette. On and from the date of such
notification, by reason of section 3(3), property, movable and immovable,
belonging to the person notified stood attached and, by reason of section 3(4),
could be dealt with by the Custodian in such manner as the Special Court
directed. Section 4(1) empowered the Custodian, if he was satisfied, after such
inquiry as he thought fit, that any contract or agreement entered into at any
time between the stated dates in relation to any property of a person notified
had been entered into fraudulently or to defeat the provisions of the Special
Court Act, to cancel such contract or agreement and, on such cancellation, such
property stood attached. Such cancellation was required to be preceded by a
reasonable opportunity to the parties to the contract or agreement to be heard.
Any person aggrieved by a notification under section 3(2) or section 4(1) was
entitled to file a petition of objection before the Special Court. The Special
Court was established by section 5. It was to consist of a sitting Judge of the
High Court nominated by the Chief Justice of the High Court within the local
limits of whose jurisdiction the Special Court was situated, with the
concurrence of the Chief Justice of India. Section 6 empowered the Special
Court to take cognizance of and try such cases as were instituted before it or
transferred to it. Section 7 dealt with the jurisdiction of the Special Court
and it reads thus :
"7. Jurisdiction of Special Court. - Notwithstanding anything
contained in any other law, any prosecution in respect of any offence referred
to in subsection (2) of section 3 shall be instituted only in the Special Court
and any prosecution in respect of such offence pending in any court shall stand
transferred to the Special Court."
Section 9 made provision for the procedures and powers of the Special
Court. It stated that the Special Court should in the trial of cases before it
follow the procedure prescribed by the Code of Criminal Procedure, 1908, for
the trial of warrant cases before a Magistrate. It was also provided that the
Special Court would be deemed to be a Court of Session, having all the powers
of such a Court. Section 10 provided that an appeal would lie from any
judgment, decree, sentence or order, not being an inter-locutory order, of the
Special Court to the Supreme Court, both on facts and on law. By reason of
section 11(1), the Special Court could make such order as it deemed fit
directing the Custodian in the matter of disposal of property under attachment.
Section 11 (2) set out the order in which the liabilities of the persons
notified had to be discharged. Section 13 stated that the provisions of the Act
would have effect notwithstanding anything inconsistent therewith contained in
any other law for the time being in force, or in any instrument having effect
by virtue of any law, or in any decree or order of any Court, Tribunal or other
authority. By reason of section 15 of the Special Court (Trial of Offences
Relating to Transactions in Securities) Amendment Ordinance, 1992, which
preceded the Special Court Act was, repealed.
3. The
Special Court (Trial of Offences Relating to Transactions in Securities)
Amendment Ordinance, was brought into effect on 25-1-1994. The provision
thereof which is most relevant for our purpose is section 9A. It reads thus:
"Jurisdiction, powers,
authority and procedure of Special Court in civil matters.—(1) On and from the
commencement of the Special Court (Trial of Offences Relating to Transactions
in Securities) Amendment Ordinance, 1994, the Special Court shall exercise all
such jurisdiction, powers and authority as were exercisable, immediately before
such commencement, by any civil court in relation to any matter or claim—
(a) relating
to any property standing attached under sub-section (3) of section 3;
(b) arising
out of transactions in securities entered into after the 1st day of April, 1991
and on or before the 6th day of June, 1992, in which a person notified under
sub-section (2) of section 3 is involved as a party, broker, intermediary or in
any other manner;
(2) Every suit, claim or other legal proceedings (other than on appeal)
pending before any court immediately before the commencement of the Special
Court (Trial of Offences Relating to Transactions in Securities) Amendment
Ordinance, 1994, being a suit claim or proceeding, the cause of action whereon
it is based is such that it would have been, if it had arisen after such
commencement, within the jurisdiction of the Special Court under sub-section
(1), shall stand transferred on such commencement to the Special Court and the
Special Court may, on receipt of the records of such suit, claim or other legal
proceeding, proceed to deal with it, so far as may be, in the same manner as a
suit, claim or legal proceeding from the stage which was reached before such
transfer or from any earlier stage of de novo as the Special Court may deem
fit.
(3) On and from the commencement of the Special Court (Trial of Offences
Relating to Transactions in Securities) Amendment Ordinance, 1994, no court
other than the Special Court shall have or be entitled to exercise, any
jurisdiction, power or authority in relation to any matter or claim referred to
in sub-section (1).
(4) While dealing with cases relating to any matter or claim under this
section, the Special Court shall not be bound by the procedure laid down by the
Code of Civil Procedure, 1908 (5 of 1908), but shall be guided by the
principles of natural justice, and subject to the other provisions of this Act
and of any rules, the Special Court shall have the power to regulate its own
procedure.
(5) Without prejudice to the other powers conferred under this Act, the
Special Court shall have, for the purposes of discharging its functions under
this section, the same powers as are vested in a civil court under the Code of
Civil Procedure, 1908 (5 of 1908), while trying a suit, in respect of the
following matters, namely:
(a) summoning and enforcing the attendance of
any person and examining him on oath:
(b) requiring the discovery and production of
documents;
(c) receiving evidence on affidavits;
(d) subject
to the provisions of sections 123 and 124 of the Indian Evidence Act, 1872,
requisitioning any public record or document or copy of such record or document
from any office;
(e) issuing commissions for the examination or
witnesses or documents;
(f) reviewing its decisions;
(g) dismissing a case for default or deciding it
ex parte;
(h) setting aside any order of dismissal of any
case for default or any order passed by it ex parte, and
(i) any
other matter which may be prescribed by the Central Government under
sub-section (1) of section 14."
The Amendment Ordinance also introduced section 9B. It invested the
Special Court with the jurisdiction and powers of a Court conferred under the
Arbitration Act, 1940, to decide any question forming the subject-matter of a
reference relating to any matter or claim mentioned in section 9A(1). Every
suit or other proceeding (other than an appeal) in relation to any matter or
claim referred to in section 9A(1) pending before any Court and governed by the
Arbitration Act stood transferred to the Special Court on the date of
commencement of the Amendment Ordinance.
4. An Act replaced
the Amendment Ordinance. The Statement of Objects and Reasons thereof said :
"Under the provisions of the Special Court (Trial of Offences
Relating to Transactions in Securities) Act, 1992, a Special Court was set up
at Bombay and a Custodian was appointed to deal with the situation arising out
of the large scale irregularities and malpractices which were noticed in the
securities transactions of banks, to ensure the speedy trial of the offenders,
to recover the amounts involved and to attach the properties of the offenders
with a view to prevent diversion of such properties by the persons responsible
for these offences.
2. During the course of the trial of these cases, the jurisdiction of the
Special Court, particularly in matters of civil claims, was being challenged
for want of specific provisions in the Act. The Special Court, therefore,
needed to be conferred with civil jurisdiction. For the said purpose, the
Special Court (Trial of Offences Relating to Transactions in Securities)
Amendment Ordinance, 1994, was promulgated by the President on the 25th
January, 1994...."
Analysis of section 9A.
5. By
reason of sub-section (1) of section 9A, on and from the date of commencement
of the Amendment Ordinance the Special Court exercises all such jurisdiction,
powers and authority as were exercisable by any civil court in relation to any
matter or claim (a) relating to any property standing attached and (b) arising
out of transactions in securities entered into between the stated dates in
which a notified person was in any manner involved. By reason of sub-section
(2) any suit, claim or other legal proceeding (other than an appeal) pending
before any Court immediately before the commencement of the Amendment
Ordinance, being a suit or proceeding the cause of action whereof was such that
it would have, if it had arisen after the commencement of the Amendment
Ordinance, been within the jurisdiction of the Special Court, stands
transferred to the Special Court. By reason of sub-section (3), on and from the
commencement of the Amendment Ordinance no Court other than the Special Court
may exercise any jurisdiction, powers or authority in relation to any matter or
claim referred to in sub-section (1).
Sub-section (1) of section 9A empowers the Special Court to exercise the
jurisdiction, powers and authority exercisable by a civil court. It so empowers
the Special Court in relation to any matter or claim, Inter alia, that arises
out of transactions in securities entered into between the stated dates in
which a notified person is involved. The words 'civil court' are used in the
context of the jurisdiction, powers and authority that the Special Court may
exercise. The Special Court is empowered to exercise such jurisdiction, powers
or authority in relation to the matters or claims therein specified. These
matters or claims include those arising out of transactions in securities
entered into between the stated dates in which a notified person is involved.
Sub-section (2) of section 9A deals with the transfer of certain suits, claims or
other legal proceedings (other than an appeal) to the Special Court. Every
suit, claim or other legal proceeding pending before any Court the cause of
action whereof is such that, had it arisen after the commencement of the
Amendment Ordinance, the suit, claim or other legal proceeding would have had
to be filed before the Special Court, stands transferred to the Special Court.
Every suit, claim or other legal proceeding pending before any Court the cause
of action whereof arises out of transactions in securities entered into between
the stated dates in which a notified person is involved would, therefore, if it
is pending before any Court on the date on which the Amendment Ordinance came
into force, stand transferred to the Special Court. By reason of sub-section
(3) of section 9A, on and after the commencement of the Amendment Ordinance, no
Court other than the Special Court may exercise any jurisdiction, powers or
authority in relation to any matter or claim referred to in sub-section (1),
that is to say, in relation to any matter or claim, Inter alia, arising out of
transactions in securities entered into between the stated dates in which a
notified person is involved.
6. A
'Court' other than the Special Court is debarred, by reason of subsection (3)
of section 9A, from exercising any jurisdiction, powers or authority, after the
commencement of the Amendment Ordinance, in relation to any matter or claim
arising out of transactions in securities entered into between the stated dates
in which a notified person is involved. Sub-section (2) of section 9A also
speaks of a 'Court'; a proceeding before a Court, the cause of action of which
arises out of a transaction in securities entered into between the stated dates
in which a notified person is involved, stands transferred to the Special
Court. The question, in these circumstances, is whether the use of the words
'civil court' in subsection (1) excludes the application of section 9A to the
CLB?
Sub-section (1) of section 9A is divisible into two parts. By the first
part, the Special Court is empowered to exercise, on and from the commencement of the Amendment Ordinance, all such
jurisdiction, powers and authority as were exercisable before such commencement
by any civil court. By the second part, the Special Court is empowered to
exercise such jurisdiction, powers or authority in regard to the matters or
claims therein specified, which include matters or claims arising out of
transactions in securities entered into between the stated dates in which a
notified person is involved. So read, the Special Court has the jurisdiction,
powers and authority of a civil court to exercise the same in regard to matters
or claims arising out of transactions in securities entered into between the
stated dates in which a notified person is involved. Subsection (1) of section
9A, therefore, invests the Special Court with the jurisdiction, powers and
authority necessary for the purposes of entertaining matters or claims of the
nature specified therein. Sub-section (2) provides for the transfer of such
matters or claims pending in any Court to the Special Court on the commencement
of the Amendment Ordinance. And sub-section (3) expressly debars any Court
other than the Special Court from exercising any jurisdiction, powers or authority
in relation to such matters or claims.
The question to pose, therefore,
is: is the CLB a Court ? If it is, it is divested of the jurisdiction, powers
and authority to entertain matters or claims arising out of transactions in securities
entered into between the stated dates in which a notified person is involved,
by reason of sub-section (3); and, by reason of sub-section (2), such matters
or claims pending before it on the commencement of the Amendment Ordinance
stand transferred to the Special Court.
7. While on section 9A, it must also be noted that sub-section (2) thereof
mandates transfer to the Special Court of 'every suit, claim or other legal
proceedings (other than an appeal)' which is pending before any Court on the commencement
of the Amendment Ordinance in which the cause of action, Inter alia, arises out
of a transaction in securities entered into between the stated dates in which a
notified person is involved. It is, therefore, the proceeding in the Court of
first instance that stands transferred. If the Court of first instance has
finally disposed of the proceeding and its order thereon is the subject of an
appeal, the appeal does not stand transferred.
Section 111 of the Companies
Act
8. Section
111 with effect from 31-5-1991, reads thus :
"Power to refuse
registration and appeal against refusal. - (1) If a company refuses, whether in
pursuance of any power of the company under its articles or otherwise, to
register the transfer of, or the transmission by operation of law of the right
to, any shares or interest of a member in, or debentures of, the company, it
shall, within two months from the date on which the instrument of transfer, or
the intimation of such transmission, as the case may be, was delivered to the company,
send notice of the refusal to the transferee and the transferor or to
the person giving intimation of such transmission, as the case may be, giving
reasons for such refusal.
(2) The transferor or transferee, or the person who gave intimation of
the transmission by operation of law, as the case may be, may appeal to the
Company Law Board against any refusal of the company to register the transfer
or transmission, or against any failure on its part within the period referred
to in sub-section (1), either to register the transfer or transmission or to
send notice of its refusal to register the same.
(3) An appeal under sub-section (2) shall be made within two months of
the receipt of the notice of such refusal or, where no notice has been sent by
the company, within four months from the date on which the instrument of
transfer, or the intimation of transmission, as the case may be, was delivered
to the company.
(4) If-
(a) the name of any person—
(i) is, without sufficient cause, entered
in the register of members of a company, or
(ii) after having been entered in the
register, is, without sufficient cause, omitted therefrom; or
(b) default
is made,or unnecessary delay takes place, in entering in the register the fact
of any person having become, or ceased to be, a member including a refusal
under sub-section (1),
the person aggrieved, or any member of the company, or the company, may
apply to the Company Law Board for rectification of the register.
(5) The Company Law Board, while dealing with an appeal preferred under
sub-section (2) or an application made under sub-section (4) may, after hearing
the parties, either dismiss the appeal or reject the application, or by order—
(a) direct
that the transfer or transmission shall be registered by the company and the
company shall comply with such order within ten days of the receipt of the
order ; or
(b) direct
rectification of the register and also direct the company to pay damages, if
any, sustained by any party aggrieved.
(6) The Company Law Board, while acting under
sub-section (5), may, at its discretion, make—
(a) such interim orders, including any orders as
to injunction or stay, as it may deem fit and just;
(b) such orders as to costs as it thinks fit;
and
(c) incidental
or consequential orders regarding payment of dividend or the allotment of bonus
or rights shares.
(7) On any application under this section, the
Company Law Board—
(a) may decide any question relating to the
title of any person who is a party to the application to have his name entered
in, or omitted from, the register;
(b) generally, may decide any question which it
is necessary or expedient to decide in connection with the application for
rectification.
(8) The provisions of
sub-sections (4) to (7) shall apply in relation to the rectification of the
register of debenture holders as they apply in relation to the rectification of
the register of members.
(9) If default is made in giving
effect to the orders of the Company Law Board under this section, the company
and every officer of the company who is in default shall be punishable with
fine which may extend to one thousand rupees, and with a further fine which may
extend to one hundred rupees for every day after the first day after which the
default continues.
(10) Every appeal or application
to the Company Law Board under sub section (2) or sub-section (4) shall be made
by a petition in writing and shall be accompanied by such fee as may be
prescribed.
(11) In the case of a private
company which is not a subsidiary of a public company, where the right to any
shares or interest of a member in, or debentures of, the company is transmitted
by a sale thereof held by a Court or other public authority, the provisions of
sub-sections (4) to (7) shall apply as if the company were a public company :
Provided that the Company Law
Board may, in lieu of an order under subsection (5), pass an order directing
the company to register the transmission of the right unless any member or
members of the company specified in the order acquire the right aforesaid,
within such time as may be allowed for the purpose by the order, on payment to
the purchaser of the price paid by him therefor or such other sum as the
Company Law Board may determine to be a reasonable compensation for the right
in all the circumstances of the case.
(12) If default is made in
complying with any of the provisions of this section, the company, and every
officer of the company who is in default, shall be punishable with fine which may
extend to fifty rupees for every day during which the default continues.
(13) Nothing in this section and
section 108, 109 or 110 shall prejudice any power of a private company under
its articles to enforce the restrictions contained therein against the right to
transfer the shares of such company."
Section 111, as set out above,
was incorporated in the Companies Act subsequent to the report of a committee
appointed to consider amendments to the Companies Act, the Sachar Committee, as
it came to be called, said:
"Under the existing law,
there are two remedies open to an aggrieved person - to file an appeal under
section 111, or to apply to the Court for rectification of the share register
under section 155. We think that these two remedies should now be assimilated
and provision be made (at one place) for a person aggrieved (including any
person aggrieved by a refusal of the Board of Directors to register a transfer
or transmission of shares) to apply to the Company Law Board - as proposed to
be constituted - for rectification of the share register on any of the grounds
mentioned in sub-clause (a) or (b) of sub-section (1) of the present section
155.
Our proposals are—
Accordingly, we would recommend as follows :
Sections 111 and 155 should be assimilated into a
single statutory provision."
9. Section
155, as it read before 31-5-1991, entitled a person aggrieved or any member of
a company or a company to apply to the Court for rectification of the company's
register of members if the name of any person was, without sufficient cause,
entered in it or, after having been entered in it, was, without sufficient
cause, omitted therefrom or default was made or unnecessary delay took place in
entering on it the fact of any person having become, or ceased to be, a member.
The Court was entitled to order rectification of the register and to direct the
company to pay the damages, if any, sustained by a party aggrieved. The Court
was entitled to decide any question relating to the title of any person who was
a party to the application to have his name entered in or omitted from the
register. An appeal from the order of the Court was provided for.
10. It
will be seen that the CLB now exercises the powers that were exercisable by the
Court under section 155. It is entitled to direct rectification of the register
and the payment of damages by the company. It is entitled to decide any
question relating to the title of any person who is a party to the application
to have his name entered in or omitted from the register and to decide any
question which it is necessary or expedient to decide in this connection. An
appeal to the High Court against any decision or order of the CLB on a question
of law is available to any person aggrieved, thereby under the provisions of
section 10F.
Whereas sub-sections (2) and (3) of section 111 term the pleading that
the person aggrieved has to file before the CLB an 'appeal', sub-section (4)
requires the person aggrieved to apply, sub-section (5) speaks of it as an
'appeal' or an 'application', sub-section (7) as an 'application' and
subsection (10) as an 'appeal or application', which shall be made 'by a
petition in writing'. The words 'appeal' and 'application' in the context of
the provisions of section 111 have the same meaning. Plainly, it is an
application that has to be made.
11. The
powers under section 155 were exercised by a civil court. Reference may be made
to the definition of 'Court' in the Companies Act. Section 2(11) defines
'Court' to mean, with respect to any matter relating to a company, other than
any offence against the Companies Act, the Court having jurisdiction under the
Companies Act with respect to that matter relating to that company. 'District
Court' is also defined. The definition thereof in section 2(14) is that it is the
principal civil court of original jurisdiction in a district, but does not
include a High Court in the exercise of its ordinary original civil
jurisdiction. Section 10 deals with the jurisdiction of courts and it reads
thus :
"Jurisdiction of Courts.— (1) The Court having
jurisdiction under this Act shall be—
(a) the High
Court having jurisdiction in relation to the place at which the registered
office of the company concerned is situate, except to the extent to which
jurisdiction has been conferred on any District Court or District Courts
subordinate to that High Court in pursuance of sub-section (2); and
(b) where
jurisdiction has been so conferred, the District Court in regard to matters
falling within the scope of the jurisdiction conferred, in respect of companies
having their registered offices in the district.
(2) The Central Government may, by notification in the Official Gazette
and subject to such restrictions, limitations and conditions as it thinks fit,
empower any District Court to exercise all or any of the jurisdiction conferred
by this Act upon the Court, not being the jurisdiction conferred—
(a) in respect of companies generally, by
sections 237,391,394,395 and 397 to 407, both inclusive;
(b) in respect of companies with a paid-up
share capital of not less than one lakh of rupees, by Part VII (sections 425 to
560) and the other provisions of this Act relating to the winding up of
companies.
(3) For the purposes of jurisdiction to wind-up companies, the expression
'registered office' means the place which has longest been the registered
office of the company during the six months immediately preceding the
presentation of the petition for winding up."
12. The
provisions of section 10E of the Companies Act, as they were amended with
effect from 31-5-1991, read thus :
"Constitution of Board of Company Law Administration. - (1) As soon
as may be after the commencement of the Companies (Amendment) Act, 1988, the
Central Government shall, by notification in the Official Gazette, constitute a
Board to be called the Board of Company Law Administration.
(1A) The Company Law Board shall exercise and discharge such powers and
functions as may be conferred on it, by or under this Act or any other law, and
shall also exercise and discharge such other powers and functions of the
Central Government under this Act or any other law as may be conferred on it by
the Central Government, by notification in the Official Gazette under the
provisions of this Act or that other law."
Reference to the provisions of section 10F has
already been made.
13. 1t is to be noted that the CLB performs functions which are
administrative, as under sections 224 and 269, and curial, as under section
111.
Contentions
14. Mr. Salve, the learned counsel for the Canara Bank, who was supported
by Mr. J.C. Seth, the learned counsel for the Nuclear Power Corporation,
submitted that section 9A(1) conferred upon the Special Court the jurisdiction
of a civil court 'in the wider sense', as including Courts exercising powers
conferred upon civil courts. The word 'civil' was used in section 9A(1) to
contrast the provisions thereof with those of section 9(2), whereunder the
Special Court was given all the powers of a Court of Session. The jurisdiction
of the Special Court, until the coming into force of the Amendment Ordinance,
under sections 7, 8 and 9 of the Special Court Act was in respect of criminal
matters and the powers of a Court of Session had, therefore, been conferred
upon it. It was found necessary to confer upon the Special Court the powers of
a civil court to deal with the civil matters set out in section 9A(1). Such an
interpretation of section 9A was in accord with the legislative intent, which
was to exclude from the jurisdiction of all Courts save the Special Court the
matters described in section 9A(1). A clear indication of this was provided by
section 9B by reason of which even matters in Court relating to arbitration
proceedings concerning causes of action arising out of the matters specified in
section 9A(1) were confined to the Special Court. The legislative intent was to
place all cases arising out of such causes of action before the Special Court
so that a Court having knowledge of all the cases would decide all matters
provided for in the Special Court Act. A purposive interpretation ought,
therefore, to be placed upon the provisions of section 9A. Emphasis was laid
upon the fact that, by reason of section 111(7) of the Companies Act, the CLB
had the power to decide the title of the securities in question before it; the
jurisdiction in this behalf conflicted with the jurisdiction exclusively
conferred upon the Special Court by section 9A.
15. Mr. Nariman, the learned counsel for Stanchart, submitted that the
relevant question was whether the CLB was a 'civil court'. In his submission it
was not. Mr. Nariman drew attention to the provisions of section 13 of the
Special Court Act, which stated that the provisions of the Special Court Act
would have effect notwithstanding anything contained, Inter alia, "in any
decree or order of any Court, Tribunal or other authority", and emphasised
the distinction made by Parliament between Court, Tribunal and other authority.
The CLB was not intended to be covered by the provisions of section 9A(1), for
those provisions did not exclude the jurisdiction of a Tribunal or authority
but only of a Court. Secondly, the jurisdiction of the Special Court was in
regard to matters arising out of transactions in securities entered into
between the stated dates in which a person notified was involved as a
broker, intermediary or in any other manner. It would be very difficult for an
intending litigant to know whether a person notified had been involved in a
transaction relating to securities which he had purchased and which were not
being registered in his name, as a broker or intermediary or in any other
manner at any time between the stated dates. It was, therefore, inappropriate
to hold that such a litigant was bound to take recourse to the law before the
Special Court and not before the CLB under section 111, particularly when, by
reason of the provisions of the latter provision, he had to move within a
specified time limit. The interpretation suggested on behalf of the Canara Bank
was not really a purposive interpretation. Attention was drawn to the
provisions of section 4 whereunder the Custodian was entitled, if satisfied
after such inquiry as he thought fit that any contract or agreement entered
into between the stated dates in relation to any property of a person notified
under section 3(2) had been entered into fraudulently or to defeat the
provisions of the Special Court Act, to cancel such contract or agreement
whereupon such property stood attached. Even if the CLB under the provisions of
section 111 of the Companies Act made any order with regard to any securities,
that order would stand at naught if an order relating to the same securities
was made under section 4 of the Special Court Act by reason of the fact that,
under section 13 of the Special Court Act, the Special Court Act had effect
notwithstanding anything inconsistent therewith contained in any decree or
order of any Court, Tribunal or other authority. In any event, an appeal did
not stand transferred to the Special Court under the provisions of section
9A(2), and what was filed before the CLB under section 111 of the Companies Act
was an appeal.
Discussion
16. As
to what are Courts and Tribunals, the leading decision is Harinagar Sugar Mills
Ltd. v. Shyam Sundar Jhunjhunwala [1962] 2 SCR 339, delivered by a Constitution
Bench of this Court. A person who held a large number of shares in the
appellant-company transferred two blocks of the shares to his son and
daughter-in-law. The transferees applied to the company to register the
transfers. Purporting to act under the articles of association of the company,
the directors resolved not to register the transfers. The transferees preferred
appeals under section 111 of the Companies Act which, as the provision read at
that time, lay to the Central Government. The Central Government set aside the
resolution of the directors and directed the company to register the transfers,
but it did not give any reasons for its decision. The company obtained special
leave to appeal under article 136 of the Constitution against the decision of
the Central Government. The transferees raised the objection that the Central
Government, exercising powers under section 111, was not a Tribunal exercising
judicial functions and was, therefore, not subject to the appellate jurisdiction
of the Supreme Court under article 136. J.C. Shah, J. spoke for four of this
brethren and held that a person aggrieved by the refusal to register the
transfer of shares had two remedies under the Companies Act, namely, to apply
to the Court for rectification of the register under section 155 or to appeal
against the resolution refusing to register the transfer under section 111. It
was common ground that in the exercise of power under section 155, the Court
had to act judicially; to adjudicate upon the right exercised by the directors
in the light of the powers conferred upon them by the articles of association.
The transferees, however, submitted, and were supported by the Union of India,
that the authority of the Central Government under section 111 was,
nevertheless, purely administrative. In an appeal under section 111 there was a
lis or dispute between the contesting parties relating to their civil rights,
and the Central Government was invested with the power to determine that
dispute according to law; it had to consider and decide the proposal and the
objections in the light of the evidence and not on grounds of policy or
expediency. The power to order registration of transfers had to be exercised
subject to limitations similar to those imposed upon the exercise of the power
of the Court in a petition under section 155. Those restrictions also applied
to the exercise of the power by the Central Government. The Central Government
had to decide whether, in exercising their power, the directors were not acting
oppressively, capriciously or corruptly or in some way mala fide. The decision
had manifestly to stand those objective tests. The exercise of such authority
of rendering a decision upon the respective contentions by reason of which the
rights of the contesting parties were directly affected was judicial. It was
immaterial that the statute which conferred the power upon the Central
Government did not expressly set out the extent of the power; the very nature
of the jurisdiction required that it be exercised subject to the limitations
which applied to the Court under section 155. Section 111 also provided that in
the circumstances specified therein reasonable compensation could be awarded in
lieu of the shares. This compensation, which was to be reasonable, had to be
ascertained by the Central Government, and reasonable compensation could not be
ascertained except by the application of some objective standards of what was
just having regard to all the circumstances of the case. The authority of the
Central Government to entertain an appeal under section 111 was an investiture
of the judicial power of the State. As the dispute between the parties related
to civil rights and the Companies Act provided for a right of appeal and made
detailed provisions about hearing and disposal according to law, it was
impossible to avoid the inference that a duty was imposed upon the Central
Government in deciding the appeal to act judicially. Hidayatullah, J. delivered
a separate but concurring judgment. He said that all Tribunals were not Courts
though all courts were Tribunals. The
word 'Courts' was used to designate those Tribunals which were set up in an
organised State for the administration of justice. By administration of justice
was meant the exercise of the judicial power of the State to maintain and
uphold rights and to punish wrongs. Whenever there was an infringement of a
right or an injury, the Courts were there to restore the 'vinculum juris'. When
rights were infringed or invaded, the aggrieved party could go and commence a
'querela' before the ordinary civil courts. These courts were invested with the
judicial power of the State and their authority was derived from the
Constitution or some Act of Legislature constituting them. Their number was
ordinarily fixed and they were ordinarily permanent and could try any suit or
cause within their jurisdiction. Their numbers might be increased or decreased
but they were almost always permanent and went under the compendious name of
"Courts of Civil Judicature". There could be no doubt that the
Central Government did not come within this class. With the growth of
civilisation and the problems of modern life, a large number of administrative
Tribunals had come into existence. These Tribunals had the authority of law to
pronounce upon valuable rights. They acted in a judicial manner and even on
evidence on oath, but they were not part of the ordinary courts of civil
judicature. They shared the exercise of the judicial power of the State but
were brought into existence to implement some administrative policy or to
determine controversies arising out of some administrative law. They were very
similar to Courts but were not courts. When the Constitution spoke of 'Courts'
in articles 136, 227 and 228 and in articles 233 to 237 and the Lists of the
Constitution, it contemplated courts of civil judicature but not Tribunals
other than such courts. This was the reason for using both the expressions in
articles 136 and 227. By 'Courts' was meant courts of civil judicature and by 'Tribunals'
those bodies of men who were appointed to decide controversies arising under
certain special laws. Among the powers of the State was included the power to
decide such controversies. This was undoubtedly one of the attributes of the
State and was aptly called the judicial power of the State. In the exercise of
this power, a clear division was noticeable. Broadly speaking, certain special
matters went before Tribunals and the residue went before the ordinary courts
of civil judicature. What distinguished them had never been successfully
established. A Court in the strict sense was a Tribunal which was a part of the
ordinary hierarchy of courts of civil judicature maintained by the State under
its Constitution to exercise the judicial power of the State. These Courts
performed all the judicial functions of the State except those that were
excluded by law from their jurisdiction. The word 'judicial' was itself capable
of two meanings. It might refer to the discharge of duties exercisable by a
judge or by justices in court or to administrative duties which need not be
performed in Court but in respect of which it was necessary to bring to bear a judicial mind to
determine what was fair and just in respect of the matters under consideration.
That an officer was required to decide matters before him judicially in the
second sense did not make him a Court or even a Tribunal because that only
established that he was following a standard of conduct and was free from bias
or interest. Courts and Tribunals acted judicially in both senses and in the
term 'Courts' were included the ordinary and permanent Tribunals and in the
term 'Tribunals' were included all others which were not so included. The
matter would have been simple if the Companies Act had designated a person or
persons, whether by name or by office, for the purpose or hearing an appeal
under section 111. It would then have been clear that though such person or
persons were not 'Courts' in the sense explained, they were clearly
'Tribunals'. The Companies Act said that an appeal would lie to the Central
Government. The Court was, therefore, faced with the question whether the
Central Government could be said to be a Tribunal. The function that the
Central Government performed under the Companies Act and Rules was to hear an
appeal against the action of the directors. For that purpose a memorandum of
appeal setting out the grounds had to be filed and the company, on notice, was
required to make representations, if any, and so also the other side, and both
sides were allowed to tender evidence to support their representations. The
Central Government by its order then directed that the shares be registered or
need not be registered. The Central Government was also empowered to include in
its orders directions as to payment of costs or otherwise. The function of the
Central Government was curial and not executive. There was provision for a
hearing and a decision on evidence, and that was indubitably a curial function.
In its functions the Central Government often reached decisions but all its
decisions could not be regarded as those of a Tribunal. Resolutions of
Government might affect rights of parties and yet they might not be in the
exercise of judicial power. Resolutions of Government might be amenable to writs
under articles 32 and 226 in appropriate cases but might not be subject to a
direct appeal under article 136 as the decisions of a Tribunal. The position,
however, changed when Government embarked upon curial functions and proceeded
to exercise judicial power and decide disputes. In these circumstances, it was
legitimate to regard the officer who dealt with the matter and even Government
itself as a Tribunal. The word ' Tribunal' was a word of wide import and the
words 'Court' and 'Tribunal' embraced within them the exercise of judicial
power in all its forms. The decision of the Central Government thus fell within
the powers of the Supreme Court under article 136.
17. In Kihota Hollohan v. Zachillhu [1992] Suppl. 2 SCC 651, the
observations in the case of Harinagar Sugar Mills Ltd. (supra) were quoted with
approval and it was said that where there was a lis - an affirmation by one
party and denial by another, the dispute involved the rights and obligations of
the parties to it and the authority was called upon to decide it, there was an
exercise of judicial power. That authority was called a Tribunal if it did not
have all the trappings of a Court.
18. In the case of Harinagar Sugar Mills Ltd. (supra), this Court was called upon to decide whether an order of the Central Government under section 111 of the Companies Act, as it then read, was appealable under article 136 of the Constitution. Article 136 empowers this Court to grant special leave to appeal from any judgment, decree, determination, sentence or order in any cause or matter passed or made by 'any Court or Tribunal' in the territory of India. The connotation of the words 'Court' and 'Tribunal' was determined in the judgment in the context of article 136. The argument was that the Central Government, acting under section 111 of the Companies Act, as it then read, was exercising administrative authority. The Court held that it was exercising judicial authority. The majority judgment relied upon the provisions of section 111 for so holding. Hidayatullah, J., concurring, held that all Tribunals were not Courts though all Courts were Tribunals. The word 'Courts' was used to designate the Tribunals that a State established to administer justice. They were fixed and permanent and could try any suit or cause within their jurisdiction. They went under the compendious name of 'Courts of Civil Judicature'. A large number of administrative Tribunals had come into existence with the growth of civilisation and the problems of modern life. They acted in a judicial manner but they were not part of the ordinary courts of Civil Judicature. What distinguished them had never been successfully established. When the Constitution spoke of 'Courts' in article 136 and other articles, it contemplated courts of civil judicature but not Tribunals other than such Courts. This was the reason both expressions were used in articles 136 and 226. The judgment is, therefore, determinative in deciding whether a Tribunal is subject to the jurisdiction of this Court under article 136 or of the High Court under article 227, but it does not hold that a 'Court' is only a court of civil judicature in the ordinary hierarchy of courts.
19. In our view, the word 'Court' must be read in the context in which it is used in a statute. It is permissible, given the context, to read it as comprehending the courts of civil judicature and Courts or some Tribunal exercising curial, or judicial, powers. In the context in which the word 'Court' is used in section 9A of the Special Court Act, it is intended to encompass all curial or judicial bodies which have the jurisdiction to decide matters or claims, Inter alia, arising out of transactions in securities entered into between the stated dates in which a person notified is involved.
20. The
occasion for enacting the Special Court Act must not be lost sight of. The
Statement of Objects and Reasons of the Bill to replace the Amendment Ordinance
has already been quoted. A Joint Parliamentary Committee was constituted to
investigate what the Statement of Objects and Reasons called "the large
scale irregularities and malpractices which were noticed in the securities
transactions of banks". This is what the Joint Parliamentary Committee
said in its report about the 'scam':
"The scam is basically a deliberate and criminal misuse of Public
funds through various types of securities transactions with the aim of
illegally siphoning of funds of banks and PSUs to select brokers for
speculative returns. The latest irregularities in the securities and banking
transactions, are manifestations of this chronic disorder since they involved
not only the Banks but also the stock market, financial institutions, PSU, the
central bank of the country and even the Ministry of Finance, other economic
ministries in varying degrees. The most unfortunate aspect has been the
emergence of a culture of non-accountability which permeated all sections of
the Government and Banking system over the years. The state of the country's
system of governance, the persistence of non-adherence to rules, regulations
and guidelines, the alarming decay over time in the banking systems has been
fully exposed. These grave and numerous irregularities persisted for so long
that eventually it was not the observance of regulations but their breach that
came to be regarded and defended as "market practice". Through all
these years the ability of the concerned authorities to effectively address
themselves to the problems has been tested and found wanting. The consequence
of these irregularities in securities and banking transactions are both
financial and moral. During the period from July 1991 to May 1992 the most
glaring proof of the nexus between the irregularities in banks and the
overheating of stock market which came to light is explained by the graphic
representations of the BSE Index and the fact that there was a sharp increase
in securities transactions during the corresponding period of the banks
involved in serious irregularities related with the scam. What is more apparent
is the systematic and deliberate abuse of the system by certain unscrupulous
elements. It is abundantly clear that the scam was the result of failure to
check irregularities in the banking system and also liberalisation without
adequate sefeguards. There is also some evidence of collusion of big industrial
houses playing an important role. It is because of these elements that the
economy of the country had to suffer and while some gained thousands of crores,
millions of investors lost their savings. The criminality of the perpetrators
of the scam becomes all the more depictable as it was during this period that
the country was passing through most trying times, economically and
financially. An observation that the Committee has been constrained to make at
a number of places in the succeeding chapters is that for all these not many
have yet been identified and effectively punished."
21. Having regard to the enormity of the 'scam' and its vast ramifications,
Parliament thought it was necessary that all the matters of claims arising out
of transactions in securities entered into between the stated dates in which a
person notified was involved should be brought before and tried by the same
forum. That forum had been invested with the jurisdiction to try persons
accused of offences relating to transactions in securities entered into between
the stated dates. It was also required to give directions to the Custodian in
regard to property belonging to persons notified which stood attached under the
provisions of the Special Court Act. The object of amending the Special Court
Act to invest the Special Court with the power and authority to decide civil
claims arising out of transactions in securities entered into between the
stated dates in which a person notified was involved has already been stated.
In these circum stances, it is proper to attribute to the word 'Court' in
section 9A(1) of the Special Court Act, not the narrower meaning of a court of
civil judicature which is part of the ordinary hierarchy of courts, but the
broader meaning of a curial body, a body acting judicially to deal with matters
and claims arising out of transactions in securities entered into between the
stated dates in which a person notified is involved. An interpretation that
suppresses the mischief and advances the remedy must, plainly, be given.
22. In
Halsbury's Laws of England, Fourth Edn., Volume 10, paragraphs 701 and 702,
this is observed :
'701. Meaning of
"Court". - Originally the term "court" meant, among other things,
the sovereign's place. It has acquired the meaning of the place where justice
is administered and, further, has come to mean the persons who exercise
judicial functions under authority derived either directly or indirectly from
the sovereign. All Tribunals, however, are not courts, in the sense in which
the term is here employed. Courts are Tribunals which exercise jurisdiction
over persons by reason of the sanction of the law, and not merely by reason of
voluntary submission to their jurisdiction. Thus, arbitrators, committees of
clubs and the like, although they may be Tribunals exercising judicial
functions, are not "courts" in this sense of that term. On the other
hand, a Tribunal may be a court in the strict sense of the term even though the
chief part of its duties is not judicial. Parliament is a court. Its duties are
mainly deliberative and legislative; the judicial duties are only part of its
functions. A coroner's court is a true court although its essential function is
investigation.
702. What is a court in law. -
The question is whether the Tribunal is a court not whether it is a court of
justice, for there are courts which are not courts of justice. In determining
whether a Tribunal is a judicial body the facts that it has been appointed by a
non-judicial authority, that it has no power to administer an oath, that the
chairman has a casting vote and that third parties have power to intervene are
immaterial, especially if the statute setting it up prescribes a penalty for
making false statements;
elements to be
considered are (1) the requirement for a public hearing, subject to a power to
exclude the public in a proper case, and (2) a provision that a member of the
Tribunal shall not take part in any decision in which he is personally interested,
or unless he has been present throughout the proceedings.
A Tribunal is not necessarily a
court in the strict sense of exercising judicial power merely because (1) it
gives a final decision; (2) it hears witnesses on oath; (3) two or more
contending parties appear before it between whom it has to decide; (4) it gives
decisions which affect the rights of subjects; (5) there is an appeal to a
court; and (6) it is a body to which a matter is referred by another body.
Many bodies are not courts even
though they have to decide questions, and in so doing have to act judicially,
in the sense that the proceedings must be conducted with fairness and
impartiality. Examples are the benchers of the Inns of Court when considering
the conduct of one of their members, the disciplinary committee of the General
Medical Council when considering questions affecting the conduct of a medical
man, a trade union when exercising disciplinary jurisdiction over its
members…….'
These passages, from
the earlier edition of Halsbury were cited by this Court in Thakur Jugal
Kishore Sinha v. Sitamurhi Central Co-operative Bank Ltd. AIR 1967 SC 1494. The
question there was whether the provisions of the Contempt of Courts Act applied
to a Registrar exercising powers under section 48 of the Bihar and Orissa
Co-operative Societies Act. It was held that the jurisdiction of the ordinary
civil and revenue courts of the land was ousted in the case of disputes that
fell under section 48. A Registrar exercising powers under section 48,
therefore, discharged the duties which wouldotherwise have fallen on the
ordinary civil and revenue courts. He had not merely the trappings of a Court
but in many respects he was given the same powers as were given to the ordinary
civil courts of the land by the Code of Civil Procedure, including the power to
summon and examine witnesses on oath, the power to order inspection of
documents, to hear the parties after framing issues, to review his own order
and to exercise the inherent jurisdiction of Courts mentioned in section 151.
In adjudicating a dispute under section 48 of the Bihar Act, the Registrar was
held to be, "to all intents and purposes a Court discharging the same
functions and duties in the same manner as a Court of law is expected to
do".
23. Now, under section 111 of the Companies Act
as amended with effect from 31-5-1991, the CLB performs the functions that were
theretofore performed by courts of civil judicature under section 155. It is
empowered to make orders directing rectification of the company's register, as
to damages, costs and incidental and consequential orders. It may decide any
question relating to the title of any person who is a party before it to have
his name entered upon the company's register; and any question which it is
necessary or expedient to decide it may make interim orders. Failure to comply
with any order visits the company with a fine. In regard to all these matters
it has exclusive jurisdiction (except under the provisions of the Special Court
Act, which is the issue before us). In exercising its function under section
111 the CLB must, and does, act judicially. Its orders are appealable. The CLB,
further, is a permanent body constituted under a statute. It is difficult to
see how it can be said to be anything other than a Court, particularly for the
purposes of section 9A of the Special Court Act.
24. We shall assume that a shareholder whose name
the company has refused to enter in its register would be put to some
difficulty in deciding whether he should approach the Special Court or the CLB,
but that is no reason to interpret the provisions of section 9A in a manner
that would defeat its intendment and adversely affect the public interest. In
any event, the time taken in approaching the CLB in a matter that should have
been filed before the Special Court would not be of any consequence for there
is no time limit within which the Special Court has to be approached; and it is
most unlikely that the Special Court would be approached unless the
shareholders were sure that his claim fell within section 9A(1).
25. It will be remembered that Mr. Nariman had
drawn attention to provisions of section 4 of the Special Court Act and argued
that even if the CLB, under the provisions of section 111 of the Companies Act,
made any order with regard to any securities, that order would stand at naught
if an order relating to the same securities was made under section 4 of the
Special Court Act by reason of the fact that, under section 13 of the Special
Court Act, the order of the Special Court had effect notwithstanding anything
inconsistent therewith contained in any decree or order of any Court, Tribunal
or other authority. Section 3(2) of the Special Court Act empowers the
Custodian, on being satisfied on information received that any person has been
involved in any offence relating to transactions in securities entered into
between the stated dates to notify the name of such person in the Official
Gazette. On such notification, by reason of section 3(3), the property of the
person notified stands attached. That property, by reason of section 3(4), is
to be dealt with by the Custodian in such manner as the Special Court may
direct. Section 4 states that if the Custodian is satisfied after such inquiry
as he may think fit that any contract or agreement entered into at any time
between the stated dates in relation to the property of a person notified has
been entered into fraudulently or to defeat the provisions of the Special Court
Act, he may cancel such contract or agreement whereupon such property stands
attached. The scope, therefore, of section 4 is limited. It applies only in
regard to property that belongs to a person notified. Section 9A(1) is much
wider and it invests the Special Court with jurisdiction to entertain matters
or claims arising out of transactions in securities entered into between the
stated dates in which a person notified is involved not only as a party but
also as a broker, intermediary or in any other manner. The argument based on
section 4 must, therefore, fail.
26. As has been pointed out, sub-sections (2) and (3) of
section 111 of the Companies Act term the pleading that the person aggrieved
has to file before the CLB an 'appeal', sub-section (4) requires the person
aggrieved to apply, sub-section (5) speaks of it as an 'appeal' or an
'application', subsection (7) as an 'application' and sub-section (10) as an
'appeal or application' which shall be made by a 'petition in writing'. The
words 'appeal' and 'application' in the context of the provisions of section
111 have, therefore, the same meaning and it is, plainly, an original
application that is made. The shareholder does not resort to a superior court
to review the decision of an inferior court or Tribunal. The fact, therefore,
that section 9A(2) of the Special Court Act speaks of the transfer of 'every
suit, claim or other legal proceeding (other than an appeal)' does not exclude
the 'application' or 'appeal' made under the provisions of section 111 of the
Companies Act from the purview of section 9A(1) of the Special Court Act.
27. For all these reasons, the appeal must succeed. No order on the transfer petition is now called for.
28. The appeal is allowed. The judgment and order of the CLB under appeal is set aside. The application of the Canara Bank pending before the CLB shall stand transferred to the Special Court constituted under the provisions of the Special Court (Trial of Offences Relating to Transactions in Securities) Act.
29. The transfer petition is dismissed.
30. There shall be no order as to costs.