APPENDIX
4
THE COMPANIES (COURT) RULES, 19591
In exercise of the powers conferred by sub-sections (1) and (2) of section 643 of the Companies Act, 1956, and of all other powers enabling, the Supreme Court of India, after consulting the High Courts, hereby makes the following rules:-
GENERAL
R. 1. Short title and commencement.---These rules shall be cited as THE COMPANIUES (COURT) RULES, 1959, and shall come into force on the 1st day of October, 1959.
NOTES
Companies (Court) Rules, 1959.---These rules have been framed by the Supreme Court and have the effect of an Act of parliament. They have been make under a rule-making power conferred by the statue and are the parcel of the statue itself. See CRAIES ON STATUE LAW, 5TH EDN., P. 293; Ibrahim (T.B.) v Regional Transport Authority, Tanjore, (1953) SCR 290, at 298.
R. 2. Interpreation.----In these rules, unless the context or subject-matter otherwise requires,---
‘The Act’ means the Companies Act, 1956.
‘Advocate’ means, in the case of a High Court, having ordinary original jurisdictio9n every person entitled to appear and plead in such jurisdiction of such High Court, and includes an Attorney of such Court, and in the case of every other High Court, every person entitled to appear and plead in such High Court, and in the case of a District Court every person entitled to appear and plead in such Court :
Provided that in respect of the service of notices and progress which under these rules may be served on an Advocate on behalf of any party, or the filing of an appearance on behalf of any party, ‘Advocate’ shall mean only a person entitled to act for a party under the rules of the Court, whether or not he is entitled also to plead.
‘Certified’ means in relation to a copy, certified as provided in section 76 of the Indian Evidence Act, 1872.
‘Code’ means the Code Procedure, 1908.
‘Court’ means the Court having jurisdiction under the act.
‘Filed’ means filed in the office of the Registrar.
‘High Court’ and ‘District Court’ men respectively the High Court and District Court having jurisdiction under the Act.
‘Judge’ means in the High Court, the Judge for the time being exercising the jurisdiction of the High Court under the Act, and in the District Court, the Judge of that Court exercising jurisdiction under the Act.
‘Judge’s summons’ means a summons returnable before the Judge in Chambers or in Court.
The ‘Prescribed’ means prescribed by these rules; and ‘prescribed charges’ and prescribed fees’ mean charges or fees prescribed by these rules and where they are not so prescribed, prescribed by the rules of the Court in respect of analoguos matter in its other proceedings.
“Registrar’ means in the High Court, the Registrar of the High Court, and includesd the Prothonotary Master and Assistant Master, and such other officer as may be aythorized by the Chief Justice to perform all or any of the duties assigned to the Registrar under these rules and in the District Court, such officer of that Court as may be authorized by the High Court to perform all or any of the duties assigned to the Registrar under these rules.
‘Reserve Bank’ means the Reserve Bank of India and includes its branches and agencies.
‘Sealed’ means sealed with the seal of the Court.
‘Section’ means section of the Act.
Save as, aforesaid, and unless the context otherwise requires, words and expressions contained in these rules shall bear the same meaning as in the Act, and the General Clauses Act, 1897 (X of 1897) shall apply for the interpretation of these rules as it applies for the interpretation of an Act of Parliament.
NOTES
Rule 2 defines various terms, such as “Court”, “high Court”, “Judge” etc. Naturally the definitions are in consonance with sections 2(11) and 10 of the Companies Act, 1956. Minoo H. Mody v. Hemant D. Vakil, (1997) 89 Com Cases 456, 458 (Bom—DB).
Applicability
of code of Civil Procedure (Rule 2(4) )
The combined effect of Rule 2(4) and Rule 6 is that the provisions of the Civil Procedure Code become applicable. Hence in all matters framing of issues and trial of those issues is essential. The case was sent back for retrial after framing issues. Ravindra S. More v. Sudarsan Chits (India) Ltd., (1992) 73 Com Cases 393 (Ker).
Jurisdiction
for purposes of winding up (Rule 2(5) )
In Dakuria Banking Corporation Ltd., Re, AIR 1955 NUC 4849 (Cal) a BAHAWAT, J., held : “The jurisdiction of High Court under the Indian Companies Act with regard to companies within its jurisdiction is special and exclusive, and no other Court has jurisdiction under the Act in respect of such companies; nonetheless, the jurisdiction is exercised as part of the ordinary original civil jurisdiction with which it is vested by law. The Indian Companies Act extends the jurisdiction and to that extent it overrides clause 12 of the Letters Patent “ followed in India Electric Works, Re, (1969) 1 Comp LJ 195 (Cal).
R. 3. Proceedings to be neat and legible.----All petitions, applications, affidavits and other proceedings presented to the Court shall be written, typewritten, cyclostyled, or printed neatly and legibly on substantial paper of foolscap size, and separate sheets shall be stitched together. Numbers and dates shall be expressed in figures, and where dates given are not according to the English Calendar the corresponding English dates shall also be given.
R. 4. Form of proceedings.----Every proceedings shall be dated and shall be instituted in the matter of the Companies Act, 1956, and in the matter of the company to which it relates. The contents shall be divided into separate paragraphs which shall be numbered serially. The general heading in all proceedings before the Court, and in all advertisements and notices, shall in Form No. 1.
R. 5. Language of proceedings.----Every petition, application, affidavit or other proceeding shall be in the language of the High Court and except in so far as the Court may otherwise order, no document in a language other than the language of the High Court in accordance with the rules and practice of the Court.
R. 6. Practice and Procedure of the Court and provisions of!the Code to apply.—Save as provided by the Act or by these rules the practice and procedure of the Court and the provisions of the Code so far as applicable, shall apply to al proceedings under the Act and these rules. The Registrar may decline to accept any document which is presented otherwise than in accordance with these rules or the practice and procedure of the Court.
NOTES
The combined thrust of section 141, CPC 1908, and Rule 6, is that the provisions of Order XIV< rule 2 of CPC would apply to proceedings under the Companies Act, 1956, as far as they can made applicable, keeping in view the nature of the proceedings and the relief claimed therein. Before applying any provisions of the Code to proceedings under the Act, it would be necessary to fine out whether the applicability of the procedural provisions would, in any way, thwart or stultify the proceedings and the other relief claimed therein. Under Order XIV, rules 2 of the Code, a suit must be tried as a whole on all issues; trial of preliminary issues is permissible only where the preliminary issue is a pure issue of law, and (a) it touches upon the question of jurisdiction of the court; or (b) it raises a question that the proceedings are barred by any provision of law. In all other cases, where preliminary objections are taken about the maintainability of the proceedings, even if they were pure issues raising mixed questions of law and fact, they cannot be tried as preliminary issues. This is the clear mandate of Order XIV, rule 2. Saurashtra Cement and Chemicals Industries Ltd. V. Esma Industries P. Ltd., (1990) 69 Com Cases 372 (Guj). The text of order XIV, Rule 2 of CPC is reproduced below for convenience.
“2. Court top pronounce judgment on all issues.---(1) Notwithstanding that a case may be disposed of on a preliminary issue, the Court shall, subject to the provisions of sub-rule (2), pronounce judgment on all issues.
(2) Where issues both of law and or fact arise in the same suit, and the Court is of opinion that the case or any part thereof may be disposed of an issue of law only, it may try that issue first if that issue relates to---
(a) the jurisdiction of the Court, or
(b) a bar to the suit created by any law for the time being in force,
(c) and for that purpose may, if it thinks fit, postpone the settlement of the other issues until after that issue has been determined, and may deal with the suit in accordance with the decision on that issue..”
Mode of Service of Notice (Section 52)
IN the absence of any provision in the Companies (Court) Rules, 1959 regarding the mode of service by affixation, the procedure laid down in Rule 17 of order 5 of CPC is to be followed. Accordingly, service effected by affixation without being witnessed by a witness is valid service, unless specifically ordered otherwise. Sahara Deposits & Investments (I) Majidan (Smt.), (1997) 88 Com Cases 160 (Del). A similar matter came up before another judge for consideration by a larger Bench, which held:-- “Whenever the service is effected by affixation, it is not necessary to make affixation in the presence of one or more witnesses. A service by affixation made by the process serving officer even in the absence of witness can be deemed to be good and sufficient. It is a question of forming of opinion by the Company judge in the individual facts of each case it from the manner in which the service by affixation has been effected by the process serving officer and his report on affidavit or on his examination, it feels satisfied of the sufficiency of service. If not so satisfied, the Court may direct service to be effected afresh in such manner and with such directions as it may deem fit to make.” Sahara Deposits & Investments (I) LTd. V. Karan Singh, (1996) 23 Corpt LA 160 (DB) (Del).
Oppression
and Mismanagement (Sections 397-398)
Preliminary issue.---If a petition under section 397 and 398 is held not maintainable on a preliminary issue, and after appeal, it is ultimately held maintainable, the proceedings would be revived after a lapse of several years, by which time necessary evidence could be lost. The provisions of Order XIV, rule 2 of the Code must be held to apply in their entirely to proceedings under sections 397 and 398 of the Act, so that, except for p0ure preliminary issues as contemplated by the rule, al other issues would be considered and decided at the same time by the first court, and the appellate court could go into the questions comprehensively, thus avoiding delay refulting from piece-meal trial of the case. Saurashtra Cement & Chemicals Industries Ltd. V. Esma Industries P. Ltd., (1990) 69 Com Cases 372 (Guj).
Modes of proof.---It cannot be laid down as a matter of law or rule that, in the matter of oppression and mismanagement, the parties have an absolute right to prove their respective pleas by filing documents or affidavits alone. It is, however, within the discretion of the court to allow them to prove any particular fact/facts by filing affidavits of any witness for any good or sufficient reason. Even in that situation, the court has to direct the attendance of any of the deponents for purposes of cross-examination at the instance of either party. This is more so in the light of the observations of the Supreme Court in Needle Industries (India) Ltd. V. Needle Industries Newsy (India) Holding Ltd., (1981) 51 Com Cases 743, wherein it is emphasized that (page 786) : “It is generally unsatisfactory to record a finding involving grave consequences to a person on the basis of affidavits and documents without asking that person to submit himself to cross-examination. It is true that men may lie but documents will not and often, documents speak louder than words. But a total reliance on the written word, when probity and fairness of conduct are in issue, involves the risk that the person accused of wrongful conduct is denied an opportunity to controvert the inference said to arise from the documents”. R.P. Verma v. Aanaam P. Ltd., (1990) 69 Com Cases 142 at 144 (P&H), per J.S. TIWANA J.
Applicability of CPC to proceedings before CLB.---The absence of any specific provision in the CLB Regulations which are subordinate to the Act regarding the procedure to be followed in matters, as in this case, relating to oppression and mismanagement, does not mean that the procedure of CPC is to be followed. The practice and procedure of CLB will have to be within the framework of the principles of natural justice as laid down in section 10E(5). Rajendra Kumar Malhotra v. Harbanslal malhotra & Sons, (1996) 87 Com cases 146 (CLB).
Amendment of petition.---There is no bar to an amendment which incorporates events subsequent to the filing of the petition if otherwise it is necessary for proper determination of the issues. Thus, where some of the new directors elected by a group of shareholders at an extraordinary general meeting after the filing of a petition under Ss. 397-398 were allegedly facing criminal charges, an amendment of the petition for the purposed of imp leading them from actoing as directors was allowed. Khimji M. Shah v. Ratilal Dammodardas Modi, (1990) 67 Com Cases 185 (Bom). By virtue of this rule and on the analogy of Order VI, rule 17,of the code of Civil Procedure, 1908, the High court has power to grant leave to amend the pleadings in a petition under sections 397 and 398 for relief against oppression or mismanagement. Inder Kumar jain v. Orsa Botting Co. P. Ltd., (1977) 47 Com Cases 194 (Del).
Substitution in petition under sections 397-398.—In a petition for prevention of oppression and mismanagement, the petitioner wanted to withdraw and another shareholder who was holding less than 10% was seeking permission to be substituted for the petitioner, the same was allowed under Rules 6 and 9 read together. The requirements as to shareholding was applicable only at the time of the first filing of the petition and not at the stage of subsequent devlopoments. LRMK Narayanan v. Pudhuthotam Estates Ltd., (1992) 74 Com Cases 30 mad : (1992) 3 Comp LJ 30.
Reinstatement of petition for prevention of oppression and mismanagement.---A petition under Ss. 397 and 398 which was withdrawn without the leave of the court was allowed to be filed again on the same grounds. Jacob Cherian v. K.N. Cherian, (1973) 43 Com Cases 235 (Mad) Sub-rule (2) of rule (2) of rule 88 does not permit the withdrawal of the petition under sections 397 and 398 without the leave of the court. The leave contemplated in sub-rule (2) of rule 88 is only a leave to withdraw the petition. The framers of the Rules presumably thought that inasmuch as public interest is also involved, the leave of the court is necessary before withdrawal is made. But that provision cannot in any way affect the applicability of Order 23 of the Code of Civil Procedure. The expression “as far as applicable” occurring in rule 6 is is indeed very wide in its scope and it means “as far as reasonably applicable” The motive for the withdrawal is irrelevant in considering the maintainability of the subsequent petition. If a petition filed under sections 397 and 398 is unconditionally withdrawn, the petitioner is, by virtue of Order 23, rule 1, precluded from instituting a fresh petition on the allegations upon which the earlier petition was founded.
Compromise of proceedings under sections 397 and 398.---By virtue of the provisions of s 643(1)(b)(v) of the 1956 Act read with Rule 6, the provisions of the Code of Civil Procedure, 1908 become applicable to a proceedings under the Companies Act “in so far as they are applicable” The provisions of CPC relating to compromise are not applicable to the compromise of a petition under Ss. 397 and 398 of the Act, because under these sections the compromise has to be acceptable to the court.Kelly and Henderson P. Ltd., Re, (1980) 52 Com Cases 646 (Bom); L, Jai Kulbir Singh v. Kelly and Henderson P. Ltd., (1980) 50 Com Cases 646 (Bom), (Citing RAMAIYA’S GUIDE TO THE COMPANIES ACT, 784 (8th Edn., 1977)
Schemes of
compromise/arrangement (Sections 391-394)
Proceedings under sections 391 and 398 are governed by the provisions of CPC in terms of rule 6. Mafatlal Industries Ltd., Re., (1997) 90 Com Cases 247 (DB)---Guj).
Rectification
pf registrar of members (Section 111(4) )
The role of rule 6 in the context of rectification of registrar of members has been explained in Harnam Singh v. Bhagwan Singh, (1992) 3 Comp LJ 13 at pp. 17-18 : (1992) 74 Com Cases 726 (Del) The companies Act is a special which provides for special and specific remedies, and in view of the principal enunciated in Nazir Ahmad v KE, AIR 1936 PC 253, and reiterated by the Supreme Court in Ramchandra Keshav Adke v. Gobind Joti Chavare, AIR 1975 SC 915; Shah Babulal Khimji v. Jayaben D. Kania, AIR 1981 SC 1786 keeping in view the fact the powers of the Company Judge to try and dispose of the matters are co-extensive with those of the Civil Court to entertain matters which relate to rectification of the register of members are co-extensive with those of the Civil Court in view of rule 6 of the Companies (Court) Rules, it would not be right for the Civil Court to entertain matters which relate to rectifications sof the register of members or which involved determination of title of shares in companies, when, specifically, under the provisions of section 155(3) (a) (now S. 111 (4) ), questions of title could be determined by the Company Court. (In consequence of the amendment of S. 111 and insertion of S. 111-A by the Depositors Act, 1996, such questions will now go only before civil courts).
In Anil Gupta v. Delhi Cloth and General Mills Co. Ltd., (1983) 54 Com Cases 301 (Del) B.N. KIRPAL J. did not refer to any case which held that despite section 155 (now S. 111(4) of the Companies Act, 1956 and despite rule 6 of the Companies (Court) Rules, 1959, questions of tile to shares have to be tried by a civil suit alone. See also Rakesh Kumar Malik v. Rohtak Ashoka Theatres P. Ltd., 1985 Tax LR 2055 (P&H) where also the court pointed out that sections 4 and 6 do nit constitute a proper jurisdiction where a civil suit is a proper remedy.
Modification
of order
The inherent jurisdiction of the Court under section 151, CPC cannot be resorted to when the aggrieved party has got exclusive remedy available under law. Dorairaj (H.J.) v. V.R. & Co., AIR 1973 Mad 135. Thus, where the relief sought required modification or correction of an earlier order, such relief could be granted under the specific provisions of Order 47, rule 1 of the Code and not under rule 151 of the Code or under analogous rules 6 and 9 of the Companies (Court) Rules Jalan (G.P.) v. Deccan Enterprises (P) Ltd., (1994) 4 Comp LJ 484 (AP).
Court
The reference to “court” in rule 1 of order III< CPC includes the company court Shantilal Khushaldas and Bros. Pvt. Ltd. V. Chandanbala Sughir Shah, (1993) 77 Com Cases 253, 259 (Bom).
Joiner of
parties
The rule provides that the practice and procedure of the court shall be governed by the Code of Civil Procedure save as provide by the Act or these rules. There is no separate procedure prescribed under S. 433 or 434 in regard to the joiner of parties or causes of action. Hence in this respect the Civil Procedure Code is applicable. B.P. Gupta v. Standard Enamel Works P. Ltd., (1987) 62 Com cases 36 (Del).
Winding up.—I has been observed in Aluminum Corporation of India v. Lakshmi Ratan Cotton Mills Co. Ltd., (1969) 1 Comp Lj 38 (All) that even if by reason of the provisions of S. 141 of CPC and a particular Rule of Companies (Court) Rules, the Code of Civil Procedure may be utilized for expeditious and effective disposal of wining up petitions, no party can claim as a matter of right the application of CPC. This is so because a petition for winding up is different from ordinary suits governed by CPC. The companies (Court) Rules, 1959 contain the procedure for dealing with matters of winding up.
Affidavit sworn before foreign Notary.—An affidavit for presenting a winding up petition can be received in evidence in accordance with the practice and procedure of the court under Rule 6, In this case the court found that the Notary was authorized by the law of the state of New York, USA to administer oath. K.K. Ray. Re, AIR 1967 Cal 636.
A Notary Public in India is not so authorized. So a petition based on affidavit sworn before a Notary Public was rejected. Star Textile Engineering Works Ltd., v. Gaysa Textiles P> Ltd., (1966) 2 Comp LJ 102 (Cal). Rule 21 requires that every petition shall be verified by an affidavit in Form 3. Rule 18 requires compliance with S. 139 of CPC or practices of the court and this section does not give any such authority to a Notary Public. A petition so rejected cannot be revived., Ibid.
Jurisdiction.---Where the proper jurisdiction was in the Company Court at Bombay, the company’s registered office being there, and the petition was filed at Indoor, it was held that in accordance with the provisions contained in Order 7 rule 10, CPC read with 6 of the Companies (Court) Rules, the petition, had to be returned to the petitioner for presenting it in the proper court. Champalal Dilip Kumar v. balaji Properties P. Ltd., (1992) 3 Comp LJ 19 (MP).
Petition by partnership firm.---The way in which affidavits have to be prepared on behalf of a partnership firm was explained in Kailash Chand Jain v. Thakur Paper Mills, AIR 1968 Pat 289. The petition was by an individual styling himself as managing partner. It was neither by the firm, nor by partners on firm’s behalf The court said ; The debt is due to the firm and is payable to the firm and not to any individual partner thereof. The proceedings prescribed under Order 30, Civil Procedure Code, would apply by virtue of Rule 6 and the petitioner is not entitled to institute the proceeding in his own name. The petition has got to fail on this ground alone. Further the petition does not comply with rule 95 of the rules. Particulars showing ‘the dent is due’---date of deposit, details of adjustment, etc—are not given. Even the copy of statutory notice given under section 434 of the act was not appended to the petition nor the letters stated to have passed between the parties were appended as annexure.
Amendment for of winding up.petiions.---Rule 6 is wide enough the court to order amendment even of a winding up petition if the circumstances of the case so warrant. Ego Metal Works P. Ltd., Re, (1977) 47 Com Cases 201; Bhagat Industrial Corpn. Ltd., v. Ego Metal Works P. Ltd., (1977) 47 Com Cases 201 (Del).
Application for stay of winding up.—In East India Cotton Mills Ltd., Re, (1949) 19 Com Cases 61, 87 : AIR 1949 Cal 69, at page 82 (of AIR) the court, in reference to cases to have an ex prate order set aside observed as follows: “I have not been referred to any case where a person who is not a party to a proceeding has been permitted to ask the court in exercise of its inherent powers to set aside an ex party order made therein. The doctrine of inherent power like that of public policy is to be applied with extreme caution and cannot be invoked in aid of proceedings which are not founded on sound legal principals and are not supported by any known rule of practice or procedure. I decline to invent novel inherent power, particularly when the, petitioners have, on a proper case being made out, the right to apply for stay of the winding up proceedings under section 173 (s. 466 of 1956 Act) of the Companies Act.”
A reference was made to this case to Anil Kumar Sachdeva v. Four ‘A’ Asbestos P. Ltd., (1980) 50 Com Cases 122 (Del) at p. 125. The court said : “That was a case in which the winding up order was sought to be set aside by a total stranger. That apart though the present application refers to r. 9 of the Companies (Court) Rules, the contents of r. 6 of the said Rules which adopt the practice and procedure of the court and the provisions of the Code of Civil Procedure would also be relevant. Even where the provisions of the Code are not applicable, the provisions of O IX, r. 13, can be applied in an accordance case. See also G.T. Swamy v. Goodluck Agencies, (1989) 1 Comp LJ 212 (Kant), recall of winding up order on repayment of debts.
“In the context of S. 446.”---The provisions of rules 6, 34 cannot narrow down the plain meaning of the various clauses of S. 446(2). Jaimal Singh Makin v. O.L. Majestic Finanviers P. Ltd., (1978) 48 Com Cases 419 (Del).
Application under section 542 or 543.---Reading collectively rules 6, 260 and 261 of the Companies (Court) Rules, (which deal with applications under section 542 or 543) and the forms prescribed there under and Order 7, rule 11 of CPC, the procedure to be adopted in cases under the said sections would be materially different from the procedure to be followed under CPC. Official Liquidator, Swashraya Benefit Pvt. Ltd., v. B. H. Talati, (1996) 87 Com Cases 197 (Guj). In this case, it was held that the omission to state the grounds in judge’s summons or application under section 543(1) is not so fatal as to result in rejection of the application. The provisions of abatement as contained in CPC will apply to petitions as well as to appeals under the Act. Modern Transporters (P). Ltd., v. Jagdish Raj Mehta, (1997) 47 Com Cases 302 (P&H). Accordingly, in a misfeasance proceedings, it was held that , where that appeal was decided by Letters of Patent subsequent to the demise of a director and this legal representative were not brought on record, the appeal against that director had abated and the decision made against him was nullity.
Bringing legal representative on record.---In current Transport & Finance P. Ltd., v. Singh, (1986) 59 Com Cases 767 (Del) an application was made by the liquidator to the company court under s. 446 for enforcement of a claim against the respondent. After the death of the respondent the liquidator did not apply within 90 days being the period prescribed by article 120 of the Limitation Act, 1963 to have the legal representative of the deceased respondent brought on record. It was held that application abated. The court explained the position thus (At p. 769) : “There is, therefore, no escape from the conclusion that the provisions of Order 22, rule 4, read with section 141 of the Code of Civil Procedure apply to the present proceedings as well. No application having been moved for bringing the legal representative of the deceased respondents on record within the period prescribed, the petition has to be treated as having abtated.”
Provisions of the Civil Procedure Code relating to abatement of proceedings also apply to appeals filed under the Act. A director against whom a misfeasance proceeding was pending died before the date of the appellate decree making him liable. Legal representative were not brought on record. Therefore, the appeal the director abated on his death and for this reason the decree in the appeal was a nullity so far as he was concerned. The attachment and sale of his property was set aside. Modern Transporters P. Ltd., v. Jagdishraj Mehta, (1977) 77 Com Cases 302 (P&H).
Effect of death pending judgment or after order.—In Nagendra Prabhu v. official Liquidator, Popular Bank, (1969) 1 Comp LJ 393 : AIR Ker 120, the court examined the effect of death after the matter has crystallized into an order. The court said (at p. 399) : On the question whether on the death of a delinquent party the liability abates it has to be held that where the proceedings have crystallized into an order or decree against the delinquent party or parties, the party or parties dying thereafter, the liability under the decree or order cannot stand automatically vacated, Further, on the death of a party after the hearing was concluded and judgment reserved the case is governed by Order 22, rule 6 of the Code of Civil Procedure, made applicable by rule 6 of the Companies (Court) Rules, 1956. If the death in question takes place pending the judgment in appeal, the judgment will have the same effect as if pronounced before death. But should the determination of the liability become necessary by an order of remand the procedure to that extent would admittedly lapse.
Set-off in winding up.—“Rule 6 provides that, save as otherwise provided by the Civil Procedure Code or by these Rules, the practice and procedure provision of the code so far as applicable shall apply to all proceedings under the Act and these Rules. The proceedings under the Act are to be regulated by the procedure prescribed under the Code save as otherwise expressly provided Rule 6 of Order 8 of the Code of Civil Procedure deals with the defendant’s claim to set – off any demand suit for an ascertained sum of money legally recoverable. In the absence of any contrary provision, the provisions of rule 6 of Order 8 of the Code will be attracted. The defendant/ respondent is entitled to claim set off in a suit for recovery of an ascertained sum of money filed against it, provided both the parties fill the same character and the amount claimed by way of set off does no exceed the pecuniary limits of the jurisdiction of the court and the suit is for a certain sum of money legally recoverable. The written statement containing particulars of the payment sought to be set off will have the effect of cross suit and the court has to pronounce its final judgment in respect both of the original claim and of the set off. The sales tax the respondent has remitted the balance amount to petitioner No. 1 (the company). The payment was received by petitioner No.1 without any condition. Thus, there is no escape from the conclusion that the respondent was entitled to adjust the amount of excess sales tax which it had to pay because of non issuance of From C by petitioner No. 1. “ Maruti Ltd., v. Parry and Co. Ltd., (1991) 70 Com Cases 663 (P&H), per G.R. MAJITHIA J.
Appeal against orders of Company Judge : Limitation period.---An appeal against an order of a Company extend or abridge the time appointed by these rules or fixed by an order of the Court for doing any act or taking any proceeding, upon such terms (if any) as the justice of the case may require and any such enlargement may be ordered although the application for the same is not made until after the expiration of the time appointed or allowed.
R. 7 Power of Court to enlarge or abridge time.---The court may, in any case in which it shall deem fit, extend or abridge the time appointed by these rules or fixed by an order of the Court for doing any act or taking any proceeding, upon such terms (if any) as the justice of the case may require and any such enlargement may be ordered although the application for the same is not made until after the expiration of the time appointed or allowed.
Extension of
Time
An underlying applicable to extension of time was the subject-matter of explanation in V.N. Khanna v. O L Golcha Properties Ltd., 1975 Tax LR 1300 (Raj). 7 empowers the court to extend time any case where the time is justice of the case may require. Under Rule 164, an appeals has to be filed within 21 days and therefore the appropriate provision applicable to extension of time is Rule 7. The powers there under are very wide and could be exercised if justice of case so demands. It is not the intention of the rule that each day’s delay is to be satisfactory explained as is required under Section 5 of the limitation Act. The essence of the rule is the dictates of justice. Standards of section 5, Limitation Act, cannot be applied. The court held on the facts that appellant made effects in the direction of presenting appeal, that he could not be blamed if he gave priority to the prospects of his official promotion in preference to realization of debt from insolvent (debtor), that he could not be denied justice because his counsel’s table was invaded by rats and appellant’s papers were munched by them and that in the circumstances of the case the call of justice could not be frustrated merely because each day’s delay had not been explained.
The power of the court to enlarge or abridge the time under Rule 7 is confined to the time appointed by the Rules or fixed by order of court for doing any act or taking any proceeding. Where the court itself has no power to extend the time, the question of the application of Rule 7 cannot arise. According, it was held that the court had no power under S. 633 to relieve the consequences of default by extending the time for holding a meeting. Coal Marketing Co. of India P. Ltd., Re, (1967) 37 Com Cases 720 (Cal).
The supreme Court has no power under S. 643 to frame a rule authorizing abridgement or extension of time provided under S. 633 Rule 7 cannot be construed to confer such a power on the court. Swastic Benefits P. Ltd., Re, (1968) 38 Com Cases 325 (Del); B.D. Tandon v. ROC. (1968) 38 Com Cases 325 (Del); Coal Marketing Co. of India (P). Ltd., Re, (Supra).
Power to
extend time on consent orders
There is no distinction between the provisions of Sec. 148 of Code of Civil Procedure and Rule 7. This Rule is wide enough to include an order made with the consent of the parties and hence the time fixed by a consent order can be enlarged. Marketing & Adverting Associates (P) Ltd. V. Telerad Pvt. Ltd., (1969) 30 Com Cases 436 (Bom). Relied on in 20th Century Finance Corpn. Ltd. V. Maegaware Computers Ltd., (1997) 89 Com Cases 487 (Bom).
Relief under
S. 633
An application was filed in Bee Jay Engineering P. Ltd., Re, (1983) 54 Com Cases 918 (Del) for relief under S. 633 read with Rules 7 and 9.
R. 8. Computation of time.---(a) Where any particular number of days expressed to be clear days ,is prescribed the same shall be reckoned exclusively of the first day and inclusively of the last day, unless the last day shall happen to fall on a day on which the offers of the Court are closed, in which case the time shall be reckoned exclusively of that day also of any succeeding day or days on which the officers of the Court continued to be closed.
Where any particular number of days expressed to be clear days, is prescribed, the same shall be reckoned exclusively of both the first and the last day.
R. 9.Inherent powers of Court.---Nothing in these rules shall be deemed to limit or others\wise affect the inherent powers of the Court to give such directions or pass such orders ax may be necessary for the ends justice or to prevent abuse of the process of the Court.
A combined reading of rules 6 & 9 of the Companies (Court) Rules, 1959, indicates that the inherent powers of the Court could be exercised in the manner provided under section 151 of CPC except in cases where the Companies Act and the Rules provide otherwise. G.T. Swamy v. Goodluck Agencies, (1989) 1 Comp LJ 212, 217 (Karn).
General
principles
Rule not to apply where specific provisions are made---This rule is analogous to section 151 of the Code of Civil Procedure. It is well settled that the inherent power of the court under this rule cannot be invoked where express provision is made for the relief by conferring power upon other authorizes. Every court whether a civil court or otherwise, must, therefore, in the absence of express provision in the Code for that purpose, be deemed to process, as inherent in its very constitution,all such powers as are necessary to do the right and to undo a wrong in the course of the administration of justice or to prevent abuse of the process of the court. Section 151, C.P. Code does not confer any new powers on the courts but only saves their inherent powers. The inherent powers of the court being very wide and indefinable, the limits of such jurisdiction should be carefully guarded and its exercise in an arbitrary and capricious manner effectively prevented. These inherent powers cannot be extended to make a new law on the subject. Abdul haq v. Katpadi Industries Ltd., AIR 1960 Mad 482; Lord Krishna Sugar Mills Ltd. V. Abnash Maur, (1961) 31 Com Cases 210 (Del); Nungambakkam Dhanarakshaka Saswatha Nidhi Ltd. V. Register of Companies, (1972) 42 Com Cases 632 (Mad); khosla Fans (India) Pvt. Ltd., v. Ramesh Khosla, (1983) 53 Com Cases 858 (P&H). Also see Srikanta Datta Narasimha Raja Wadiyar v. Venkateswara Real Estate Enterprises (Pvt.) Ltd., (1991) 72 Com Cases 211 (Kant); Sekhar Mehra v. Kilpest Pvt. Ltd., (1986) 3 Comp LJ 234 (MP).
The inherent power cannot be used to upset or distort the scheme of things under the Act and Rules. Bipla Chemical Industries v. Shree keshariya Investment Ltd., (1977) 47 Com Cases 211, 214 (Del). The inherent jurisdiction of the court under section 151 of the CPC cannot be resorted to when the aggrieved party has got exclusive remedy available under law. Dorairaj (H.J.) v. V.R. & Co., AIR 1973 Mad 135. Thus, where the relief sought required modification or correction of an earlier order, such relief could be granted under the specific provisions of Order 47, Rule 1 of the Code and not under s. 151 of the Code or under analogous rules 6 and 9 of the Companies (Court) Rules. Jalan (G.P.) v. Decan Enterprises (P). Ltd., (1994) 4 Comp LJ 484 (AP).
Nature of
Inherent Power
The inherent power of the court is not a substantive power but merely a procedural power and it cannot be exercised if it conflicts with what is expressly provided by the Code. Padam Sen v. State of U.P., AIR 1961 SC 218. In Manohar Lal Chopra v. Rai Bahadur Rao Raja seth Hiralal, AIR 1962 SC 527, the majority of the Supreme Court, placing reliance on the aforesaid decision, made the following pertinent observations on the powers of the court under section 151, Civil Procedure Code (at p. 533) : “These observations clearly means that the inherent powers are not in any way controlled by the provisions of the Code as has been specifically stated in section 151 itself. But those powers are not to be exercised when their exercise may be in conflict with what had been expressly provided in the Code or against the intentions of the Legislature. This restriction, for practical purposes, on the exercise of those powers is not because those powers are controlled by the provisions of the Code, but because it should be presumed that the procedure specifically provided by the Legislature for orders in certain circumstances is dictated by the interests of justice.” Followed in Shri Ambica Mills Ltd., Re, (1986) 59 Com Cases 368, 373 (Guj). Similar observations as to winding up matters are to be seen in Ramakrishna Industries P. Ltd., v. P.R. Ramakrishnan, (1986) 1 Comp LJ 227 (Mad).
It is settled law that even at the stage of admitting the winding up petition, or entertaining the winding up petition, the Court has an inherent power to do anything which is necessary to prevent an abuse of the process of the Court or to advance the cause of justice or make such order as are necessary to meet the ends of justice. The inherent power of the Court is not taken away or in way restricted by section 443(1). Which sets out the powers of the Court on hearing a winding up petition. Also see Usha R. Sheety v. Radesh Rubber Pvt. Ltd., (1995) 84 Com Cases 602 (Kar). Though there are limitations on the powers of the Court, it cannot abandon its inherent powers. The inherent power has its roots in necessity and its breadth I o-extensive with the necessity. Newabganj Sugar mils Co. Ltd. V. Union of India, AIR 1976 SC 1152. Also see Usha R. Sheety Radesh Rubber Pvt. Ltd., (1995) 84 Com Cases 602 (Kar).
Court’s sue
motto power
In the open to the Court to invoke the inherent powers sue motto without any application by any party. An application filed by the company before the Company Judge is only a request to invoke the said powers. Hence even if there was a finding in a company application that the winding up petition was an abuse of the process of the Court, it is enough for the opposite party to prefer an appeal against the dismissal of the winding up petition. C. Hariprasad v. Amalgamated Commercial Traders, 1972 Tax LR 2305 at 2307 (Mad).
Substantial compliance with forms is sufficient---The Court must not disregard and admitted debt by pedantic adherence to the forms annexed to the Rules. Substantial compliance is sufficient. Darjeeling Commercial Co Pvt. Ltd., v. Pandam Tea Co. Pvt., (1983) 54 Com Cases 814, 833 (Cal).
Holding of meeting in spite of stay order.---Where a meeting was held in spite of a stay order, it was held under s. 151 CPC and Rule 9 that the meeting and the business conducted at it were void. Century Flour Mills Ltd. V. S. Suppiah (1975) 45 com Cases 444 (Mad).
Defective affidavit.---Where a petition was dismissed on the technical ground that it was not accompanied by a proper affidavit, it was allowed to be submitted again subject to this condition appearing from the following words of the court :”It may, however be stated, that the main petition shall be deemed to have been filed today :”Premier Thermatic P. Ltd. V. Indian Sulphacid Industries Ltd., (1985) 57 Com Cases 816 (P&H).
Delivery of Documents.—An outgoing managing director of a company can be compelled to handover the company’s to his successor even if he is challenging the validity of the election of his successor. Chandigarh Tourist Synadicate Ltd., Re, (1978) 48 Com ases 267 (P&H); Charan Singh Kharbanda v. Chandigh Tourist Synadicate, (1978) 48 Com Cases 267 (P&H)
Order of Investigation ----To an order passed under s. 237, the judge added the words asking the inspector “to report for further action to be taken for under s. 242 if it appears to the Central Government that action should be taken there under.” It was held that the jurisdiction of the court was exhausted once an order was passed declaring that affairs ought to be investigated. The rest was for the Central Government. Hence those added words were not necessary. Nadar Press Ltd., Re, (1968) 38 Com Cases 337 (Mad) ; N.K.R.K. Amrithraj v. N.P.S.N. Ramiah Nadar, (1968) 38 Com Cases 337 (Mad).
Supervision over intern management under ss. 398/402.---The intern management committee his to function under the supervision of the court. The court would, therefore, have the power to cut short the period of interim management, should this be necessary. The proceeding for this purpose would have to be under the Companies (Court) Rules. Rule 6 brings in CPC ‘so far as applicable.’ This makes same departure from CPC permissible. Rule 7 provides for power of court to enlarge or abridge time. Under Rule 9 the court can exercise its inherent power notwithstanding Rule 6. Hence, it is immaterial whether the application for curtailment of the period of interim management is treated as an application under s 151 CPC or an application under Rules 7 and 9, Bhagwati Prasad bajoria v. British v. British India Corpn. Ltd., AIR 1964 All 75.
In a petition for winding up, relief was granted to the petitioner under sections 397, 398 is a representative action. It constituting an interim Board of management was constituted but winding up was not ordered. In an application by the Board of management for a direction that the company be permitted to avail of certain cash credit facilities it had with its bankers by pledging its general stores, it was held that though neither rule 9 nor section 151 of the Code of Civil Procedure had any application, the court had the power under section 402 of the Companies Act, 1956, to make the direction sought for. Lord Krishna Sugar mills Ltd., v. Abnash Kaur, (1974) 44 Com Cases 210 (Del).
Effect of death on representative action.----An application under s. 398 is a representative action. It does not abate on the death of the applicant. It can be continued by other shareholders and even an opposite party can be transposed as an applicant. Such petition is similar to the proceedings covered by O. 1, r. 8 of the Civil Procedure Code, 1908. Rule 9 of the Companies (Court) Rules gives to the courts the authority to transposed the opposite party as applicants in the interests of justice. Rai mathura Prasad v. hanuman Prasad Bhagat, (1984) 56 Com Cases 467 (pat). Also see Narayanan (L.R.M.K.) v. Pudhuthottam Estates Ltd., (1992) Com Cases 30 (Mad).
Suit stayed on winding up order.---The applicability of s. 446 was held to be available to companies which were being wound up under the 1913 Act. This is so by virtue of the operation of Rule 9. Frank Rose & Co. Ltd. V. H.H. Roy estates Ltd., 1983 Tax LR 2544 (Del) Dissenting from Mahamaya General Finance Co. P. Ltd. V. Hardit. Singh Liquidator, National Planners Co. Ltd., ILR (1972) 2 Del 241.
Transfer of arbitration proceedings.---Reading s. 446 with Rule 9 the court ordered the transfer of arbitration proceedings to the winding up court. The matter was at a preliminary stage. The only proceeding pending before the J & K High Court was an application under s. 20 of the Arbitration Act, 1940. Timber P. Ltd., Re, (1981) (P&H); Timber P. Ltd., v. Conservator of Forests, (1981) 51 Com Cases 18 (P&H).
Income-tax Authorities’ claim to interest.---In Official Liquidator v. ITO. K Ward Cos. Distt. III, (1981) 51 Com Cases 572 (Cal), the court held on facts that this was a fit and proper case where the claim of I.T. authorities for the interest should not be allowed and the court has ample power under s. 446(2)(b) read with Rule 9, notwithstanding any Act and any other law including s. 220(2) of the 1961 I.T. Act to pass any order in the ends of justice. The claim of statutory interest would have amounted to hardship and would have caused grave miscarriage of justice.
Vacation of premises.---The jurisdiction created by Rule 9 can be used for ordering an employee to vacate premises even when that relief was not specifically pleaded this was laid down in Britannia Engineering Co. Ltd., Re, (1983) 54 Com Cases 227 (Cal). The court said :”The fact that no relief by way of vacating the premises by an ex-employee was asked for n the application where only leave had been asked for to file a suit against the official liquidator by the applicant was immaterial. The Court had ample power under section 446(2) (a), (b) read with R. 9 to pass such order as it thought proper for determining the rights of the parties and it was a fit case where the power could be exercised in the interest of justice and to shorten litigation and prevent multiplicity of proceeding. The Court had ample power also under s. 468 of the Companies Act to pass such an order.”
Appeals against orders.----Where an application is fled by a company under Rule 9 for issue of an injunction restraining the opposite from proceeding with the petition for winding up of the company on the ground that it was an abuse of the process of the Court, and the petition of the opposite party is dismissed, the opposite party can file an appeal against dismissal of the petition even though no appeal is filed against decision of the Court in application filed under Rule 9. The decision in application filed under Rule 9 does not operate as res judicata in such a case. Hariprasad (C.) v. Amalgamated Commercial Trades. 1972 Tax LR 2305 (Mad).
Application for ex party interim injunction.----The liquidator of a company filed an application under sections 456 and 457 read with Rule 9 for interim ex party in terms of an injunction against a Financial Corporation who had seized the assets to restrain it from disposing them off. Aryavarta Plywood Ltd. v. Rajasthan State I & I Corpn., (1991) 72 Com Cases 5 (Del). See also Sushum Oversees Marketing P. Ltd. v. ROC, (1990) 1 Comp LJ 293 (Del). Which was an application for modification of an order of sale of assets passed by the court earlier; Mysore Surgical Cottons P. Ltd. v. Karnataka State Financial Corporation., (1988) 1 Comp LJ 63 (Kant), the corporation ordered to return the company’s properties seized by it to the liquidator notwithstanding s. 29 State Financial Corporation Act, 1951 and seek its remedies outside winding up. In Revenue Divisional officer v. Brunton & Co. (Engineers) Ltd., (1990) 69 Com Cases 497 (Ker) the petition was under Rule 7 for the cancellation of a sale proposed to be affected pursuant to a notice published by the official liquidator to comply with the terms of the lease. Before effected sale. On an application filed under section 443(1) read with rule 9, the court passed an ex party interim order restraining the company from issuing further equity shares or creating any further liability or the company with fresh borrowings. See Kiran Sandhu v. Saraya Sugar Mills Ltd., (1997) 91 Com Cases 146 : (1996) 2 Comp LJ 128 (All).
Secured creditor’s application.---A secured creditor makes his application under this rule for a direction to the liquidator that he should pay the sale proceeds of the security in satisfaction or part satisfaction of his claim. Syndicate Linsen Finance and Trading Co. P. Ltd., v. Alnar Dawood Ali Kassam Nathoo, (1982) 52 Com Cases 503 (AP). The court admitted an applicatin under rule 9 from a secured creditor of the company during an appeal against the rejection of winding up, for safeguarding interests. Trilok Chand jain v. Swastika Strips (P). ltd., (1995) 82 Com Cases 423 (P&H).
Member’s proposal of take-over.----An application can be filed under this Rule seeking court directors to the lending bankers to the company to accept the proposals of one faction of the members of the company who were willing to restart the business of the company and to provide collateral and primary securities to the bank to enable the bank to continue to loan facilities. Rakesh Dua v. N.K.M. Industries (P). Ltd., (1991) 71 Com Cases 710, 711 (Del).
Stay of advertisement of winding up petition.----If a petition for winding up is admitted, it is still open to the company to move the court that in the interest of justice or to prevent abuse of the process of court, the petition be not advertised. Such an application may be made where the court has issued notice under the last clause of rule 96 of the Companies (Court) Rules, 1959 and even when there is an unconditional admission of the petition for winding up. The power to enter in such an application of the company is inherent in the court under this rule. National Conduits (P) Ltd. v. S.S. Arora, (1967) 37 Com Cases 786 : (1968) AIR SC 279. Applied in Keerat kaur (Smt.) v. Patiala Exhibition Pvt. Ltd., (1991) 70 Com Cases 728 (P&H). In A. Company, Re, (1894) 2 Ch 349, it was held that if the petition is not presented in good faith and for the legitimate purpose of obtaining a winding up order, but for some other purpose, such as putting pressure on the company, the court will restrain the advertisement of the petition and stay all further proceedings upon it citrated by Supreme Court in National Conduit’s case, (Supra).
Appeal against order issued in exercise of inherent power.—By virtue of the provision in s. 483 order staying or refusing stay of winding up is an order made in the matter of winding up; it is a judicial order affecting the rights and liabilities of the parties and is, therefore appeable. As for the conduct of the appellant in suppressing certain facts, the court said : The allegations of circumstances on the date of the winding up petition should alone be looked into, especially when a later transaction is a disputed one. No doubt the appellant in the present case had suppressed the fact of certain sale of property when the petition was pending. But the respondent (petitioner for winding up) was guilty of suppression of graver facts. He had stated nowhere in his petition that he had approached the Company Law Board for investigation in 1966. No doubt some correspondence was to be found in the annexure but unless there was some reference to it in the petition the annexure were not meaningful. Where remedy of investigation has been chosen, winding up should not be allowed to be pursued. Winding up proceedings were stayed. Jagannath Gupta & Co. P. Ltd. v. Mulchand Gupta, (1969) 39 Com Cases 262 (Cal—DB).
Power of court in reference to sale of assets.----The court can direct the official liquidator to re-auction a property when there is an offer of a higher price than the price earlier confirmed by the court. Giavanola Binny (In Liquidation) Re, (Fertilisers & Chemicals mTravancore Ltd. v. Official Liquidator), (1996) 4 Comp LJ 380 (Ker). Even in the absence or fraud or irregularity, the court can exercise in discretion to order a resale at most remunerative price in the interest of creditors, workmen, etc. (ibid), following the principle laid down by the Supreme Court in Navlakha & Sons v. Ramanuja Das, (1970) 40 Com Cases 936 : AIR 1970 SC 2037.
Appeal lies under rule 9 against an order in a winding up matter confirming sale of shares Kedar Rout v. Sricharan Das, (1996) Comp LJ 142 (Ori). In this case the Company Judge refused to exercise his power under this rule for setting aside his earlier order.
Misfeasance proceedings.---An application under s. 543 can be allowed to be presented by using the power conferred by Rule 9 where an earlier application was dismissed for technical considerations. N.K.R.K. Amirithraj v. N.P.S.N. Ramiah Nadar, (1968) 1 Comp LJ 286 (Mad).
Depending on the facts and circumstances of a case and to meet the ends of justice or/and to prevent abuse of the process of the court, the court can drop proceedings under sections 542 and 543, or dismiss such an application against any party to the proceedings at any stage. Security & Finance (P). Ltd. v. B.K. Bedi, (1996) 4 Comp LJ 323 (Del). In this case, on the application filed by the director under rule 9 read with section 151 of CPC, the court quashed the proceedings against the director under sections 542 and 543 as no specific allegations were made against him. See also Chamundi Chemicals & Fertilizers Ltd. v. M.C. Cherin, (1993) 77 Com Cases 1 (Kar).
Inspection of documents by persons accused of misfeasance.---The Companies (Court) Rules, 1959, made by the Supreme Court provide for following the procedure prescribed in the Civil Procedure Code, 1908, as far as possible in proceedings under the Companies Act, 1956. Rule 14A of the Companies (Central Government’s) General Rules and Forms, 1956, provides for inspection by a creditor or contributory at any stage after the winding up order is made of the documents and records of the company in liquidation after an application in writing is made to the official liquidator, notwithstanding that the winding up is by an order of the court an under the supervision of the court. In proceedings where persons charged stand almost in the place of the accused inasmuch as they are answerable to the misconduct alleged against them, the court has to take a liberal view and should not shut out the defense open to the respondents merely on technical grounds. Hence, where, in order to defend against misfeasance proceedings, an application is made (under s. 549) to the official liquidator for inspection of certain documents in his possession, the official liquidator is bound to grant inspection of such documents. Subramaiyah Setty v. Official Liquidator, (1985) 57 Com Cases 626 (Kar).
Filling of Claims----Removal of Liquidators.----In a case before Punjab and Haryana High Court, the creditors, including the petitioners, were issued notices under rule 148 of the Companies (Court) Rules, 1959, for filling their claim. The petitioners immediately did so. Four years thereafter, notices were issued to the creditors under rule 149 asking them to file proof of debt. The petitioners filed their reply to the notices issued to them under rule 149 by filing their affidavits in terms of rule 150. No action was taken by the liquidator for one year. Thereafter, notices under rule 159 were issued by him asking the creditors to file proof of their claim. The petitioners filed their reply to those notices on July 15, 1981. The liquidator did not take any action thereafter and communications addressed by the petitioners were not answered. The petitioners filed a petition under sections 524 and 525 of the Companies Act, 1956, read with rule 9 of the Companies (Court) Rules, 1959, for removal of the liquidator. It was held, allowing the petition, that under rule 163 the liquidator is bound, either to accept or reject the proof in support of the claim filed by the creditors. Either in whole in part. Every decision of the liquidator accepting or rejecting a proof, either wholly or in part has to be communicated t the creditor concerned by post under postal certificate where the proof is admitted and the registered post with acknowledgment where the proof is rejected. The order passed under rule 163 is made appeal able under rule 164. The liquidator, in the present case, had not determined or deiced the claim of the creditor-petitioners for ten years, which has resulted in affecting prejudicially the rights of the creditors. He had filed to discharge his duties, as liquidator inasmuch as he has failed to take certain steps which he was statutorily required to take. This showed that he was not taking active interest in proceedings the claims of the creditors and their settlement. Failure on the part of the liquidator to determine the rights of the creditors had rightly given rise to apprehension in the minds of therefore, to be removed, and the official liquidator appointed liquidator to the respondent company. Amar Nath Krishan Lal v. Hindustan Forest Co. (Pvt.) Ltd., (1993) 77 Com Cases 128 (P&H).
Power to recall order of winding up.----Where subsequent to the order of winding up on the ground of inability to pay debts, the company paid off in full all the claims against it and it was also found that the products manufactured by the company were well received in the market and that there was a great potential for the business of the company to be carried on profitably, the court exercising it powers under Rules 6 and 9 considered this a fit case to recall the order. G.T. Swamy v. Goodluck Agencies, (1990) 69 Com Cases 819 (Karn).
Miscellaneous.---Courts have exercise of their inherent powers under this rule, inter alia,
To transpose a party as applicant in the inherent of justice, or to replace as petitioner any creditor who does not want to proceed by another. L. Rm. K. Narayanan v. Pudhurthotam Estates Ltd., (1992) 74 Com Cases 30 (Mad);
To make suitable provisions under section 402 of the Act read with Rule 9, to bring about an amicable settlement to the long standing dispute between the parties. Srilanka Datta Narasimharaja Wadiyar v. Sri Venkateswara Real Estate Pvt. Ltd., (1991) 72 Com Cases 211, 240 (Karn);
To give directions regarding handling over of property, keys, etc. by an outgoing Managing Director. Chandigarh Tourist Syndicate P. Ltd., Re, (1978) 48 Com Cases 267 (P&H);
To permit sale of the assets of a company even at the stage of admission of a winding up petition Usha R. Sheety v. Radhesh Rubber (P). Ltd., (1995) 84 Com Cases 602.
Power to call meeting.----The inherent powers of the court cannot to be used where an express provision is made conferring power upon other authorities. The could according refused to call a meeting in the exercise of its inherent powers. Such power was at the time in question vested in the Central Government (Now CLB) and it could not have usurped in the garb of inherent powers. Nungabakkam Dhanarakshaka Sawastha Nidhi Ltd. v. ROC, (1972) Com Cases 632 (Mad). In Kishore Y. Patel v. Patel Engineering Co., 9 Com Cases 53: AIR 1992 Bom 114, refusing similar relief, the court said that the doctrine of inherent powers cannot be used to create jurisdiction where it does not exist. It can, however, be used to mould relief where jurisdiction otherwise exists.
Induction of outsider in a general meeting.----The inherent power of the court under rule 9 cannot be exercised so as to induct an outsider in a company meeting which has already been convened. The power cannot also be used to do what cannot be done under s. 186. Accordingly, the court cannot appoint an observer to be present at the meeting. T. M. Menon v. Universal Film (India) P. Ltd., (1982) 52 Com Cases 371 (Mad). The powers under section 186 to order a meeting (other than an annual general meeting) to be called are now vested in CLB.
Opportunity of being heard.----Where there was no evidence that any of the parties asked for an opportunity to adduce evidence and the case was accordingly heard and disposed of on documents and affidavits, the appellate court did not entertain the grievance that an opportunity to be heard was not given. Parmanand Choudhary v. Shulka Devi Mishra, (1990) 67 Com Cases 45 (MP).
Application for removal of name on resignation.----One of the questions before the Madras High Court in Abdul Haq v. Katpadi Industries Ltd., AIR 1960 Mad 482 was whether the court had power to ask the company to remove the name from the company records of a director who had resigned. Answering the question in the negative, the court proce4eded as follow : (at pp. 482-483) “On that matter there cannot be the slightest doubt that this court has no such power.” The Indian Companies Act deliberately makes no provision for exercise of jurisdiction by courts I regard to resignation of directors. This is on the well recognized principle that courts should not generally interfere in the internal affairs of the company unless where the act complained of is ultra virus of the company or a fraud on the minority or where there is absolute necessity to waive a rule in order that there may not be a denial of justice.
The court cannot be use this rule to deal with an application regarding interim management of the affairs of a company in liquidation. Lard Krishna Sugar Mills Ltd. v. Smt. Abnash Kaur, (1974) 44 Com Cases 210 (Del).
It cannot be laid down as a matter pf law or rule that, in matters relating to oppression and mismanagement under sections 397, 398 and 433, the parties have an absolute right to prove their respective pleas by filing documents or affidavits alone. The court has the direction to prove any particular fact(s) by filing affidavit of any witness for any good and sufficient reason. Verma (R.P.) v. Aanaam Pvt. Ltd., (1990) 69 Com Cases 142. In Jhambu Kumar Raniwala v. Edward Mills Co. Ltd., (1970) 2 Comp LJ 43, an application under s. 403 for ex party suspending the company’s Board of directors was not allowed because the mere closure of a mil was not regarded as sufficient to enable the court to exercise its inherent power. In Anil Kumar v. Bedla Flour Mills and Allied Industries Ltd., (1980) 50 Com Cases 9 (Raj), it was held that on a application under s. 403 read with Rule 9 it is desirable to press only such interim orders as permit the working of the company without causing any hardship to either of the groups and without entailing further financial liability on either of the group.
Rules 6 and 9 do not bat the application of Order 14, rule 2 of the CPC to the proceedings under sections 397 and 398. Saurashtra Cement and Chemical Industries Ltd. v. Esma Industries (P) Ltd., (1995) 5 Comp LJ 295 : (1990) 69 Com Cases 372 (Gujarat).
Impalement of r4epresentaticve of director proceeded against under s. 398.—The court did not allow in the exercise of the power this rule the petitioner to bring on record by impalement the legal representatives of the director proceeded against on allegations of mismanagement. Rajendra Nath Bhaskar v. Bhaskar Stoneware Pipes P. Ltd., (1990) 68 Com Cases 256 (Del).
Forfeiture/ownership of shares.-----So long as the ordinary jurisdiction of a civil court is not specifically ousted, and is preserved, the High Court will not entertain a petition under rule 9. Tej Prakash S. Dangi v. Coromandel Phamaceuticals Ltd., (1997) 89 Com Cases 270 (AP). In this case, a petition seeking declaration that forfeiture of shares by a public notice in newspaper was void, was held to be not maintainable.
Rule 9 cannot be invoked to reopen an issue (in this case, ownership of shares ) which has been decided by the Company Judge and the Division Bench of the Court. Shakuntala Bail (Smt.) v. Eastern Linkers (P) Ltd., (1995) 4 Comp LJ 591 (Del).
Transfer of execution proceedings.---The court refused to transfer to itself under s. 446 execution proceedings pending before the Rent Collector Dr. S.P. Bhargava v. Haryana Electric Steel Co. Ltd., (1995) 1 Comp LJ 376 (P&H).
It also reused to set aside an order for advertisement of a winding up petition issued immediately on admission without notice to the company because the inherent power should be used sparingly and in exceptional cases and that this was not one such case Soujanija Hotels (P) Ltd.. v. Nalla Satyanarayana Murthy, (1995) 1 Comp LJ 172 (AP).
An application for revocation of the order passed by the court regarding citation and admission of the winding up petition was dismissed as it amounted to abuse and misused of the process of law. Indian Spices & Food Industries Ltd. v. Indian Charge Chorme Ltd., (1996) 4 Comp LJ 309 (Del).
R. 10. Application how made.---Unless otherwise provided by these rules or permitted by the Judge, all application under the Act shall be made by a petition or by a Judge’s summons as hereinafter provided.
Sale of assets in winding up
In exercise of the power conferred by rule 10, it will be permissible to the judge to allow the practice and the procedure of the court which was followed prior to this rule being made. The provision of rule 10 have to be read with rule 6 and if so read it will be o0en to a judge to permit an application to be made in consonance with the practice and procedure prevailing in the court and when such permission is granted, it is neither obligatory upon the party concerned or the official liquidator to follow the proceedings prescribed by rule 139 or to made an application by a petition or a judge’s summons as normally required under rule 10. Amba Tannin and Pharmaceuticals Ltd. v. OL, High Court, Bombay, (1975) 45 Com Cases 457 (Bom).
Directors on
the Liquidator’s Report
Commercial Art Engravers P. Ltd. v. Indian and Eastern Newspapers Society, (1978) 48 Com Cases 36 (Bombay) was concerned with the sale of movables and the right of the liquidator to defend as suit. The right to compromise a suit follows from the right to defend. The procedure of a report adopted by the liquidator was in consonance with the established practice of the Bombay High Court and was permissible under the provision of rules 6 and 10 which preserve the practice of court or the discretion of the judge to permit such a procedure. The matter is wholly within the discretion of the liquidator and he seeks the administrative sanction of the court for his own protection.
Stay of
proceedings in connection with Ss. 391-392
The court has the power to order stay of civil or criminal proceedings against a company or its directors for the purpose of enabling it to finalize and sanction a scheme. The prayer for stay has to be in the form of a petition. Harish C. Raskapoor v. Jaferbhai Mohmedbhai Chhatpar : Divya Vasanundhara Financiers P. Ltd., Re, (1989) 65 Com Cases 163 (Gujarat).
In reference to the powers of the court under section 155 relating to ratification of the register of members (Now CLB under section 111(4), it has al along been emphasized that the power is of wide nature. In order to substantiate this point Madras High Court referred to the provisions of Rr. 10, 11 and 12. Rule 10 requires application to be made either by petition or by judges’ summons. Rule 11 provides among others things that application for rectifications of register of members shall be by a petition and Rule 12 requires that all petition must be heard in open court. This sequence of provision shows that the power is of special significance E. V. Swaminathan v. K.M.M.A. Industries & Roadways Pvt. Ltd., (1993) 76 Com Cases 1, 11 (Mad).
R. 11. (a) Petitions.---The following applications shall be made by petition---
2(1) Applications under section 17 to confirm an alteration of the memorandum of association.
2(2) Applications under section 79 to sanction issued of shares at a discount.
(3) Applications under section 101 to confirm Applications under section 107 to confirm reduction of share capital.
Application under section 107 to cancel any variation of the rights of holders of any class of shares.
2(5) Applications under section 141 for ratification of the rectification of the register of charges.
Application s under section 155 for rectification of the Register of Members.
3(7) Applications under section 186 by a Director or Member of a company for calling a meeting the company.
(8) Applications under section 203 to restrain a fraudulent person from managing companies, or for leave by a person restrained to be director of, or to manage, a company.
(9) Applications under section 237 for an order that the affairs of a company ought to be investigated.
(10) Applications under section 391(2) to sanction a compromise or arrangement.
(11) Application under section 395(1) or 395(2) for the purpose of preventing, of settling the terms, of the acquisition by a transferee-company of the shares of a dissenting shareholder.
(12) Applications under section 397 for relief against oppression.
(13) Application under section 398 for relief in case of mismanagement.
(14) Applications under section 407(1)(b) by a director, or manager, whose agreement is terminated for leave to act as the managing or other director, or manager of the Company.
(15) Applications under section 439 for the winding-up of a company, or under section 583 for the winding up of an unregistered company, or under section 584 for the winding-up of a foreign company.
2.Powers conferred on the Company Law Board by the Companies (Amendment) Act, 1974 (w.e.f. 1-2-1975).
3.Powers conferred on the Company Law Board by the Companies (Amendment) Act, 1974 (w.e.f. 1-2-1975).
(16) Application under section 517 to set aside an arrangement between a company about to be or in the course of being wound-up (voluntarily) and its creditors.
(17) Applications under section 522 to continue a voluntary winding-up subject to the supervision of the Court.
(18) Applications for a declaration under section 542 (XI Schedule) in the course of proceedings under section 397 or 398 that a person who was knowingly a party to carrying on business in a fraudulent manner shall be personally liable for all or any of the debts or other liabilities of the company.
(19) Applications by a creditor or member under section 543 (XI Schedule) in the course of proceedings under section 397 or 398, to enquire into the conduct of any of the persons mentioned in section 543 (XI Schedule) and compel him to repay or restore any money or property to the company or pay compensation.
(20) Applications under section 559 for declaring the dissolution of a company void.
(21) Applications under section 560(6) to restore a company’s name to the Register of Companies.
(22) Applications under section 579 to confirm the alteration in the form of the constitution of a company by substituting a memorandum and articles for a deed of settlement.
(23) Applications under section 633(2) by a officer of a company for relief.
Judge’s summons.---All other applications under the Act or under these rules shall be made by a judge’s summons, returnable to the judge sitting in Court or in Chambers as hereinafter provided.
Framework
The companies (Court) Rules, 1959 (framed by the Supreme Court) govern the proceedings under the Companies Act (1 of 1956), Rule 11 (a) provides that certain applications under the Act shall be by petitions; application under section 398 is one of them. Rule 17 provides that Forms in Appendix 1, where applicable, shall be used. Rule 18(a) provides for drawing up of affidavits and rule 21 prescribes that every petition shall be verified by the petitioner or one of the petitioners, the manner of swearing is prescribed by Form 3. Rule 24 relates to advertisements of petitions and rule 26 relates to service of petition on respondents. Rule 34 requires every person, intending to appear at the hearing of the petition, to give notice to the petitioner within the time fixed and further requires a person intending to oppose the same, to furnish the grounds of his opposition. Rule 36 relates to the procedure at the hearing. Rule 9 states that nothing in the Rules shall be deemed to limit or effect the inherent powers of Court to give such directions or make such orders as may be necessary for the ends of justice. A statement to this effect occurs in the judgment of the Bombay High Court on appeal from a decision of the erstwhile Companies Tribunal in S.P.Jain v. Union of India, (1966) 1 Comp LJ 42 (Bombay).
Application
for confirmation of reduction of capital (Rule (11)(a)(3) )
An explanation of the bunch of rules dealing within this subject-matter is to be found in Shri Ambica Mills Ltd., Re : Ex p. Jayakrishna Harivallabhdas, (1986) 59 Com Cases 368 at pp. 390-391 per S.B. MAJUMDAR J..
The board of directors and the managing directors are fully authorized to act on behalf of the company. Attention of the court was invited to the articles of association of the petitioning company, especially articles 115, 128 and 129(1) to point out that the managing directors can take all steps on behalf of the company in any court of law by filing proceedings and/or by defending them. The Companies (Court) Rules, 1959, also throw lot of light on this question. As per rule 46, a petition to confirm a reduction of the share capital of a company is required to be filed in Form No. 18 and shall be accompanied by a summons for directions in Form No. 19. Rule 49 lays down that the company shall, within the time allowed by the judge, file a list in Form No. 21 containing names and addresses of the creditors, etc., while rule 50 deals with affidavits verifying list of creditors and states that such list shall be verified by a affidavit, shall state his belief that the list verified by such affidavits is correct. Rule 53 states that notice of the presentation of the petition and of the list of creditors under rule 49, shall within seven days after the filing of the said list of such further or other times as the judge may allow be advertised by the company in such manner as the judge shall direct. Rule 55 lays down that the company shall file a statement signed and verified by the advocate of the company stating the result of the notices mentioned in rules 52 and 53, respectively, and verifying a list containing the names and addresses of the persons, if any, who shall have sent in the particulars of their debts, etc. If we turn to Form No. 21 which prescribes the statutory form lf list under rule 49, it is found that the said list can be signed by the director, secretary or other competent officer of the company. Statutory form of affidavit as per rule 55 is provided by Form No. 26. If we look at the same, it is found that an affidavit as to the result of the notice issued as required by rule 55 has to be made by an advocate of the company and has to be supported by an affidavit of the managing director of the company. Form No. 29, as per rule 59 of the Companies (Court) Rules deals with hearing of petition. Rule 59 provides that after the expiry of not less than fourteen day from the filing of the certificate mentioned in the preceding rule, the petition shall be set down for hearing. Notice of the date fixed for the hearing of the petition shall be advertised within such time and in such newspapers as the judge may direct and shall be in Form No. 29. Form No. 29 is the form of advertisement of hearing of petition. It is further pertinent to note that as per rule 11 (a) (3), applications under section 101 to confirm reduction of share capital has to be by way of a petition. As per rule 12, petitions are to be one of the petitioners, where there are more than one, and in the case of a petition presented by a body corporate, by a director, secretary of other principal officer thereof. Such affidavit is to be filed along with the petition and has to be in Form No. 3. Rule 24 lays down that where any petition is required to be advertised, it shall be done not less that 14 days before the date fixed for hearing. Rule 34 deals with notice to be given by persons intending to appear at the hearing of petition. As per rule 35, the petitioner or his advocate has to prepare a list of the names and addresses of the persons who have given notices of their intention to appear at the hearing of the petition. The aforesaid Rule clearly show that petitions under the Companies At have to be advertised widely so that an one desirous of having his say in the matter can come before the company court and put forward his submission either in support of, or in opposition to, the petition. The managing directors, therefore, cannot be said to be total strangers to the company petition.
Investigations
(Rule 11((9) )
Rule 11(9) of the Companies (Court) Rules, provides that the Court can be moved under section 237 by a petition. That of courses is not decisive. Thus upon a proper construction of section 237, a petition can be filed under section 237(a) (ii) of the Companies Act for a prayer that the Central Government be directed to appoint an inspector to investigate the affairs of the Company. Prayer (b) is to that effect and therefore, petition is one, which can be entertained. Alembic Glass Industries Ltd., Re, 1971 Tax LR 1838 (Gujarat).
The object of an investigation under s. 237 is to discover something, which is not apparent. Where a petition merely discloses facts, which are apparent from the balance sheet of the company, it will not be sufficient to seek an order of investigation. The relevant provisions read with rule 1 would show that at least a prima facie evidence should exist concerning circumstances which would lead to the conclusion that an investigation was necessary. Delhi Flour Mills Ltd., Re, (1975) 45 Com Cases 33 (Del); S.L. Verma v. Delhi Flour Mills Co. Ltd., (1975) 45 Com Cases 33 (Del).
Scheme of
Compromise/arrangement (Rule 9(10) )
Rule 11 of the Companies (Court) Rules, 1959, requires, inter alias, filing of a petition under section 391(2) for seeking sanctioning of a compromise or arrangement. Under this rule, the matters, which have to be brought before the Company Judge, contemplate filing of a petition. Rule 11(b), however, lays down that all other applications, under the Act or under these Rules shall be made for a Judges Summons returnable to the Judge sitting in Court or in Chambers. Accordingly, no notice was required to be served on the Central Government at the time the Judges Summons are taken out for holding meetings of the creditors and the shareholders. Mohan Exports India Ltd. v. Tarun Overseas (P) Ltd., (1994) 3 Comp LJ 193 (Del).
Appointment
of Committee of Inspection
If an application of the committee of inspection is to be made, s. 464 read with rr. 140 and 141, provides for the procedure to be followed for appointment of a committee of inspection. Rule 11 of the said Rules states that the applications mentioned in r. 11(a) shall be made by judge’s summons. Section 464 does not find place in r. 11(a). Hence, the application for appointment of committee has to be made by judge’s summons. There is no such judge’s summons taken out by the creditor, who has no locus standi, because only bodies of creditors have a right to be heard through the committee of inspection. Jantha Works P. Ltd., Re, (1984) 56 Com Cases 229 (Bombay); Dhanraj Bhatia v. Jantha Works P. Ltd., (1984) 56 Com Cases 229 (Bombay) ; (1995) 5 Comp LJ 232.
Jurisdiction
If a matter does not fall under any of the sections listed in rule 11, then they are not cases which are specifically excluded from the Civil Court. Tej Prakash S. Dangi v. Coromandel Pharmaceuticals Ltd., (1997) 89 Com Cases 270 (AP).
Court Fee
In a claim petition by a liquidator for recovery of amount due from the company’s debtors, the application would have to be stamped as an application unless it is a regular suit of recovery in which case the Court Fee Act would become applicable. Punjab Finance P. Ltd. v. Malhara Singh, 1975 Tax LR 1670 (P&H). The Court dissented from Official Liquidator, Mysore v. T. Muniswamy Achary, AIR 1967 Mys 190.
R. 12. Matters to be heard in open Court and in Chambers.---(a) The following matters shall be heard open Courts:--
(1) Petitions.
(2) Applications under section 43 for relief in case of default by a private company in complying with the provisions of its articles.
(3) Applications under section 75(4) for relief in case of default in delivering documents to the Register of Companies.
(4) Applications under section 89(3) for directors regarding termination of disproportionately excessive voting rights in existing companies.
(5) Applications under section 250 for a direction that shares or debentures shall cease to be subject to restrictions imposed by the Central Government under the said section.
(6) (Omitted.)
(7) (Omitted.)
(8) Applications under section 391(1) for convening meetings of creditors and/or members of a company or any class of them.
(9) Proceedings under section 394 for reconstruction or amalgamation of companies.
(10) Public examination under section 478 or section 519.
(11) Applications for a declaration under section 542 that a person who was knowingly a party to carrying on business in a fraudulent manner shall be personally liable for all or any of the debts or other liabilities of the company.
(12) Applications under section 543 to enquire into the conduct of a promoter, director, etc., and compel hi to repay or restore any money or property to the company or pay compensation.
(13) Applications under section 545(1) for prosecution of delinquent officers and members of a company.
(14) Applications under section 555(1) by a person claiming to be entitled to any money paid into the Companies Liquidation Account.
(15) Applications for committal of any person for contempt.
(16) Appeals from any act or decision of the Official Liquidator.
(17) Applications relating to the admission or rejection of proofs.
(18) (a) Such other matters and applications as the Judge may from time by general or special order direct to be heard in open Court;
Provided that the Court may, if it thinks fit, direct that the hearing or any part of the hearing of any of the said matters shall be held in Chambers.
(b) Every other matter or application may be heard and determined in Chambers provided that the Judge may adjourn any such matter into Court.
Collector’s
evidence in chamber
Without prejudice to the power of the official liquidator under rule 160 of the Companies (Court) Rules to summon the District Collector (for disclosure of land records in this case), the High Court permitted the collector, as a special case, to appear before it for proceedings in its chamber. Ram Chandra yadav v. Principal Sugar Mills Co. Ltd., (1992) 73 Com Cases 548 (All).
R.13. Registers to be kept.---There shall be kept, in every Court, the following Registers, relating to proceedings under the Act and these rules:-
Company Petitions Register in which shall be entered and numbered serially all the petitions filed under the Act and these rules: ---
(i) Date of presentation,
(ii) Name of company,
(iii) Names of parties and their Advocates,
(iv) Provision of law under which the petition is made,
(v) nature of relief sought,
(vi) Date and nature of order made,
(vii) Date of filing of appeal, if any,
(viii) Date of disposal of appeal, and
(ix) Result of judgment in appeal.
Company Applications Register in which shall be entered and numbered serially all applications other than petitions with particulars as to :-
(i) Date of presentation,
(ii) Name of company,
(iii) Number of main proceeding, if any, to which the application relates,
(iv) Provision of law under which the petition is made,
(v) nature of relief sought,
(vi) Date and nature of order made,
(vii) Date of filing of appeal, if any,
(viii) Date of disposal of appeal, and
(ix) Result of judgment in appeal.
Liquidations register in which shall be entered company wise, under a separate heading for each company ordered to be wound-up, briefly and in chronological order, all proceedings in winding-up until conclusion of the winding-up.
Company documents register in which shall be entered under a separate heading for each company any valuable securities such as negotiable instruments, documents of title and the like that may be filed in proceedings before the Court.
Appearance Book in which shall be entered the appearances filed by or on behalf of any creditor or contributory under Rule 230(2) of these rules.
Nothing in these rules shall effect the discretion of the Court to direct the keeping of any register that may be deemed necessary.
R. 14. Serial number of proceedings.---Every petition or application shall bear its distinctive serial number, and an interlocutory application shall bear, besides its own serial number, the serial number of the main proceeding to which it relates. Every order made, process issued or document filed, shall bear the serial number of the proceedings to which it relates.
R. 15. Process to be sealed.----All petitions, applications and affidavits, upon being filed and all orders, summonses, warrants or processes of any kind 9including notices issued by Court) and certified copies, of any proceedings, shall be served.
R. 16. Inspection and copies of proceedings.----Save as otherwise provided in these rules, the rules of the Court for the time being I force relating to search and to the certification and grant of copies including the fees and said charges payable for the same, shall apply to proceedings under the Act and these rules, as they apply to other proceedings in the Court.
R.17. Forms.---The forms set forth set forth in Appendix I, where applicable, shall be used with such variations as circumstances may require.
Substantial compliance with the forms annexed to the rules is sufficient. Darjeeling Commercial Company Ltd., v. Pandam Tea Co. Ltd., (1983) 54 Com Cases 814, 833 (Cal); Suvarn Rajaram Bandekar v. Rajaram Bandekar, (Sirigao) Mines Pvt. Ltd., (1997) 88 com Cases 673 (Bom (Panaji Bench) ).
R. 18. Affidavits.---(a) Every affidavit shall be drawn up in the first person and shall state the full name, age, occupation and the place of abode of the deponent. It shall be signed by the deponent and sworn to in the manner prescribed by the Code or by the rules and practice of the Court.
(b) Every exhibit annexed to an affidavit shall be marked with the number of the proceedings to which it relates, and shall be initialed and dated by the authority before whom it is sworn.
(c) Except with the leave of the Judge, no affidavit having interlineations, alteration or erasure, shall be filed in Court unless such interlineations or alteration is initialed by the authority before whom it is sworn, or, in the case of an erasure the words and figures written on the erasure are rewritten in the margin and initialed by such authority.
Petition for
winding up without affidavit and valid
The need for accuracy in affidavits was stressed in Mool Chand Wahi v. National Paints P. Ltd., (1986) 60 Com Cases 198 (P&H), by R.N. MITTAL., at pp. 201-202. An affidavit which is not in the prescribed form is of no value. An affidavits which supports a company petition is treated as substantive evidence and where there is no affidavit in accordance with law accompanying the petition, it is no petition in the eye of law and is liable to be rejected. Mool Chand Wahi v. National Paints P. Ltd., (1986) 60 Com Casss 198 (P&H), p. 404 affirming Moolchand Wahi v. National Paints Pvt. Ltd., (1986) 60 Com Cases 198 (P&H). Dissented from in Roma Deb v. R.C. Sood & Co. P. Ltd., (1990) 67 Com Cases 350: (1987) 2 Comp LJ 174 (Del).
From the relevant rules, it is evident that the petition for winding up is required to be accompanied by an affidavit in due form. It is well-settled that if an affidavit is not in due form, no value can be attached to it.
‘The provisions of Order 19, rule 3, must be strictly observed, and every affidavit should clearly express how much is a statement of the deponent’s knowledge and how much is a statement of his belief, and the grounds of belief must be stated with sufficient particularity to enable the court to judge whether it would be safe to act on the deponent’s belief’. Padmabati Dasi v. Rasik Lal Dhar, (1910) ILR 37 Cal 259, per JENKINS C.J. and WOODROFFEE J. This enunciatio of the principle was endorsed by the Supreme Court in State of Bombay v. Purusshottam Jog Nasik, AIR 1952 SC 317.
In a subsequent cause between the same parties, namely, Mool Chand Wahi v. National Paints P. Ltd., (1986) 60 Com Cases 402 (P&H), an attempt was made to revive the same petition by filing a fresh affidavit properly sworn in and in proper from and the same was not allowed. The Court was of the view that the affidavit will relate back to the date of the original presentation and this would lead to great confusion because rights of third parties may crop up in the meantime. It was submitted by the petitioner that the verification of an affidavit is a matter of form and that he should have been allowed to file a fresh affidavit. Reliance was placed upon. Manohar Narayan Joshi v. Ramu Mhatang Patel, AIR 1973 Bom 105. D.V.SEHGAL J. disagreeing with this contention, held ( (1986) 60 Com Cases 402 at p. 404):
“An affidavit which is not in due form is of no value. An affidavit which supports a company petition is treated as substantive evidence and where there is no affidavit in accordance with law accompanying the petition, it is no petition in the eye of law. The learned single judge rightly rejected the appellant’s prayer to file a fresh affidavit properly sworn in for the reason that if the amendment of a petition for winding up is allowed, it relates, back to the date of its presentation. It would lead to a great deal of confusion if the appellant is allowed to sear in and supply a fresh affidavit at a late stage because rights distinguished by the learned singles judge as it adjudicated on the question whether or not a petitioner in an lection the affidavit accompanying it. An affidavit in support of an election petition is not intended to be treated as evidence of the facts stated therein because it is ultimately to be decided on the evidence recorded by the High Cour.”
R.19. Form of Judge’s summons and service thereof.---(1) A Judge’s summons shall be in form No. 2 and shall, unless otherwise provided by these rules or permitted by the Judge, be supported by an affidavit.
(2) The summons, together with a copy of the affidavit, shall be served upon every person against whom an order is sought and such other person as the Judge may direct, in person or by prepaid registered post, or upon his advocate, where he appears by advocate, or in such other manner as the Judge may direct.
(3) Unless otherwise provided by these rules or by an order of Court, a summons which is an interlocutory application in a proceeding, shall be served not less than 43 clear days before the day named in the summons for the hearing thereof, and where the summons is other than interlocutory, it shall be served not less than fourteen days before the date fixed for the hearing thereof.
R. 20. Issue of summons.----every summons, together with duplicates of the same for service thereof, shall be prepared by the applicant or his advocate and issued from the office of the Register.
R. 21. Affidavit verifying petition.---Every petition shall be verified by an affidavit made by the petitioner or by one of the petitioners, where there are more than one, and in the case the petition is presented by a body corporate, by a director, secretary or other principal officer thereof; such affidavit shall be filed along with the petition and shall be in Form No. 3 :
Provided that the Judge or Registrar may, for sufficient reason, grant leave to any other person duly authorized by the petitioner to make and file the affidavit.
Substantial
compliance with forms enough
The rules are undoubtedly statutory and the forms are to be adopted wherever they are applicable. The rules relating to the affidavit and the verification cannot be ordinarily brushed aside, but then what is required to be seen is whether the petition substantially complies with the requirements and, secondly, even when there is some breach or omission, whether it can be fatal to the petition. Suvarn Rajaram Bandekar v. Rajaram Bandekar, (Sirigao) Mines Pvt. Ltd., (1997) 88 Com Cases 673 (Bom---Panaji Bnech).
Disclosure of
source of information on which belief founded
The person who submits an affidavit (in this case winding up petition) must disclose specifically the source of information on the basis of which the verifies that the contents of the affidavit are believed to be true. Malhotra Steel Syndicate v.Punjab Chemi-plants Ltd., (1989) 65 Com Cases 546 (P&H).
Authority of
secretary
Explaining in the context of ss. 397-398, the authority of a secretary in Mohon lal Mittal v. Universal Wires Ltd., (1983) 53 Com Cases 36 (Cal) the court said at p. 48: Rules 21, 70 and 88 of the Companies (Court) Rules, 1959, read with Forms Nos. 3. 43 and 44 make it quite clear that in case a secretary verifies any petition or files a proxy or any petition under ss. 397 and 398 of the Companies Act, 1956, it must be accompanied by an affidavit verifying the petition along with statement that he has been duly authorized by the company. Requirement of an affidavit of competency in company petitions under the rules and practice of the original side of this court is so well established that without the same applications are not maintainable. The consent under s. 399 of the Companies Act, 1956, to present a petition under ss. 397 and 398 is not the function of the secretary.
Rectification
of defective affidavit
Rule 21 requires every petition for winding up a company to be accompanied by an affidavit verifying the petition in Form No. 3 Merely because the averments in a petition for winding up can be treated as evidence without any further proof would not be a ground for the court to treat a defective affidavit verifying the petition as fatal to the petition. In the case of verification of a plaint, a defect in the verification is only an irregularity in procedure which ca be cured at any state of the suit. The same principal is to be imported into verification of a petitioner for winding up, except that, in the latter case, the court would not permit rectification of the defect just as a matter of course and would take into account all the relevant circumstances, including the conduct of the parties. Where an amendment of the petition is permitted to be filed for any reason, the amended petition relates back to the filing of the original petition. If amendment of a petition can be allowed, there is no reason why a defective affidavit verifying the petition could not be rectified. In the ends of justice and if the circumstances of the case so require, the court can, in its inherent power, allow the petitioner to present an affidavit in support of the petition in terms of rule 21 and Form No. 3 Roma Deb v. R.C. Sood & Co. P. Ltd., (1990) 67 Com Cases 350 : (1987) 2 Comp LJ 174 (Del). The court dissented from Gaya Textiles P. Ltd., v. Star Textile Engg. Works Ltd., AIR 1968 Cal 388 and Mool Chand Wahi v. National Paints Ltd., 1984 PLR 182 affirmed in (1986) 60 Com Cases 402 (P&H) where such rectifications were not allowed.
Subsequent
affidavits under ss. 397/398
In Shanti Prasad Jain v. Kalinga Tubes Ltd., AIR 1962 Ori 202, it was urged on behalf of the company that the petition, was not maintainable; that this case should be tried, on the petition as it stands, and the subsequent affidavirts should not be looked into; the company’s point was that subsequent affidavits made in support of the petition should not be accepted. The court held that this contention was unacceptable. The Court said (at p. 222): Indeed, both under the English law as also the Indian law, the result of decided cases appears to be that, while the statutory affidavit is always necessary, it is not always sufficient; it is never sufficient where the petition is based on allegations such as oppression, mismanagement, fraud etc.; in such cases the facts in support of the allegations must be stated on affidavits; the Court has never attempted to state exhaustively the circumstances. In which apart from cases based on allegations of fraud, the statutory affidavit is to be regarded as sufficient; each case must depend on its peculiar facts.
Verifying
through agent
There is no express or implied provision in the Companies Act, prohibiting the constituted attorney from verifying the petition or filing an affidavit in that behalf. Under rule 21 of the Companies (Court) Rules, 1959, an affidavit verifying a petition for winding up can be sworn by a duly authorized person on behalf of a petitioning party, on obtaining leave from the judge or Register of the company court for sufficient reasons. It, therefore, stands to reason that it is permissible for a petitioning party to be represented by his authorized agent or duly constituted attorney. It cannot be said that the classes of persons who can file petitions under section 439 cannot be represented by an authorized agent, provided the authority is full and complete, clear and unambiguous. The constituted attorney must, however, obtain leave of the court or of the Register,. Shantilal Khushaldas and Bros. Pvt. Ltd., v. Chandanbala Sughir Shah, (1993) 77 Com Cases 253, 259, 260 (Bombay) A constituted attorney must be specifically authorized to lodge company petition for winding up a company. A mere authorization to file suits or proceedings for recovery of amounts is not sufficient to empower him to institute proceedings under the Companies Act for winding up the company. Ibid at pp. 264-265. See also B. Gopaldas v. Kota Straw Board, (1970) 2 Comp LJ 28 (Raj) where it was held that where petitioners are partnerships firms, it would not be unreasonable to allow them the facility of filing the affidavit by a duly authorized person.
Affidavit on
behalf of company
In State Bank of India v. India Electric Works Ltd., (1969) 2 Comp LJ 169 (Cal), the court said: Rule 21 of the Companies (Court) Rules is merely directory. The superintendent of the Advance Department of the State Bank of India who filed the affidavit in support of the petition for winding up was a responsible officer though not a ‘principle officer’ of the Bank (a company) and he being fully conversant with the facts, his affidavit in support could not be rejected and could be accepted. The technical objection based on rule 21 of the rules therefore, failed.
Verification
by other than the specified person
The petition for winding up should not be numbered by the Registry if it is not in conformity with rule 21 of the Rules which requires that in the case of the petition presented by a body corporate it has to be verified by an affidavit in Form No. 3 signed by a director or secretary other principal officer and that permission of the court has to be taken if any other person has to file the affidavit. The petition as well as the affidavit in this case was signed by the marketing manager. The court observed that had this technical defect been pointed out earlier, the petitioner would have filed as petition for leave in that behalf. Accordingly, the petition though dismissed, such dismissal was not rested on this technical ground. Multimetals Ltd. v. Suryatronics Pvt. Ltd., (1997) 25 Corpt LJ 217 (AP).
Signature and
verification of affidavits
Rule 11 of the Companies (Court) Rules 1959, enumerates the applications which have to be ,made by petition. Applications under section 397 and applications under section 398 of the Act are mentioned at Serial Nos. 12 and 13 in that rule. The manner in which a petition has to be verified is indicated in rule 21. It is stated therein that “every petition shall be verified by an affidavit made by the petitioner or by one of the petitioners, where there are more than one.” The present petition has been filed by eight petitioners. The petition is accompanied by the affidavit of petitioner No. 7. He has deposed about al the allegations made in the petition and has verified on solemn affirmation that the facts stated in his affidavit are true and correct and no part thereof is false, and nothing has been concealed. It appears that this satisfies the requirements of rule 21, and it cannot be said that the petition has not been verified in the prescribed manner. The counsel for the respondent has not been able to point out any rule in the Companies (Court) Rules which requires the petition to be signed as required by Order 6, rule 14, or which may require a petition to be verified like a plaint under Order 6, rule 15, of the Civil Procedure Code. The petition has been signed by the advocate for the petitioners in whose favor a vakalantnama has been signed and placed on the record. There is no objection in the written statement about the genuineness of the signatures or thumb impressions of the petitioners on the vakalatnama. The court held that the petition had been duly signed and verified as required by law, and that a petition under sections 397 and 398 of the Act need not be verified in the manner prescribed by Order 6, rule 15, of the Code. Malhati Tea Syndicate v. Bennet Col-officer, Jalpaiguri, (1973) 43 Com Cases 673 : AIR 1966 SC 35, where the affidavits was found to be in proper order.
Thus a petition signed by an advocate for the petitioners in whose favor a vakalatnama has been signed and accompanied by an affidavit of a petitioner satisfies the requirements of R. 21 and cannot be said not to have been verified in the prescribed manner. Narinder Singh v. Randhawa Trasport Co. P. Ltd., (1972) Tax LR 2521 (P&H).
R. 22. Enclosures to petition.----Unless dispended with by the Judge or Register, every petition and application mentioned in Appendix II hereof, shall be accompanies by the documents set opposite thereto in column (4) of the said Appendix.
(Note.---Where the minute book of the company is required to be produced, a copy of the relevant minute, certified by the company to be a true copy, may be filed along with the minute book, and after the copy has been checked with the original, the Registrar may return the minute book to the company on its undertaking to procedure the same when required. Before returning the minute book, the Register shall initial the relevant page or pages of the book for subsequent identification.
23. Summons for direction.-----(a) Where a petition is presented under paragraphs (1), (3), (4) (22) and (23) of Rule 11, an application shall, in every case, be made by summons to the Judge in Chambers for directions as to the advertisement of the petition, the notices to be served and the proceedings to be taken. Except where, in any particular case, a different from is prescribed by these rules, such summons shall be in Form No. 4.
(b) The summons shall be posted for hearing before the Judge in Chambers at the next Chamber sittings, and the Judge may make such orders thereon and may give such directions as may seem to him appropriate.
(c) No summons for directions shall be necessary in the case of other petitions, but the petition shall, upon admission, be placed before the Judge in Chambers for fixing the date of hearing and directions as to the advertisement of the petition and the notices to be served, and such other directions as may be necessary.
R. 24. Advertisement of petition.----(1) Where any petition is required to be advertised, it shall, unless the Judge otherwise orders, or these rules otherwise provide, be advertised not less than fourteen days fixed for hearing, in one issue of the Official Gazette of the State or the Union Territory concerned, and in one issue each of a daily newspaper in the English language and a daily newspaper in the regional language circulating in the State or the Union Territory concerned, as may be fixed by the Judge.
(2) Except in the case of a petition to wind-up a company the Judge may, if he thinks fit, dispense with any advertisement required by these rules.
Steps in
winding up order
Where a company failed to pay a clear debt, the court proceeded as follows: Therefore, by an order, the petition was admitted for hearing and in accordance with rule 99 read 24, it was directed that the advertisement be duly published in the prescribed manner. The advertisement was also published in the M.P. Gazette. Even then, none appeared on behalf of the respondent-company. In these circumstances, the court is satisfied that the respondent-company having failed to pay the amount due to the petitioner is unable to pay the debts. Winding up was ordered. It will be the duty of such of the persons as are liable to make out or concur in making out the company’s statement of affairs under section 454 of the Indian Companies Act, to attend on the official liquidator at such time and place as he may appoint, and to give him all information he may require as per rule 110 of the Companies (Court) Rules, 1959. The order of wining up shall be drawn up by the Additional Registrar of this Court as soon as possible and after it is signed and sealed, two certified copies thereof duly sealed shall be sent to the official liquidator. The order shall be in Form No. 52 of the Companies (Court) Rules with such variation as may be necessary. The winding up shall be advertised in the local Hindi daily newspaper ‘nayi Duniya’ and Free Press Journal’, an English local daily in accordance with rule 113 of the said Companies (court) Rules within 14 days of the date of making of this order by the petitioner, which advertisement shall be in Form 53. The official liquidator shall forthwith take into his custody or under his control all the property and effects and the books and papers of the company, if any, and it shall be the duty of all persons having custody or any of the properties, books and papers of the company to deliver possession thereof to the official liquidator as contemplated by rule 114. Copy of the winding up order of the company shall forthwith be sent to the official liquidator by the Addl. Registrar of this court under seal of the Court in duplicate in Form No. 50 or 51, as the case may be, together with a copy of the petition and the affidavit as provided under rule 109 of the said rules,. A copy of this order may be sent to the Main Registry, High Court M.P., Jabalpur, and also to the Register of Companies, Gwalior. Osnar Chemical P. Ltd. v. SRP Water Proofing Contractors P. Ltd., (1987) 1 Comp LJ 247 at p. 248 (MP).
Advertisement
of petition
Certain persons who were the shareholders as well as creditors of a company filed a petition for winding up order clauses (e) and (f) of section 433. They asked for advertisement of the petition under rules 24 and 96, but showed no material to convince the court that it was just and equitable to wind up the company. The court rejected the application for advertisement. Ronaq Singh v. Ambala Bus Syndicate P. Ltd., 50 Com Cases 349 (P&H).
Advertisement of winding up petition not automatic after admission.----When a petition for winding up of a company is admitted the court is not bound to order advertisement the petition as soon as it is admitted. To accept such a view would make the court an instrument of harassment. In an appropriate case, the power to suspend advertisement of a petition for winding up, pending disposal of an application for revoking the order of admission of the petition, is vested with the court since the application may be in the interest of justice or to prevent abuse of the process of the court. National Conducts (P) Ltd. v. S.S, Arora, 1967 Com Cases 786, 788 : AIR 1968 SC 279. Followed in Cotton Corporation of India Ltd. v. United Industrial Bank Ltd., (1984) 55 Com Cases 423 at 440 (SC).
The steps required by this rule are of vital nature and compliance with the same is mandatory. Falcon Gulf Creamics Ltd. v. Industrial Designs Bureau, (1996) 86 Com Cases 207 (DB) (Raj). It two winding up petitioners are filed, both matters are different and each petition is to be advertised. (ibid). National Conduits (p) Ltd. v. S.S. Arora, (1967) 37 Com Cases 786 : AIR 1968 SC 279, on a consideration of rule 96, the learned Judges stated tat the said rule contemplates three courses, when a petition was filed for compulsory winding up of the company under sections 433 and 439 of the Act: “The High Court (i) may issue notice to the company to show cause why the petition should not be admitted; 9ii) may admit the petition and fix a date for hearing, and issue a notice to the company before giving directions about the advertisement of the petition; or (iii) may admit the petition, fix the date of hearing of the petition, and order that the petition be advertised and direct that the petition be served upon persons specified in the order.” The Supreme Court, further observed, while setting aside the order of the Division Bench, that the Division Bench of the High Court of Delhi before passing the impugned order, viz., directing advertisement, was bound to consider the views expressed by the learned single Judge, namely, H,R, KHANA, J. This is on the premise that if these circumstances are available on record, advertisement should not be ordered. This is in the realm of the exercising discretion, which is vested in the court. In that connection, the leaned Judges stated as under: “The High Court erred in holding that a petition for winding up must be advertised even before the application filed by the company for staying the proceeding for the ends of justice, or to prevent abuse of the process of the court. The view taken y the High Court that the court must, as soon as the petition is admitted, advertise the petition is contrary to the plain terms of rule 96. Such a view, if accepted, would make the court an instrument, in possible cases, of harassment and even of blackmail, for once a petition is advertised, the business of the company is bound to suffer serious loss and injury.” Also see Cotton Corporation of India Ltd. v. United Industrial Bank Ltd., (1983) 3 Comp Lj 171 : (1984) 55 Com Cases 423 : AIR 1983 SC 1272. In Bipla Chemical Industries v. Shree Keshariya Investment Ltd., (1977) 47 Com Cases 211 (Del), a learned single Judge of the Delhi High Court, on a consideration of these rules, stated as follows: “Therefore, in the normal case, notice ‘before giving directions as to the advertisement of the petition’ would be given before the order of admission. In exceptional cases, of course, the court may admit the petition and postpone giving directions as to the advertisement.”
The above case and the two cases of the Supreme Court cited above are flowed in Soujanya Hotels (P) Ltd. v. Nalla Satyanarayanamurthy, (1955) 1 Comp LJ 172 (DB---AP).
R. 25. Contents of advertisement.------Except as otherwise provided in these rules, such, advertisement shall be in Form No. 5, and shall state the date on which the petition was presented, the name and address of the petitioner and his advocate, the nature of the petition and the date fixed hearing. It shall, unless otherwise ordered, further state that any person who intends either to oppose or support the petition at the hearing should send notice of his intention to the petitiner or his advocate so as to reach him not later than two days previous to the day fixed for the hearing, and in the case of a petition for a winding-up, not later than 5 days previous to the day fixed for the hearing of the petition.
R. 26. Service of petition.----Every petition shall be served on the respondent, if any, named in the petition and on such other persons as the Act or these rules may require or as the Judge or the Registrar may direct. Unless otherwise ordered, a copy of the petition shall be served along with the notice of the petition.
Provisions
general in nature
The provisions of this rule are general in nature and do not govern those of rule 96, so that notice of a winding up petition need not be served on the directors apart from the company. U.P. Turga Fiberglass Ltd. v. Parekh Marketing (P) Ltd., (1986) 59 Com Cases 886, 890 (All).
Imp leading
legal representatives in winding up petition
Legal representatives of the managing director cannot be compelled to become respondents byt they have the right to be heard. Raminder Singh Chawla . v. Ego Metal Works P. Ltd., 1975 Tax LR 1559 (Del).
R. 27. Notice of petition and time of services.----Notice of every petition required to be served upon any person shall be in Form No. 6, and shall, unless otherwise ordered by Court or provided by these rules, be served not less than 14 days before the date of hearing.
4(Provided always that such notice when by the Act or under these Rules is required to be served on the Central Government, the same shall, unless otherwise ordered by the Court, be served not less than 28 clear days before the date of hearing.)
R. 28. Service on company.---(1) Where a petition is presented against a company, it shall be accompanied by a notice of the petition in the prescribed form together with a copy of the petition for service on the company and an envelope addressed to the company at its registered office, or its principal place of business and sufficiently stamped for being sent by registered post for acknowledgment. The Register shall immediately on the admission of the petition send the notice together with the copy of the petition to the company by registered post.
(2) Every petition and, save as otherwise provided by these rules or by san order of Court, every application, shall unless presented by the company, be served on the company at its registered office, or if there is no registered office, at its principal or last known principal place of business, by leaving a copy thereof with an officer or employee of the company, and in case no such person is available, in such, manner, as the Judge or Register may direct, or, by sending a copy thereof by prepaid registered post addressed to the company at its registered office, or, if there is no registered office at its principal or last known principal place of business, or to such person and at such address as the Judge or Register may direct.
Where the company is being wound-up the petition or application shall also be served on the liquidator, if any, appointed for the purposed of winding-up the affairs of the company.
Notice to
company
A plain reading of rule 28 shows that it is applicable to every petition filed against a company and it admits of no exception. Therefore, a petition for winding up has to be served upon the company. The notice of the petition referred to in rule 28 is not a letter addressed by the petitioning creditor’s advocate to the company intimating the date fixed by the court for the admission of the petition. The notice contemplated by rule 28(1) is a notice which is to be served by the Registrar after the winding up petition is admitted. The service of notice on the company is mandatory. Even if an advertisement of the petition is required to be published as provided in rule 96, it does not exclude service on the company. There is no such deemed service contemplated by the Companies (Court) Rules, 1959. Modern Dekor Painting Contracts P. Ltd., Re, (1985) 57 Com Cases 675 (Bom) ; Modern Dekor Painting Contract P. Ltd. v. Jenson and Nicholson (India) Ltd., (1985) 57 Com Cases 675 (Bom).
R. 29. Petitioner to effect service.------Save as otherwise provided by these rules and subject to any directions of the Judge or Registrar, the petitioner, applicant or any other person having the conduct of proceedings in Court, shall be responsible for the service of all notices, summons and other processes and for the advertisement and publication of notices, required to be effected by these rules or by order of Court.
R. 30. Affidavit of service.----(1) An affidavits or affidavits stating whether the petition has been advertised as prescribed by Rule 24 and whether the notices, if any, have been duly served upon the persons required to be served shall be filed not less than 3 days before the date fixed for hearing. Such proof of the advertisement or of the service, as may be available shall be filed along with the affidavit.
(2) An affidavit of service on a company or its liquidator shall be in Form NO. 7 or 8 as the case may be.
R. 31. Procedure on default of compliance as regards advertisement and service of notice.---In default of compliance with the requirements of the rules or the directions of the Judge or Registrar, as regards the advertisement and service of the petition, the petition shall, on the date fixed for hearing by posted for orders of the Judge and the Judge may either dismiss the petition or give such further directions as he thinks fit.
In a proper case, it would be a proper exercise of the discretion of the court under Rule 31 to dismiss a winding up petition for non-compliance with Rule 28(1) dealing with service of winding up petition and notice of petition on the company. Godavaribai Ghuwalewala v. Amalgamated Commercial Traders P. Ltd., (1965) 2 Comp LJ 272 (Mad).
R. 32. Mode of service and service when deemed to be effected.----(1) Save as otherwise provided by these rules or by an order of Court, all notices, summonses, and other documents required to be served on any person, may be served either personally by delivering a copy thereof to such person or upon his advocate where he appears by advocate or, except where personal service is required by prepaid registered post for acknowledgement due addressed to the last known address of such persoo., In the case of service by registered post where no acknowledgement signed by the addressee or his duly authorized agent is received, orders of Court shall be obtained as to the sufficiency of service or as to the further steps to be taken for service as the Court may direct:
Provided that where a notice, summons or other document has to be served on any class of persons such as shareholders, debenture-holders, creditors and the like, the same may be provided by these rules or by an order of Court, and unless otherwise ordered by the Court, the service shall be deemed to be effected at the time when the said notice, summons or other document ought to be delivered I the ordinary course of post by the post office, and notwithstanding the same is returned undelivered by the post office.
(2) Where notice of any petition, application, summons or other proceedings has to be given to the Central Government under these rules, it shall be addressed to and served o the Secretary to Government of India, Department of Company Law Administration, New Delhi, or such other officer at the Central Government may authorize to receive undelivered by the post office.
(3) Where any person has to be served at an address outside India, the notice or other process to be served on him shall, to orders of the Court, be sent to such address by prepaid airmail registered post for acknowledgement due.
R. 33. Validity of service and of proceedings.---No service under these rules shall be deemed invalid by reason of any defect in the name or description of a person in the list of contributories or in the petition, summons, notice or other proceedings provided that the Court is satisfied that such service is in other respects sufficient; and no proceedings under the Act or these rules shall be invalidated by reason of any formal defect or irregularity; unless the Judge before whom the objection is taken is of the opinion that substantial injustice has been caused by such defect or irregularity and that the injustice cannot be remedied by an order of Court.
Notice under
section 434
This rule is not applicable as s to excuse a defective notice under S. 434. A notice under this section must fulfill its own requirements to be valid. Where a notice under S. 434 was served at the administrative office of the company and not at the registered office it was held that the presumption under S. 434 was not raised and the petition was liable to be dismissed. Dytron Inida Ltd., Re,(1990) 69 Com Cases 757 (Cal); N.L. Mehta Cinema Ednt (P). Ltd. v. Pravinchandra P. Mehta, (1991) 70 Com Cases 31, 36 (Bom—DB).
R.34. Notice to be given by persons intending to appear a the hearing person.---Every person, who intends to appear at the hearing of a petition, whether to support or oppose the petition, shall serve on the petitioner or his advocate, notice of his intention at the address given n the advertisement. The notice shall contain the address of such person, and be signed by him advocate, and save as otherwise provided by these rules shall be served (or if sent by post, shall be posted in such time as to reach the addressee) not later than two days previous to the day of hearing, and in the case of a petition fro winding-up not later than five days previous to the day of hearing. Such notice shall be in Form NO. 9, with such variations as the circumstances may require, and where such person intends to oppose the petition, the grounds of his opposition, or a copy of his affidavit, if any, shall be furnished along with the notice. Any person who has failed to comply with this rule shall not except with the leave of the Judge be allowed to appear at the hearing of the petition.
Scope of rule
The rule does not confer a right on anyone to appear at the hearing of a winding up petition. It merely sets out the procedure to be allowed before a person who is otherwise entitled to appear in a winding up petition can be heard in support or opposition. National Textile Workers Union v. P. R. Ramakrishanan,(1983) 53 Com Cases 184, 207 AIR 1983 SC 75.
Winding up
petition, right of others to come before the court
Even though a winding up petition has not been admitted or advertised, it is open to third parties to come before the court as supporting or opposing parties. A person who wishes to support or oppose, has to give notice of this fact under rule 34 of the advocate of the petitioner, who in turn has to file a list in Form No. 10 giving the names of the persons ( and their address) opposing or supporting the petition. Where this has been done that person is entitled to appear as of right at the hearing of the petition. Where, even before a winding up petition had been advertised and the petition was pending admission, 81 application were filed by various creditors supporting the petition and expressing their willingness to be substituted in the place of the petitioner, it was held that the applications were to be treated as intimation to the advocate of the original petitioner that the respective applicants intend to support the winding up petition and the advocate was to file a list in Form No. 10 setting out the names of the applicants. The applicants would then become entitled to be heard at the hearing of the petition in accordance with rule 34. If and when any of the contingencies mentioned in rule 101 occurred, they could ask the court to be substituted as petitioners without moving any further application for this purpose. Bagai Foods and Beverages P. Ltd., Dr. Avanindra kuar Tyagi v. Bagai Foods & beverages P. Ltd., (1974) 44 Com Cases 543 (Del). The supporters cannot ask the court should consider the facts alleged by them and to decide the matter on that basis. Thakur Paper Mills, Re, AIR 1968 Pat 289.
“Hearing of petition” in r. 34 and Form No. 9 means the date on which the winding up petition comes up before the court after it has been advertised according to the Rules. Rule 34 is meant for the creditors who want to join the proceedings to support or to oppose the winding up petition. Chemical Enterprises v. Kalpanalok, (1984) 55 Com Cases 552 : (1996) 4 Comp LJ 535 (P&H). Relying on this case in Bipla Chemical Industries v. Shri Keshariya investment Ltd., (1977) 47 Com Cases 211 (Del) the court held that the creditors inclined to oppose winding up were not entitled to be heard at the stage of admission of the petition. Rule 34 is meant for creditors who want to join the proceedings to support or oppose the petition. The court dissented from the view expressed in Bagai Foods & Beverages (P) Ltd., Re, (1977) 47 Com Cases 543 (Del).
In National Textile Workers’ Union v. Ramakrishnan, (1983) 53 Com Cases 184 (SV), the position of workers in the context of this rule was explained thus (at pp. 206-207) : This rule, cannot be relied upon by the appellants as conferring a right on the workers to appear at the hearing of a winding up petition. But, this rule does postulate that apart from the creditors sand contributories there may be other person who are entitled to appear at the hearing pf the winding up petition because it is not confined in its application to the creditors and contributories but uses the generic expre3ssion “every person” and to this limited extent it does undoubtedly lends some support to the contention of the appellants. The worker are, therefore, entitled to appear at the hearing of the winding up petition whether to support or to oppose it so long as no winding order is made by the court.
VENKATARAMIYAH J. delivered his own judgment. About the import of rule 34 he had this to say ( at p. 222) : “The words “every person” in rule 34, (which is almost similar to the corresponding English Rule ) do not entitle a worker who is neither a shareholder nor a contributory to support or oppose a winding up petition under that rule because they refer only a person who is otherwise entitled to do so under the Act. We should also bear in mind that an anomalous result that may flow from the acceptance of the case of the workers is that whereas in a winding up by Court they may get opportunity to contest the petition, the voluntary winding up proceedings or winding up proceedings or winding up under the supervision of the Court would go on without any such contest although I all cases ultimately the workers will be discharged from service. A construction that leads to such a discriminatory result should be avoided. When once we extend the right to contest a winding up petition to workers either on the principle of equity or of administrative, on the same principle it would logically follow that all others who may have dealings with the company such as commission agents, selling agents, etc., whose contracts with the company are going to be terminated by reason of its liquidation also have to be allowed to contest the winding up proceedings. Such a claim is not permissible.”
VENKATARAMIYAH J. observed further that where the legislature felt it necessary to take care of the interests of employees they did give provisions to that effect. He cited the following (at pp. 224) : “In the Act, there are specific provisions dealing with the rights of employees of a company. Sections 417 to 420 of the Act deal with employees’ securities an provident funds and clauses (b) to (f) of section 530(1) deal with preferential payments to be made to the employees of a company in liquidation from out of its assets. Section 635-B of the act deals with the protection to which the employees are entitled during investigation into the affairs of a company. Rule 152 of the Companies (Court) Rules, 1959 (read with From NO. 67) relates to proof of arrears of workman’s wages. The right to resist a winding up petition is not one such right.”
R. 35. List of persons, intending to appear, to be filed.---The petitioner or his advocate shall prepare a list of the names and addresses of the persons who have given notice of their intention to appear at the hearing of the petition. Such list shall be in Form No. 10, and shall be filed in Court before the hearing of the petition.
R. 36. Procedure at hearing of petition.---At the hearing of the petition, the Judge may either dispose of the petition finally, or give such directions as may be deemed necessary for the filling of counter-affidavit and reply affidavits, if any, and for service of notice on any person, who in his opinion, has been omitted to be served or has not been properly served with the notice of the petition and may adjourn the petition to enable the parties to comply with h is directions. Except as otherwise ordered by the Judge, it shall not be necessary to give notice of the adjourned hearing to any person.
It is possible to reconcile section 442 (Power of court to stay or restrain proceedings against company) and Rule 36 (Procedure at hearing of petition) on the one hand and rule 9, on the other (Inherent powers), as indeed they must be Godavaribai Ghuwalewala v. Amalgamated Commercial Traders P. Ltd., (1965) 2 Comp LJ 272 (Mad).
R. 37. Order to be drawn up.----(1) Every order, whether made in Court or in Chambers, shall be drawn up by the Register, unless in any proceedings or class of proceedings the Judge or the Registrar, shall direct that the order need not be drawn up. Where a direction is given that no order need be drawn up, the note or memorandum of the order signed or initialed by the Judge making the order or by the Registrar shall be sufficient evidence of the order having been made. The date of every order shall be the date on which it was actually made, notwithstanding that it is drawn up and issued on a later date.
(2) Where costs are awarded to a party in any proceedings and such costs have to be taxed, the order shall direct that the party liable to pay the costs shall pay the same when taxed, and where the costs have been fixed by the Court or ascertained y taxation prior to the drawing up of the order, the order shall direct the payment of the amount of such costs by the party liable to pay the same.
The effect of the rules is that where the decree or order can be prepared without any step being taken by a party, the entire period after the making of an application for copy by him may be excluded in the computation of the period of limitation for an appeal. But where a court cannot prepare a decree or order unless the party takes certain steps, the period unnecessary consumed by the party in taking that step does not ensure to his benefit and does not count towards the period taken by the court fro preparing the decree or order. The time taken by the court in preparing the decree or order means the time taken after the court was moved by the party to prepare the decree or order, where such a move is necessary under the law. Bangeswari Cotton mills ltd. v. Dhanrajmal Govindram, (1968) 38 Con Cases 129: AIR 1967 Cal 595.
Rule 37 provides
that every order, whether made in court or in chambers, shall be drawn up by
the Registrar, unless in any proceedings or class of proceedings the judge or
the Registrar shall direct that the order need not be drawn up. Beauty Art
Dyers and Cleaners P. Ltd. v. ROC, (1974) 44 Com Cases 460 at p. 462 (Bom).
PROCEEDINGS IN MATTERS OTHER THAN WINDING-UP
Confirmation
of alteration of memorandum of a company.
(Sections 17 to 19)
R. 38. From of petition under section 17 and summons for directions.---A petition under section 17 to confirm an alteration of the memorandum of a company shall set out succinctly particulars of its registration, its capital where it has a share capital, the original object and the alterations proposed to be effected, the passing of the special resolution and the reasons for the alteration, the debentures, if any, issued by the company and its present financial position. The petition shall be in Form No. 11. It shall be accompanied by a summons for directions and shall be supported by an affidavit in Form NO. 12.
Section 17, Rule 38 and the prescribed Form No. 11 clearly show that each special resolution has to be made the subject matter of a distinct petition. This petition for the confirmation of two special resolution is, therefore, not competent. Northern Enterprises Corpn. P. Ltd., Re, (1974) 44 Com Cases 334 at p. 335 (P&H).
4a. Powers of the Court have been conferred on the Company Law Board by the Companies (Amendment) Act, 1974 (w.e.f. 1-2-1975).
Note : The powers under the section are now vested in the Company Law Board.
R. 39. Direction at hearing of summons.----Upon the hearing of the summons for directions, the Court shall give such directions as it may think fit for the advertisement of the petition; and the service of notices on the debenture-holders and creditors of the company, if any, and such other persons whose interest will, in the opinion of the Court, be affected by the alteration. The order on the summons shall be in Form No. 13. The notice shall be in Form No. 14.
Where the Court thinks fit to dispense with the notice required by section 17(3)(a) in the case of any person of class of persons, it shall record its reasons for doing so.
R. 40. Notice to Registrar of Companies and Central Government.----Notice of the petition and the date of the hearing thereof shall in every case be given to the Registrar of Companies, and where the petitioner is a limited company, registered without the word “limited” under section 25, such notice shall also be given to the Central Government.
R. 41.Procedure where creditors are entitled to object.---Where the Court is of the opinion that the creditors or any class of them are entitled to object to the proposed alteration, the Court May give such directions as it may think fit with respect to the settlement of the list of the creditors, service and publications of notices, hearing of objection and the adjudication of claims, etc., and provisions of Rr, 49 to 61 of these rules applicable in respect of a petition for confirming the reduction of share capital shall, if the Court so directs, and to the extent specified in such direction, apply with such variations as may be necessary.
R. 42. Order confirming alteration.-----An order confirming an alteration I the memorandum of association shall be in Form No. 15 with such variations as may be necessary.
R. 43. Petition under section 579.-----A petition under section 579 to confirm an alteration in the constitution of a company by substituting a memorandum and articles for a deed of settlement shall be in Form No. 16, and Rules 38 to 42 relating to a petition under section 17 shall apply mutates mutandis to petition under section 579.
6ISSUE OF SHARES AT A DISCOUNT
(Section 79)
R. 44. Petition for sanctioning the issue of shares at a discount.----A petition under section 79 to sanction the issue of shares at a discount, shall be in Form No. 17, and where the rate of discount proposed is higher than ten per cent, it shall be accompanied by the order of the Central Government sanctioning the higher rate, in addition to the document set out in Appendix II.
R. 45. Order sanctioning issue to be delivered to Registrar of Companies.---- Unless in any particular case the Court shall otherwise direct, every order sanctioning the issue of shares at a discount shall contain a direction that a certified copy of such order be delivered to the Registrar of Companies for registration within one month from the date of order and that the order shall not take effect until such certified copy has been so delivered.
REDUCTION OF SHARE CAPITAL
(Sections 100 to 105)
R. 46. From of petition for reduction of share capital and summons for directions/----A petition to confirm a reduction of the share capital of a company shall be in Form NO. 18, and shall be accompanied by a summons for directions in Form No. 19.
R. 47. Procedure on hearing of summons.------Upon the hearing of the summons, if the judge is satisfied that the proposed reduction does not involve either diminution lf liability in respect of unpaid share capital or payment to any shareholder of any paid-up share capital and does not think fit to direct that the procedure prescribed in section 101(2) shall apply, he shall fix a date for hearing of the petition and give such directions as he may think fit as to the advertisement of the petition. The petition shall be posted for hearing on the date fixed, and upon the hearing thereof, the Judge may confirm the reduction on such terms and conditions as he may think fit.
R. 48. Directions at the hearing of summons.----Where the proposed reduction involves either diminution of liability in respect of unpaid share capital or the payment to any shareholder of any paid-up share capital and, in any other case, if the Judge thinks fit to direct that the procedure prescribed in section 101(2) shall apply, the Judge may, upon the hearing of the summons or upon any adjourned hearing thereof, or upon the hearing of any subsequent application, give such directions as he may think fit as to the proceedings to be taken, and more particularity with respect to the following matters, that is to say---
(a) the proceedings to be taken for setting the list of creditors entitled to object, including the dispensing with the observance of the provisions of section 101(2) as regards class or classes of creditors;
(b) fixing the date with reference to which the list of such creditors is to be made out;
(c) the publications of notices; and
(d) generally fixing the time for and giving directions as to all other necessary or proper steps in the matter.
5. Powers of the Court have been conferred on the Company Law Board by the companies (Amendment) Act, 174 (w.e.f. 1-2-1975).
6. Powers of the Court have been conferred on the Company Law Board by the companies (Amendment) Act, 174 (w.e.f. 1-2-1975).
The order made upon the summons under this rule shall be in Form NO. 20, with such variations as the circumstances may require.
R. 49. List of creditors.----The company shall, within the time allowed y the Judge, file a list in Form No. 21 made out by an officer of the company competent to make the same, containing the names and addresses of the creditors of the company to whim the enquiry extends as on the date fixed by the Judge under the last proceedings rule, and the respective amounts due to them in respect of debts, claims or liabilities to which the enquiry extends, or in case of any such debt payable on a contingency or not ascertained, or any such claim admissible to proof in a winding up of the company the value so far as can be justly estimated, of such debt, or claim.
R. 51. Inspection of list of creditors.-----Copies of such list shall be kept at the registered office of the company and at the office of the advocate for the company, and any person desirous of inspecting the same may, at any time during the ordinary hours of business, inspect and take extracts from the same on payment of the sum of one rupee.
R. 52. Notice to creditors.-----The company shall, within seven days after the filing of the list creditors referred to in rule 49 or such further or other time as the Judge may follow, send to such creditor whose name is entered in the said list, a notice of presentation of the petition and of their said list, stating the amount of the proposed reduction of capital and the amount of estimated value of the debt or the contingent debt or claim or both for which such creditor’s name is entered in the said list, and the time as fixed by the Judge, within which if he claims to be entitled to be entered on such list as a creditor for a larger amount, he must send in his name and address, and the particulars of his debt or claim, and the name and address of his advocate if any, to the advocate of the company. Such notice shall be in Form No. 23; and shall, unless the Judge otherwise directs, be sent by prepaid registered post for acknowledgement addressed to each creditor at his last known address or place of abode: Provided that where his address is not known to the company, the Judge may direct notice to be given to such creditor in such manner a he may think fit.
R. 53. Advertisement of petition and list of creditors.----Notice of the presentation of the petition and of the list of creditors under rule 49, shall, within seven days after the filing of the said list or such further or other times as the Judge may allow, be advertised by the company in such manner s the Judge shall direct. Such notice shall state the amount of the proposed reduction of capital, and the places, where the aforesaid list of entered but claim to be entitled to be entered on the said list, must send in their names and addresses and the particulars of the debts or claims and the names and addresses of their advocates, if any, to the advocate of the company. Such notice shall be in Form No. 24.
R. 54. Affidavit of service.---The company shall, as soon as may be, file an affidavit proving the dispatch and publication of the notices referred to in rules 52 and 53. Such affidavit shall be in Form No. 25.
R. 55. Affidavit by company as to the result of rules 52 and 53.----The company shall within the time fixed by the Judge, file a statement signed and verified by the advocate of the company stating the result of the notices mentioned in rules 52 and 53 respectively and verifying as list containing the names and addresses of the persons, if any, who shall have sent in the particulars of their debts or claims in pursuance of such notices respectively and the amounts of such debts or claims. Such statement shall be accompanied by an affidavit made by a competent officer or officers of the company who shall, in such list, distinguish which (if any) of such debts and claims are wholly, or as to any and what part thereof, admitted by the company, and which (if any) of such debts and claims are wholly or as to any and what part thereof, disputed by the company, and which (if any) of such debts and claims are alleged by the company to be wholly, or as to any and what part thereof not included in the enquiry. Such affidavit shall also state which of the persons who are entered in the list as creditors and which of the persons, who have sent in particulars of their debts or claims in pursuance of such notices as aforesaid, have been paid or have consented to the proposed reduction. Such statement and affidavit shall be in Form No. 26.
R. 56. Procedure where claim is not admitted and proof of debt.------If the company contends that a person is not entitled to be entered in the list of creditors in respect of any debts or claim, whether admitted or not, or if any debt or claim, the particulars of which are so sent in, shall not be admitted by the company at its full amount, then, and in every such case, unless the company is willing to set apart and appropriate in such manner as the Judge shall direct, sent to the creditor a notice in Form No. 27, that he is required to come in and established his title to be entered on the list, or as the case may be, to come in and prove such debts or claim or such part thereof as is not admitted by the company on the days fixed by the Judge. Such notice shall be served not less than four clear days before the date fixed by the Judge.
An affidavit by a creditor in proof of his debt shall be in Form No. 28. Where the creditors is for good reason personally unable to make the affidavit, his authorized agent may make the same.
R. 57. Costs of proof.---The costs of proof of a debts or claim of any enquiry under the proceedings rules shall be in the discretion of the Judge.
R. 58. Certificate by the Judge as to creditors.-----The result of the settlement of the list of creditors shall be stated in a certificate which shall be prepared by the advocate of the company and signed by the Judge. Such certificate shall---
(1) specify the debts or claims (if any) which have been disallowed;
(2) distinguish (a) the debts or claims, the full amount of which the company is willing to set apart and appropriate; (b) the debts or claims the full amount of which has been fixed by enquiry and adjudication in the manner provided by section 101(2) and these rules; and (c) the debts or claims (if any) the full amount of which the company does not admit or is not willing to set apart sand appropriate or the amount of which has not been fixed by enquiry and adjudication as aforesaid; and
(3) show (a) which of the creditors have consented to the proposed reduction, and the totals amount of the debts due to them; and (b) the total amount of the debts or claim the payment of which has been secured in the manner provided by section 101(2) and the persons to or by whim the same are due or claimed.
The said certificate shall also state what creditors have under rule 56 come n and sought to establish their title to be entered on the list and whether such claims have been allowed or not, but it shall not be necessary to make in such certificate any further or other reference to any creditors who are not entitled to be entered in the list or to any debts or claims to which the enquiry does not extend or to show therein the several amounts of the debts or claims of any persons who have consented to the proposed reduction or the payment of whose debts or claims has been secured as aforesaid.
R. 60. Who may appear and oppose.---Any creditor included in the certificate whose debt or claim has not, before the hearing of the petition, been discharged or determined or been secured in the manner provided by section 101(2) (c) and who has not before the hearing consented in writing to the proposed reduction of capital may, if he thinks fit, upon giving two clear day’s notice to the advocate for the company of his intention to do so, appear at the hearing of the petition and oppose it. The costs, of his appearance shall be in the discretion of the Judge.
R. 61. Directions of hearing.—At the hearing of the petition the Judge may, if he thinks fit, give such directions as may seem proper with reference to securing in the manner mentioned section 101(2) (c) the debts or claims of any creditors who do not consent to the proposed reduction, and the further hearing of the petition may be adjourned to enable the company to comply with such directions.
R. 62. Order on petition.----Where the Judge makes an order confirming a reduction, such order shall include directions-----
(a) as to the manner in which, the times at which and the newspaper or newspapers in which, notice of the registration of the order and of the minute as approved by the Judge under rule 63 shall be published,
(b) as to the period commencing on or after the date of the order, during which the words ‘and reduced’ shall be added to the name of the company as the last words thereof, in case the Court thinks fit to direct under section 101(2) that the words shall be added, and
(c) as to the publication, if the Judge so directs, of the reasons for reduction or the causes that led to it or such other information in relation thereto as the Judge may require to be published under section 101(2)(b).
R. 63. Minute.----Unless the form of the minute has been approved by the judge at the time of making the order confirming the reduction, the company shall, within seven days from the date of the said order, file for the approval of the Judge a draft of the minute containing the particulars required by section 103(1)(b), and shall take an appointment for approval of the same. The advocate for the company shall attend when the minute comes up before the Judge for approval,
The order confirming the reduction of capital and approving the minute shall be in Form No. 30 with such variations as may be necessary.
R. 64. Advertisement of reasons for reduction of capital.----Where the Judge makes an order under section 101(2)(b) directing of the company to publish the reason for the reduction or such other information in regard thereto as the Court may direct, unless the form of the statement to be published has been approved by the Judge at the time of making the order, the company shall, within seven days of the order, file, for the approval of Judge, a draft of the statement and shall take an appointment for approval of the same. The advocate for the company shall attend when the statement comes up for approval before the Judge. The statement as approved shall be published in the same newspapers in which notice of the registration of the order and the minute had been directed to be published.
R. 65. Form of minute and notice of registration.---The minute may be in Form No. 31, and the notice of registration of the order and the minute shall be in Form No. 32.
VARIATION OF RIGHTS OF ANY CLASS OF SHAREHOLDERS
(Section 107)
R. 66. Petition to cancel variation of rights.-----(1) Where a petition to cancel a variation of the rights attaching to any class of shares is made on behalf of the shareholders of that class entitled to apply for cancellation under section 107 by one or more of them, the letter of authority signed by the shareholders so entitled, authorizing the petitioner or petitioners to present the petition on their behalf, shall be annexed to the petition, and the names and addresses of all the said shareholders and the number of shares held by each of them shall be set out in the schedule to the petition.
(2) The petition shall set out the particulars of registration and the shares capital, the different classes of shares into which the share capital of the company is divided and the rights attached to each class of shares, the provisions of the memorandum or articles authorizing the variation of the rights attached to the various classes of shares, the total number of shares of the class whose rights have been varied, the nature of the variation made, and so far as may have been ascertained by the petitioner, the number of shareholders of the class who gave their consent to the variation or voted in favor of the resolution for variation and the number of shares held by them, and the date or dates on which the consent was given or the resolution was passed, and the reasons for opposing the variation.
COMPROMISE OR ARRANGEMENT UNDER SECTIONS 391 TO 394
R. 67. Summons for directions to convene a meeting.---An application under section 391(1) for an order convening a meeting of creditors and/or members or any class of them shall be by a Judge’s summons supported by an affidavit. A copy of the proposed compromise or arrangement shall be annexed to the affidavit as an exhibit thereto. Save as provided in rule 68 hereunder, the summons shall be moved ex party. The summons shall be in From No. 33, and he affidavit in support thereof in Form No. 34.
The stage at which the Central Government is to be brought on record was the subject matter of explanation in the judgment of the Calcutta High Court in Bangeshwari Cotton Mills Ltd., Re, (1967) 37 Com Cases 195 (Cal); S.P. MITRA J. proceeded as follows (at pp. 199-200) :
Rules 67 and 68
clearly lay down that an application under section 391(1) for an order
convening a meeting of creditors or members shall be moved ex party except
where the company is not be applicant or the company is being wound up.
Similarly, rule 71 provides that an application under sub-section (6) of
section 391 for stay commencement or continuation of suits or proceedings may
be moved ex party except where a petition for winding up or a petition
under section 397 or 398 is pending. If, therefore, notice of every application
under section 391(1) or 391(6) has to be given to the Central Government to
comply with the provisions of section 394A, a petitioner’s right to move the
court ex party would be completely taken away. The only way to avoid
this conflict between section 391 and the rules framed there under, on the one
hand, and section 394A, on the other, is to hold that notice is to be given to
the Central Government before the court sanctions a compromise or arrangement
on an application under section 391(2). Rule 80 or any other rule framed under
section 391(2) does not create any bar to this notice as the court has no
obligation to make any order or give any directions of a conclusive nature on
an application move ex party.
In Tarachand Podder, AIR 1968 Cal 310, it was held that notice to the Central Government need not be given under S. 391(1). Notice of application under S. 391(2) alone has to be given to the Central Government.
An application for convening a meeting of members and creditors of a company for the purpose of obtaining their consent to a scheme of amalgamation is made under rule 67 read with S. 391. Suri & Nayar Ltd., Re, (1983) 54 Com Cases 868 (Kant); Sprayment P. Ltd., Re, (1983) 54 Com Cases 868 (Kant).
Application for amalgamation
etc. in winding up
In Vasant Investment Corpn. Ltd., Re, (1982) 52 Com Cases 139 (Bom) the court explained the position as to the parties who can make an application under S. 391. When a company is being wound up a liquidator is an additional person who enjoys a right to make an application under this section. The rights of the creditors or the members of the company to make an application are not taken away when a company goes into liquidation. The section does not say that when a company is being wound up the liquidator alone will have a right to apply. In this connection, a reference may be made to rr. 67 to 69. Rule 68 provides for service of the summons on the liquidator in cases where the company is being would up. This can tale place only in case where a liquidator is an applicant. The rule, therefore, contemplates a case where a person other than the liquidator is an applicant under s. 391 in respect of a company under winding up. See also Rajendra Prosad Agarwalla v. Official Liquidator(1978) 48 Com Cases 476 (Cal) and Muhammed Abdulla Tharaganar v. Official Liquidator, Cape Comorin General Traffic Co. Ltd., (1953) 23 Com Cases 161 : AIR 1952 Trav-Cich 243.
Application of mind
In Sakamari Steel & Alloy Ltd., Re, (1981) 51 Com Cases 266 at p. 275 (Bom) the court cited Rules 67, 69, 71, 72 and said : “It is true that rule 67 says than a application for such directions as are contemplated by the rules is to be made ex party. But hearing a motion ex party does not mean that the court has not to apply its mind or be prima facies satisfied about the merits of the application.”
Ex party directions
Under rule 67, the court is empowered to direct the holding of a meeting of the creditors to consider a scheme of arrangement ex party. The question, which arises, is that, after such a meeting has been called, can or ought the court make an interim scrutiny of the scheme, before the meeting considers the same and on the basis thereof call off the meeting. Bengal national Textile Mills Ltd., Re, 91986) 59 Com Cases 956 (Cal), per D K SEN at p. 966.
Right of others to be heard at
ex party stage
Rule 67 refers to summons for direction to convene a meeting and provides that, subject to rule 68, the summons shall be moved ex party. Rule 69 makes provision for service on the company or, where the company is being wound up, on it liquidator. The court said, that merely because a rule makes a provision for ex party application, it cnnot debar a pasrty interested in the action from palcing its view point that the proposed order should or should not be made. The inter3sts of justice require that if a party desires to make any submission, even at the ex party stage, the court should hear him. Coalaba Land and Mills Co. Ltd., Re, (1977) 47 Com Cases 662 (Bom); Vasant Investment Corpn, Ltd., v. Coalaba Land and Mills Co. Ltd., Re, (1977) 47 Com Cases 662 (Bom);
Sale of property to lease
Acting on the powers conferred by these Rules the court ordered that the property of the company in winding up be sold to the lessee of the property. He was willing to purchase the mill as a running unit, thus saving the mill, its production and its work force and was willing to pay any reasonable price fixed by the court. The court preferred this to publication, because in making the choice, apart from other factors, the court has to assure reasonableness of the price. NAP Alagiri Raja & Co. v. N. Guruswami,(1989) 65 Com Cases 758 (Mad—DB).
Who can present a scheme and
when
On a prima facie reading of these rules (Rules 67 and 68), it does appear that the rules contemplate an application by a creditor or a member of the company even when a contributory or creditor can propose a scheme of compromise or arrangement when the company is in winding up. Though the answer of the court on the basis of the above rules was that it is quite possible finding also support from the statement in Palmer that “a proposal for an arrangement or compromise is not confined to the company or its liquidator”, but on facts rejected the application because it seemed to have been moved only for delaying matters. NAP Alagiri Raja & Co. v. N. Guruswami, (1989) 65 Com Cases 758 (Mad—DB).
R. 68. Service on company.----Where the company is not the applicant, a copy of the summons and of the affidavit shall be served on the company, or, where the company is being wound up on its liquidator, not less than 14 days before the date fixed for the hearing of the summons.
NOTES
Non-compliance of Rules
Where there was no compliance with the statutory provisions of S. 391(2) read with Rules 68 and 69, the scheme of compromise could not be approved. The court found on facts that there was not even the remotest possibility of the preparation of the statement of affairs by the company to enable the court to give its seal of approval, even if the creditors were likely to approve it if a meeting was ordered to be called. R. Raghvan v. Samarias housing Finance Ltd., (1991) 1 Comp LJ 155 (Mad)
Service of summons liquidator
This rule provides for the service of summons on the liquidator in cases where the company is being wound up. This can only be where the liquidator is not the applicant. The rule, therefore, contemplates a case where a person other than the liquidator is an applicant under Section 391 in respect of a company in winding up. Vasant Investment Corporation Ltd., Re, (1982) 52 Com Cases 139 at 142 (Bom).
R. 69. Directions at hearing of summons.----Upon the hearing of the summons or any adjourned hearing thereof, the Judge shall, unless he thinks fit for any reason to dismiss the summons, give such directions as he may think necessary in respect of the following matters:--
(1) determining the class or classes of creditors and/or of members whose meeting or meetings have to be held for considering the proposed compromise or arrangement;
(2) fixing the time and place of such meeting or meetings;
(3) appointing a chairman or chairmen for the meeting or meetings to be held, as the case may be;
(4) fixing the quorum and the procedure to be followed at the meeting or meetings, including voting by proxy;
(5) determining the values of the creditors and/or the members, or the creditors or members of any class, as the case may be, whose meetings have to be held;
(6) notice to be given of the meeting or meetings and the advertisement of such notice;
(7) the time within which the chairman of the meeting is to report to the Court the result of the meeting; and
Such other matters as the Court may deem necessary.
The order made on the summons shall be in Form No. 35 with such variations as may be necessary.
NOTES
Rule 69 requires an application to be made under section 391(1) for an order convening the meeting of creditors and/or members or any class of them. When in pursuance of this application, a meeting is bonvened and where the proposed compromise or agreement with or without modification as provided under section 391(2) and a report about the same is filed as required under rule 78 within seven days thereof, objection, if any, is required to be filed before the court for confirmation of the compromise or arrangement in Form No. 40 as per rule 79. This clearly shows that at the first stage only an application is to be moved under section 391 for the purpose of securing an order for convening meeting of shareholders or creditors or a class of them as the case may be. At that stage, the court is not called upon to apply its mind about sanctioning of the scheme. Miheer H. Mafatlal v. Mafatlal Industries Ltd., (1996) 4 Comp LJ 22, 77 : (1996) 87 Com Cases 705 (Gujarat).
Also see Notes under Rule 68.
Notice to interested parties
In Hind Auto Industries Ltd. v. Premier Motors P. Ltd., AIR 1970 AII 165 : (1969) 39 Com Cases 137, the followings points as to notice to interested parties were laid down :
The question which require adjudication in proceedings under section 391(1) of the Act even before the stage of the approval of arrangement is reached are given by rule 69 of the 1959 Rules. These are decided when giving directions at ‘hearing of the summons’. ‘Hearing’ as contemplated by rule 69, obviously implies hearing all sides, which are to be heard, and each of the questions, in rule 69 involves the interest or at any rate the convenience of persons whose meetings are to be held. The shareholders are necessary parties before a decision can be taken on the matters specified in rule 69 are entitled to be heard at this stage. Even if the Rules do no specifically provide for such notice to them rule 9 of the 1959 Rules, enables the company Court in the exercise of inherent powers to issue directions for service of notice upon the persons concerned or interested. The nature of the function exercised in the matter now before the Court under section 391(1) is undoubtedly a judicial function. Both the Central Government and the shareholders are entitled to notice. The court gave directions as to the mode of giving notice expeditiously and at the least cost.
R. 70. Proxies.----(1) Voting by proxy shall be permitted, provided a proxy in the prescribed form duly signed by the person entitled to attend and vote at the meeting is filed with the company at its registered office not later than 48 hours before the meeting.
(2) Where a body corporate which is a member or creditor (including holder of debentures) of a company authorizes any person to act as its representative at the meeting, of the members or creditors of the company, or of class of them, as the case may be, a copy of the resolution of the Board of Directors or other governing body of such body corporate authorizing such person to act as its representative at the meeting, and certified to be a true copy by a director, the manager, the secretary, or other authorized officer of such body corporate shall be lodged with the company at its registered office not later than 48 hours before the meeting.
(3) Rules 227 to 229 of these rules relating to proxies shall also apply to proxies lodged under this rule.
R. 71. Application for stay.---An application under sub-section (6) of section 391 for stay of the commencement or continuation of any suit or proceedings against the company ,may be moved by a Judge’s summons ex party, provided that where a petition for winding-up the company or a petition under section 397 or 398 is pending, notice of the application shall be given to the petitioner in such petition.
R. 72. Application to vacate or vary order of stay.---Where an order has been made staying the commencement or continuation of any suit or proceedings under sub-section (6) of section 391, any person aggrieved by such order may apply to the Court by a Judge’s summons to vacate or vary such order. Notice of the application shall be given to the applicant at whose instance the order of stay was made and to such other persons as the Court may direct.
NOTES
Delayed
application for vacation
On a contention that there n undue delay in taking out the judge’s summons seeking vacation of an ex party order and, therefore, the same should be dismissed, it was held: “There is no doubt that there is delay in taking out the present summons. Having regard to the provisions of rules 71 and 72 of the Companies (Court) Rules, 1959, which provide for an ex party order and vacating or varying the same by an aggrieved person, it is clear that, once an ex party order is passed, it does not come for confirmation before the court and remains on the file as an ex party order until an aggrieved person under rule 72 comes forward for vacating or varying the same. An ex party order can remain ex party until the scheme of compromise or arrangement set in motion under section 391 comes to an end either successfully or unsuccessfully. There is thus no time fixed for vacating or varying the ex party order. In the present case, the State (of Tamil Nadu) desires to continue the case pending under the Madras Chit Funds Act and wants to commence further proceedings under the said Act . The delay in the present case is not so gross and glaring as to refuse the present application.” State of Tamil Nadu v. Uma Investments (P). Ltd., (1995) 4 Comp LJ 402 (Bom). Cf. Divya Vasundhara Financiers (Pvt). Ltd., Re, (1989) 65 Com Cases 163 (Gujarat).
Also see notes under Rule 67.
R. 73. Notice of meeting.---The notice of the meeting to be given to the creditors and/or members, or to the creditors or members of any class, as the case may be, shall be in Form No. 36, and shall be sent to them individually the Chairman appointed for the meeting, or, if the Court so directs, by the company (or its liquidator), or any other person as the Court may direct, by post under certificate of posting to their last known address not less than 21 clear before the date fixed for the meeting. It shall be accompanied by a copy of the proposed compromise or arrangement and of the statement required to be furnished under section 393, and a form of proxy in Form No. 37.
R. 74. Advertisement of the notice of meeting.----The notice of the meeting shall be advertised in such newspapers and in such manner as the Judge may direct, not less than 21 clear before the date fixed for the meeting. The advertisement shall be in Form No. 38.
R. 75. Copy of compromise or arrangement to be furnished by the company.---Every creditor or member entitled to attend the meeting shall be furnished by the company, free of charge and within and within 24 hours of a requisition being made for the same, with a copy of the proposed compromise or arrangement together with a copy of the statement required to be furnished under section 393, unless the same had been already furnished to such member or creditor.
R. 76. Affidavit of service.----The chairman appointed for the meeting of the company or other persons directed to issue the advertisement and the notices of the meeting shall file an affidavit not les than seven days before the date fixed for the holding of the meeting or the holding of the first of the meetings, as the case may be showing that the directions regarding the issue of notices and the advertisement have been duly complied with. In default thereof, the summons shall be posted before the Judge for such orders as he may think fit to make.
R. 77. Result of the meeting to be decided by poll.---The decisions of the meeting or meetings held in pursuance of the order made under rule 69 on all resolutions shall be ascertained only by taking a poll.
R. 78. Report of the result of the meeting.---The chairman of the meeting, (or where there are separate meetings, the chairman of each meeting) shall, within the time fixed by the Judge, or where no time has been fixed, within seven days after the conclusion of the meeting, report the result thereof to the Court. The report shall state accurately the number of creditors or class of creditors or the number of members or class of members, as the case may be, who were present and who voted at the meeting either in person or by proxy, their individual values and the way they voted. The report shall be in Form No. 39.
R. 79. Petition for confirming compromise or arrangement.----Where the proposed compromise or arrangement is agreed to, with ort without modification, as provided by sub-section (2) of section 391, the company, (or its liquidator, as the case may be ), shall, within seven days of the filing of the report by the chairman, present a petition to the Court for confirmation of the compromise or arrangement. The petition shall be in Form No. 40.
Where a compromise or arrangement is proposed for the purposes of or in connection with a scheme for the reconstruction of any companies, or for the amalgamation of any two or more companies, the petition shall pray for appropriate orders an directions under section 394.
Where the company fails to present the petition for confirmation of the compromise is presented, arrangement as aforesaid, it shall be open to any creditor or contributory as the case may be, with the leave of the Court, to present the petition and the company shall be liable for the cost thereof.
Where no petition for confirmation of the confirmation of the compromise or arrangement is presented, or where the compromise or arrangement has not been approved by the requisite majority under section 391(2) and consequently no petition for confirmation could be presented, the report of the chairman as tot eh result of the meeting made under the proceeding rule shall be placed for consideration before the Judge for such orders as may be necessary.
NOTES
Proper approvals, a condition
precedent
A bare perusal of section 391(2) makes it clear that the approval of the proposed arrangement or compromise is a condition precedent before any application for its sanction can be moved. The position has been further made clear by clause (4) of rule 79 of the Rules which provides that where no petition for confirmation of the compromise or arrangement is presented or where the compromise or arrangement has been approved by the requisite majority under section 391(2) and consequently no petition for confirmation could be presented, the report of the chairman as to the result of the meeting made under rule 78 shall be placed for consideration before the judge for such orders as may be necessary. M. M. Sehgal v.Sehgal Papers Ltd., (1986) 60 Com Cases 51 0 at 514 (P&H), per S.P. GOYAL J.; See also Maneckchowk and Ahmedabad Mfg. Co. Ltd., Re, (1970) 40 Com Cases 819 (Gujarat); Premier Motors P. Ltd. v. Ashok Tandon, (1971) 41 Com Cases 656 (All) (scheme filed without proper accounts).
Who can apply under S. 391(2)
There is no conflict between Rule 79 and section 391. The word “contributory” in the rule would include every past and present member coming within the meanings of S. 426(1) and it is not necessary for this purpose that the company should be in winding up. There is no conflict between this rule and section 391. If the company is prepared to move the court after the chairman submits the report, any creditor or member, and if the conformity with the provision contained in section 391(1) of the Companies Act, 1956. Navjivan Mills Co. Ltd., Kalol, In Re, (1972) Com Cases 265, 314, 315, (Gujarat); Misra (A. K. ) v. Wearwell Cycle Co. India Ltd., (1993) 78 Com Cases 252 (Del).
See also Notes under Rule 69.
Time for filing scheme for
approval
Under Rule 79 the company is required to present the petition for sanctioning the scheme within 7 days of the filing of the report by the chairman; and if the company does not do so, then any member or creditor has been given the right to present a petition for sanctioning the scheme. The company is thus under a statutory obligation to present a petition for sanctioning the scheme. The requisitioned meeting clearly interferes with the company’s obligation in this connection. Centron Industrial Alliance Ltd. v. Pravin Kantilal Vakil, (1985) 57 Com Cases 12; Rohini Save v. Pravin Kantilal Vail, (1985) 57 Com cases 12 at p. 25 (Bom), per SUJATA V. MANOHAR . The same matter subsequently came before the Division Bench in Pravin Kantilal Vakil v. Mohini Ramesh Save, (1985) 57 Com Cases 31 and REGE J held that there is nothing in the Companies Act or rules made there under empowering the court to prevent the company from holding a meeting for modification of the scheme which is pending before the court.
R. 80. Date and notice of hearing.---The Court shall fix a date for the hearing of the petition, and notice of the hearing shall be advertised in the same papers in which the notice of the meeting was advertised, or in such other papers as the Court my direct, not less than 10 days before the date fixed for the hearing.
R. 81. Order o petition.---Where the Court sanctions the compromise or arrangement, the order shall include such directions in regard to any matter and such modification in the compromise or arrangement as the Judge may think fit to make for the proper working of the compromise or arrangement. The order shall direct that a certified copy of the same shall be filed with the Registrar of Companies within 14 days from the date of the order, or such other time as may be fixed by the Court. The order shall be in Form No. 41, with such variations as may be necessary.
R. 82. Application for directions under section 394.----Where the compromise or arrangement has been proposed for the purposes of or in connection with a scheme for the reconstruction of any company or companies or the amalgamation of any two or more companies, and the matters involved cannot be dealt with or dealt with adequately on the petition for sanction of the compromise or arrangement, an application shall be made to the Court under section 394, by a summons supported by affidavit, for directions of the Court as to the proceedings to be taken. Notice of the summons shall be given in such manner and to such persons as the Court may direct.
NOTES
Interest of creditors
How the court will take care of the interest of creditors in an amalgamation where only members are allowed to vote is explained in Telesound (India) Ltd., Re, (1983) 53 Com Cases 926 at p. 939 (Del):
“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. What is true of the creditors of the transferor-company is equally true of others who may be interested in the transferor-company or in its assets in various ways. These interests, however, have not been given any right to vote on the proposed amalgamation, even though there are ample provisions in secion 392, as indeed, in section 394 and rule 82/83, which would enable the court to safeguard these interests in diverse ways.”
R. 83. Directions at hearing of application.---Upon the hearing of the summons or upon any adjourned hearing thereof the Court may take such order or give such direction as it may think fit, as to the proceedings to be taken for the purpose of reconstruction or amalgamation, as the case may be, including, where necessary, an inquiry as tot eh creditors of the transferor company and the securing of the debts and claims of any of the dissenting creditors in such manner as to the Court may seem just.
R. 84. Order under section 394.-----An order made under section 394 shall be in Form No. 42 with such variations as the circumstances may require.
NOTES
Notwithstanding the fact that “any property” was not specifically included in the schedule to the order of amalgamation made on terms of Form No. 42 prescribed under this rule, the expression “all other property” of the transferor-company used in the order would cover such disputed property as well L. mullick & Co. v. Binani Properties Pvt. Ltd., 91983) 53 Com Cases 693, 705, 706 (Cal).
R. 85. Compromise or arrangement involving reduction of capital.----Where a proposed compromise or arrangement involves a reduction of capital of the company, the procedure prescribed by the Act and these rules relating to the reduction of capital, and the requirements of the Act an these rules in relation thereto, shall be complied with, before the compromise or arrangement sa far as it relates to reduction of capital, is sanctioned.
NOTES
Reduction of capital
The scheme of sections 101 an d102 as well as Rule 85 clearly envisage that reduction of capital is in the context of an existing or continuing company and not one which is going out of existing by merger etc. T. Durairajan v. Waterfall Estates ltd., (1972) 42 Com Cases 563 (mad); see also maneckchowk and Ahmedabad Mfg. Co. Ltd., Re, (1970) 40 Com Cases 819 (Gujarat); Indequip Ltd. v. Maneckchowk & Ahmedabad Mfg. Co. Ltd., (1970) 2 Comp LJ 300 (Gujarat).
This rule prescribes that in all other respects the provisions of the Act must be complied with. Hence, where reduction of capital is involved the procedure of reduction must be followed. The same court can confirm a reduction. It was held in this case that where the resolution approving the scheme of amalgamation is unanimous, the provisions of s. 100 as to reduction of capital are not attracted. Asian Investments Ltd., 91992) 73 Com Cases 517 (Mad).
In Novapan India Ltd., Re, (1997) 88 Com Cases 596 (AP), the court sanctioned confirmed a scheme of amalgamation and arrangement which included capital restricting by way of reduction and consolidation of share capital. It was also held that there was a substantial compliance with rule 85 as the proposed reduction of the share capital was already approved by the shareholders unanimously and the creditors has given their consent for the proposed scheme of arrangement. Se e also Maneckchowk & Ahmedabad Mfg. Co. Ltd., Re, (1976) 40 Com Cases 819 (Gujarat) wherein it was observed: “If section 391 were not be treated as a complete code and if it is intended that various things that can be done way of a scheme of compromise and arrangement, if they were to fall under different provisions of the Act which prescribe certain procedure for doing the scheme of compromise and arrangement includes reduction of capital special procedure for doing the same and that procedure has to be gone through, it was not necessary to provide specifically that if the scheme of compromise and arrangement includes reduction of capital must be gone through before it could be sanctioned as part of the scheme of compromise and arrangement. There seems to be god reason fro making such a provision in a rule 85” cited with approval in PMP Auto Industries Ltd., Re, (1994) 80 Com cases 289. This rule read with sections 101 and 102 of the Act would stand attracted only to cases of compromise or arrangement involving reduction of capital and not to cases amalgamation simplifier. Asian Investments Ltd., Re, (1992) 73 Com Cases 517 (Mad); McLeod Russel (India) Ltd., Re, (1997) 4 Comp LJ 60 (Cal).
R. 86. Report on working of compromise or arrangement.----At any time after the passing of the order sanctioning the compromise or arrangement, the Court may, either of its own motion or on the application of any person interested, make an order directing the company, or, where the company is being wound-up the liquidator, to submit to the Court within such time as the Court may, fix a report on the working of the said compromise or arrangement. On a consideration of the report, the Court may pass such orders or give such directions as it may think fit.
NOTES
The Court declined to direct the issue of share certificates in accordance with the scheme of amalgamation because of the dispute between the applicant and another party as to the ownership of shares. Decision on such dispute does not form part of implementation of proceedings of the scheme of amalgamation under section 392 read with rule 86. Hifco Consumer Credit ltd. v. midland Industries Ltd., (1996) 4 Comp LJ 402 (AP).
Information to the court
“The company should keep the court informed of the carrying out of the scheme b making a report under Rule 86. Such a report may be submitted within a period of two months.” Capital Chit Fund Ltd. v. Official Liquidator, (1978) 48 Com Cases 176 at p. 179 (Del).
R. 87. Liberty to apply.----(1) The company, or any creditor or member thereof, or in case of a company which is being wound-up, the liquidator, may, at any time after the passing of the order sanctioning the compromise or arrangement, apply to the Court for the determination of any question relating to the working of the compromise or arrangement.
(2) The application shall in first instance be posted before the Court for directions as to the notices and the advertisement, if any, to issue, as the Court may direct.
(3) The Court may, on such application, pass such orders and give such directions as it may think fit in regard to the mater, and may make such modifications in the compromise or arrangement as it may consider necessary for the proper working thereof, or pass such orders as it may think fit in the circumstances of the case.
NOTES
At whose instance court can
act under s. 392
It was in reference to Rule 87 that it throws some light on the question as to at whose instance the court can act under S. 392. The court said : “The rule is proceeded in character and at any rate the rule cannot circumstances the power conferred by the section. Hence rule 87 is of no assistance.” S. K. Gupta v. K. P. Jain, (1979) 49 Com Cases 342 at p.354 : AIR 1979 SC 734.
Modification sue motto or an
application
Under section 392 of the Companies Act, 1956, as well as rules 86 and 87, the court has power even sue motto to modify a scheme, to which sanction has already been given, without directing a fresh meeting, if the same is necessary, and without resorting to winding up. When a scheme has already been approved by the court it becomes duty bound to find out, even when the scheme has not worked as expected, and when the creditors have not been paid within the time originally provided for, whether with any modification, which expression obviously includes extension of time, the existing scheme can be worked. This power can be exercised by the court even sue motto. The court accordingly accepted a proposal for extension of time for payment of the installments fixed in a scheme sanctioned earlier and modified the scheme Dr. Ved Mitra v. Globe Motors Ltd., (1978) 48 Com Cases 64 (Del).
Power Of modification
In Mehtab Chand Golcha v. O.L., Golcha Properties P. Ltd., (1981) 51 Com Cases 103 at 112 (Raj) the court cited the rules and observed : The position of law thus crystallized is that under S. 392 the court has ample powers of supervising the carrying out of the scheme and has also powers to make such modifications (including the matter of rate of interest under R. 179) as may be necessary.
RELIEF IN CASE OF OPPRESSION OR MISMANAGEMENT
(Sections 397 to 407)
R. 88. Petition under section 397 to 398.----(1) Where a petition l presented under section 397 to 398 on behalf of any members of a company entitled to apply under section 399(1), by any one or more of them, the letter of consent signed by the rest of the members so entitled authorizing the petitioner or petitioners to present the petition on their behalf, shall be annexed to the petition, and the names and addresses of all the members on whose behalf the petition is presented shall be set out in a schedule to the petition, and where the company has a share capital, the petition shall state whether the petitioners have paid all calls and other sums due on their respective shares. Where the petition is presented by any member or members authorized by the Central Government under section 399(4), the order of the Central Government authorizing such member or members to present the petition shall be similarly annexed to the petition. A petition under section 397 shall be in Form No. 43, and a petition under section 398 shall be in Form No. 44.
(2) A petition under section 397 or 398 shall not be withdrawn without leave of the Court, and where the petition has been presented by a member or members authorized by the Central Government under sub-section (4) of section 399, notice of the application for leave to withdraw shall be given to the Central Government.
NOTES
There is noting in rule 88 to indicate that members giving their consent should have the petition before them. Bengal Luxmi Cotton Mills Ltd., Re, (1965) 35 Com Cases 187 (Cal).
Consent of members for filing
petition under section 397/398
A perusal of Form Nos. 43 and 44 specified under rule 88 shows that the names addresses of the members who have given their consent to the petition have to be mentioned in the Schedule and letters of their consent are to be annexed to the petition. The names of the members of the company who are arrayed as petitioners are not required to be given in the schedule and their letters of consent are also not required to be annexed with the petition. Admittedly, Baburam Agrawal and Rewa Goyal are the petitioner Nos. 1 and 2 in this company petition. As such their letters of ocnsent were not required. Following Narinder Singh v. Randhawa Trasport Company (P) Ltd., (1973) 43 Com Cases 341 (P&H). This rule does not require that the consent should be given personally. Punnaiah v. Jeypore Sugar Co. Ltd., (1994) 81 Com Cases 1 (SC).
Substitution of petitioner
In V. K. Mathur v. K. C. Sharma, (1987) 61 Com Cases 143 : (1986) 2 Comp LJ 25 (Del) the court explained the combined effect of sections 397-399 and the rules. The court said (at p. 29) : The original petition was filed by one of the persons authorized by the Board (CLB). The application or amendment is supported by the petitioner’s affidavit of the petitioner has not been filed to verify the facts mentioned in the amended petition. Once there is a valid petition before the Court, there are ample powers in the Court to permit other persons to join the petition as co-petitioners. In a proper case, the Court can even permit such persons to take over the prosecution of the petition from the original petitioner, and substitute themselves fro him in case it is found that he desires to withdraw from the petition for oblique reasons, but the Court is satisfied that the allegations in the petition need to be gone into. This is clear, from the Rajamundry Electric Supply Corpn. V. Nageshwara Rao (A), (1956) SC 213 and rule 88(2) of the companies (Court) Rules. These are provisions and powers designed to enable the Court to render justice and to ensure that the real grievances of groups of members properly ventilated are remedied by the Court, and not allowed to be circumvented by interested persons buying up or to otherwise silencing the original petitioner. But on the contrary, these enabling powers should not be used in such a way as to defeat the very purpose of these statutory provisions. On a careful perusal of the language and purpose of section 399 or the interests of justice and equity to allow the present petition to continue. A similar explanation of the effect of the rule 88(2) is to be found in Jalpaiguri Cinema Co. Ltd. v. Promatha Nath Mukherjee, (1978) 48 Com Cases 131 (Cal).
Defective filling of form
Rule 88 in terms requires that where a company has a share capital, the petition shall state whether petitioners have paid all calls and other sums due on their respective shares. This has also to be stated in column 5 of Forms Nos. 43 and 44, I which a petition under sections 397 and 398 has to be filed. In the fifth column of the schedule annexed to the petition, the value of the shares had been given, but in this case it had nowhere been stated whether all the calls and sums due on the shares had been paid by the petitioners. It was held that, the petitioner was not maintainable. Omni India Ltd. v. Balbir Singh, (1989) 66 Com Cases 903 (Del).
It is open to a deponent of an affidavit in verification of a petition under S. 398 to verify it on information received by him and believed to be true. Shanti Prasad Jain v. Union of India, (1965) 68 Bom LR 481. On this basis the court laid down the following further propositions : The limitation placed in O. XIX, r. 3 of the Civil Procedure Code, 1908, that the affidavit must be confined to such facts which the deponent is able to prove of his personal knowledge, has application only to those affidavits which have been directed by a Court to be filed n proof of the facts at the hearing of matters other than the hearing of interlocutory applications. Other affidavits could be on personal knowledge as well as on the information received and believed to be true, provided the sources of information and the grounds of belief are stated with sufficient particularity.
Allegations in a petition under s. 397 or 398 about fraud, misconduct, misappropriation, etc. need not be supported by an affidavit on personal knowledge of the deponent or by the supporting affidavits of other persons having personal knowledge. The deponent can verify the petition on information received by him and believed to be true. He is entitled to lead oral evidence to prove the allegations. (Ibid).
R. 89. Notice to the Central Government.---Save where a petition is presented by or an behalf of the Central Government under section 401, notice shall be given to the Central Government of every petition under section 397 or 398, and a copy of the petition shall be served on the Central Government of every along with the notice of the date of hearing, not less than 14 clear days before the date fixed for the hearing of the petition.
R. 90. Order involving reduction of capital or alteration of memorandum------Where an order under section 397 or 398 involves a reduction of capital or alteration of the memorandum of association, the provisions of the Act and these rules relating to such matters shall apply as the Court may direct.
R. 91. Application under section 407(1) (b) for leave to act as managing director, etc.---An application under clause (b) of sub-section (1) of section 407 for leave to any of the persons mentioned therein, to be appointed, or to act, as the managing or other director, or manager of the company, shall state whether notice of the intention to apply for such leave has been given to the Central Government and shall be accompanied by a copy of such notice. Notice of the date of hearing of the petition together with a copy of the petitioner shall be served on the Central Government not less than 14 clear days before the date fixed for the hearing.
RESTORATION OF THE NAME OF A COMPANY TO THE REGISTRAR OF COMPANIES
(Section 506(6) )
R. 92. Notice to Registrar of Companies.----A petition under section 560(6) to restore the name of a company to the Register of Companies shall be served on the Registrar of Companies and on such other persons as the Court may direct, not less than 14 days before the date fixed for the hearing of the petitioners.
R. 93. Delivery of order and advertisement thereof.—Where the Court makes an order restoring the name of a company to the Registrar of Companies, the order shall direct shall the petitioner to deliver to the Registrar of Companies a certified copy thereof within 14 days from the date of the order, and that on such delivery, the Registrar of Companies do. in his official name, advertise the order I the Gazette of the State or Union Territory concerned.
R. 94. Registrar’s costs of petition.----Unless for any special reasons the Court shall otherwise order, the order shall direct that the petitioners do pay to the Registrar of Companies his costs of, and occasioned by, the petition.
PART
III
WINIDNG-UP
Winding-up
by court
Winding-up petition and its
hearing :
R. 95. Petition for winding-up.-----A petition for winding-up a company shall be in Form No. 45, 46 or 47, as the case may be, with such variations as the circumstances may require, and shall be presented in duplicate. The Registrar shall note on the petition the date of its presentation.
NOTES
Winding
up petition by creditor
In Darjeeling Commercial Co. Ltd. v. Pandam Tea Co. Ltd., (1993) 54 Com Cases 814 at p. 833 (Cal) the following statement occurs on the effect and purport of this rule: A form has been prescribed under the Companies (Court) Rules, 1959, for a winding up petition by a creditor, being Form no. 46, under r. 95 read with r. 17 which is subject tot eh Court’s general power to follow the CPC and to the inherent powers under rules 6 and 9 respectively. But, the mere adherence to forms cannot be the principle on which company law has to be administered. A winding up petition is not a matter only between the petitioning creditor and the company, as it does by nature, particularly after advertisement, assume the character of a representative action on behalf of all the contributories and of the creditors of the company, as well as in public interest, and, for such purpose, the nicety of the pleadings will not stand in the way of the court, where, on the material placed before it, beyond any doubt the company is insolvent and unable to pay its debts, both tot eh petitioning-creditor and tot eh supporting creditors.
Petition by minority
shareholder fro winding up and appointment of provisional liquidator
See Kailash Prasad Misra v. Medwin Laboratories P. Ltd., (1983) 63 Com Cases 810 (MP).
Affidavit and oral evidence
The matters of inability to pay debts and just and equitable are as a matter of practice decided on affidavits. Cross-examination of persons who have sworn affidavits or adduction of oral evidence may be allowed by the court whenever it may be considered to be necessary. The consideration of the petition has not to be confined to the evidence filed along with it Aluminium Corporation of India v. Lakshmi Rattan Cotton Mills Co. Ltd., AIR (1970) 40 Com Cases 259.
The matter was more extensively explained in Vijayalakshmi Talkies P. Ltd., v. Kothingeswra Rao, AIR 1966 AP 285. The court said (at p. 287): There are no provisions in the Act or the rules made there under to show that an order of winding up has to be made on oral evidence alone and not on the affidavits, statutory or otherwise. The Companies Act like some other enactments also speaks of affidavits and counter-affidavits. Of course, that does not mean that oral evidence is barred. All that it contemplates is that for proceedings like these which need expeditious disposal, affidavit evidence is more appropriate. No doubt even in case of affidavit evidence which must be based as a rule personal knowledge of the deponent and not o his mere belief, it is open to the other party if he challenges the correctness of the statements made in the affidavit to request the Court to summon the deponent for cross-examination. It is thus clear that the affidavit evidence is not only permissible in matters like this, but also is the most desirable way to effectuate the speedy disposal of matters justly and properly. There is nothing in the Act to suggest that for the disposal of the petition oral evidence is a sine quo non and that the Court cannot act upon affidavits alone and dispose of the case if it is satisfied that the averments in the petition have been substantiated and there are justifying grounds fro passing a winding up order. On the other hand, the Act and rules refer only to affidavits which being statutory must have their due weight and significance.
R. 96. Admission of petition and directions as to advertisement.---Upon the filing of the petition, it shall be passed before the Judge in Chambers for admission of the petition and fixing a date for the hearing thereof and for directions as to the advertisements to be published and the persons, if any, upon whom copies of the petition are to be served. The Judge may, if he thinks fit, direct notice to be given to the company before giving directions as to the advertisement of the petition.
NOTES
Built-in safeguards against
abuse of machinery of winding up
The Supreme Court explained this in Cotton Corporation of India Ltd. v. United Industrial Bank Ltd., (1984) 55 Com Cases 423 at pp. 439-440 (SC):
The petition has to come up in Chambers before the company judge and not in open court, and the rule confers a discretionary power on the judge not to give any directions at that stage but merely issue a notice to the company before giving directions. If upon receipt of such notice of the company appears and satisfies the judge that the debt is bona fide disputed or the presentation of the petition is mala fide, actuated by an ulterior motive, or an abuse of the process of the court certainly the judge may decline to admit the petition and may direct the party presenting the winding up petition to prove its claim by a suit or n any other manner. The power is conferred on the judge before whom the petitin comes up for admission to issue pre-admission notice to the company so that the company is not taken unawares and may appear and point out to the judge that the petitioner is actuated by an ulterior motive and presentation of the petition is a device to pressurize the company to submit to an unjust claim. This is a sufficient safeguard against mala fide action and the company would not suffer any consequences as apprehended, and the company can as well appear and ask for stay of further proceedings till the petitioner-creditor proves his debt by a regular suit. This is the jurisdiction of the company court and it cannot be restrained from exercising the same by some other court restraining the creditor from presenting a winding up petition. There in sufficient built-in safeguard in the provisions of the Companies Act and the Rules framed there under which would save the company from any adverse consequences, if a petitioner actuated by an ulterior motive presents the petition. This was taken notice of by this court in National Conduits (P). Ltd., v. S. S. Arora, 91967) 37 Com Cases 786 (SC), wherein this court set aside the order of the High Court of Delhi which was of to opinion that once a petition for winding up is admitted to the file, the court is bound to forthwith advertise the petition. This court held that the High Court was in error in holding that a petition for winding up must be advertised even before the application filed by the company for staying the proceeding for the ends of justice or to prevent abuse of the process of the court. This court held that view taken by the High Court that the court must as soon as the petition is admitted, advertise the petition is contrary to the plain terms of r. 96 and such a view, if accepted, would make the court an instrument, in possible cases, of harassment and even of blackmail, for once a petition is advertised the business of the company is bound to suffer serious loss and injury.
Notice of petition to company
before advertisement
Rule 96 envisages notice to the company only before giving directions for the advertisement of the petition for winding up. Notices are not strictly required to be issued tot eh directors. The notice tot eh company under rule 96 is not required to issue in any prescribed pro forma. The company has only to be apprised of the fact that the petition for winding up has been filed. In this context, “notice’ would mean only “information’ or knowledge of facts which would naturally lead an honest and prudent person to make enquiry. U. P. Twiga Fiberglass Ltd. v. Parekh Marketing P. Ltd., (1986) 59 Com Cases 886 (All). The court cited (BLACK’S LAW DICTIONARY, 5TH Edn., 1979, p. 957) and continued: The course adopted by the learned company judge in the instant case is covered squarely under the alternative (ii) enunciated by the Supreme Court in National Conduits (P) Ltd.’s case, (1967) 37 Com Cases 786 : AIR 1968 SC 279, wherein the judge may admit the petition, fix the date of hearing of the petition and order that the petition be served upon persons specified in the order. In Extrusion Processes (P) Ltd. v. Jivabhai Marghabhai Patel, (1966) 36 Com Cases 60 (Bom), the Bombay High Court took the view that on a plain reading of rule 96, there is no right in a company to be issued a notice before a petition is admitted nor before the court fixed the date for hearing. It was urged that the advertisement of the petition made in the daily newspapers does not satisfy rule 24(1) since the petition had also to be advertised in the Gazette on the date on which advertisement in the newspapers was made This overlooks that the provision contained in rule 24(1) is general with a specific rider, namely, “unless the judge otherwise orders, or those rules otherwise provide.” Rule 99 which specifically deals with advertisement of petition for winding up lays down expressly that the manner provided for advertisement in rule 24 is “subject to any direction of the court”. This leaves no room fro doubt, in our view, that the learned company judge could give specific directions with respect to advertisement, as he did under the impugned order, and dispose with publication in the Gazette.
Company’s right to be heard
The company does not have the right to be heard before a petition for winding up has been admitted or before the court has fixed a date of hearing. Before the petition is directed to be advertised, the court has discretion of giving notice to the company. Extrusion Process P. Ltd. v. Jivabhai Margabhai Patel, (1966) 36 Com Cases 60 (Bom).
The court has to be convinced of prima facie grounds. The hearing to be given tot eh company under rule 96 is not for the purposed of deciding the manner of the advertisement but for deciding whether the advertisement should be made at all and the petition proceeded with George v. Athimattam Rubber Co., Ltd., (1965) 35 Com Cases 17 (Ker); Kerala State Industrial Corpn. Ltd. v. Poonmudi Tea Pack Ltd., (1988) 63 Com Cases 575; Lord Krishna Sugar Mills Ltd. v. Abnash Kaur, (1961) 31 Com Cases 587 (Punjab), see also K. S. Trivedi & Co. v. Ashok Leyland, 91989) 3 Comp LJ 351 (Madras) refusal to admit because the debt neither beyond dispute not quantified. Navnitlal Manilal Shah v. Atul Drug House, (1977) 47 Com cases 136 (Gujarat), petition rejected under this rule; partnership analogy found to be not applicable.
Winding up order without
advertisement
Where a winding up order was made without publishing an advertisement of the winding up petition as required by Rule 96 read with Rules, 99, 24 and Form No. 48, the order was held to be bad in law. Mvi Ahmadur Rahman v. ROC, (1973) 43 Com Cases 522 (Guj).
Scheme pending winding up
petition
The court may appoint a provisional liquidator and may accept a scheme allowing it to be worked out during such time that the winding up petition is finally decided. The scheme can also be utilized if found favorable for reconstruction of the company instead of ordering the winding up of the company. Panchmahals Steel Ltd. v. Universal Steel Traders, (1976) 46 Com Cases 706 (Gujarat).
Revocation of order of
admission of winding up petition
Where a petition for winding up a company has been admitted, an application filed to revoke the order of admission is maintainable under rule 96 of the Companies (Court) Rules, 1959. Demach Engineers P. Ltd. v. Winny Xavier, (1987) 62 Com Cases 499 (Ker) following George v. Athimattam Ruber Co. Ltd., (1965) 35 Com Cases 17 (Ker) and Cotton Corporations of India Ltd. v. United Industrial Bank Ltd., (1965) 55 Com Cases 423 (SC).
Stay of advertisement of
petition
Once a petition for the compulsory winding up of a company is admitted, the court bound forthwith to advertise the petition (Rule 24). In an appropriate case the court has the power to suspend advertisement of a petition for winding up, pending disposal of an application for revoking the order of admission of the petition. If the petition is admitted, it is still open tot eh company to move the court that, in the interest of justice or to prevent abuse of the process of the court, the petition be not advertised. Such an application may be made where the court has issued notice under the last clause rule 96 of the Companies (Court) Rules, 1959, and even when there is an unconditional admission of the petition for winding up. National Conduits P. Ltd. v. S. S. Arora, (1967) 37 Com Cases 786 (SC). Petition not advertised where the company was ready and winding to pay. Shalimar Rope Works Ltd., Re, 1987 Tax LR (NOC) 51 (Cal).
Normally, there is no interval between the admission of a winding up petition and the giving of directions as to the advertisement to the petition. According to the first part of rule 96, when a petition for winding up is posted before the company judge for admission it is also simultaneously posted fro discretions after the admission. Therefore, in the normal case, notice “before giving directions as tot eh advertisement of the petition” would be given to the company before the order of admission. In exceptional cases, the court may admit the petition and postpone giving directions as to advertisement. Rule 96 defines the latest point of time at which the notice may be given to the company when a petition for its winding up is posted before the company judge : it does not limit the earliest point. In those, cases in which for some reason the order of advertisement is not made immediately after that of admission, notice may be given to the company before or after the admission. Bipla Chemical Industries v. Shree Keshariya Investment Ltd.(1977) 47 Com Cases 212 (Del).
See also Notes under Rule 24.
R. 97. Petition by a contingent or prospective creditor.----A petition for the winding-up of a company presented by a contingent or prospective creditor shall be accompanied by an application under section 439(8) for the leave of the Court for the admission of the petition. No advertisement of the petition shall be made unless the leave has been granted, or, where the leave has been granted subject to any conditions precedent to the admission of the petition, unless such conditions have been satisfied.
NOTES
Leave of court for prospective
and contingent creditor necessary
The motion for winding up such of a creditor is dismissed if leave is not sought for under rule 97. The Gujarat High Court explained the position thus: such leave is to be sought for when the motion is made by a prospective or contingent creditor under s. 439(8) read with r. 97. The question of admitting or not admitting the petition is to be decided only after leave is granted. Therefore, though the grounds on which admission was refused are not sustainable in law, the court did not admit the petition; for, the condition precedent for such admission has to depend on a motion made by the petitioner for the purpose of seeking leave. Inasmuch as such a motion has not been made, the court left the matter to be finally disposed of by the learned company judge taking into account what has been made, the court left the matter to be finally disposed of by the learned company is judge on the question before the judgment. Having found that the approach by the learned company judge on the question before the learned judge was not in accordance with law, the court set aside that order and remitted the case back to he company judge to pass appropriate orders taking also into account the fact that, as it is, there is no application for leave before the court under r. 97. Kremeen Foods P. Ltd., Re, (1985) 58 Com Cases 156 at p. 161 (Gujarat), per POTI C. J. Anil Vasudev Salganokar v. Kermeen Food P. Ltd., (1985) 58 Com Cases 156 (Gujarat).
R. 98. Copy of petition to be furnished.-----Every contributory or creditor of the company shall be entitled to be furnished by the petitioner or by his advocate with a copy of the petitioner within 24 hours of his requiring the same on payment of the prescribed charges.
R. 99. Advertisement of petition.----Subject to any directions of the Court, the petition shall be advertisement within the time in the manner provided by rule 24 of these rules. The advertisement shall be in Form No. 48.
NOTES
Right of appearance in winding
up petition
It is elementary that a person, if he so chooses, has the right to enter appearance in and oppose a proceeding, the result of which may be prejudicial to his interests. Every person whose interests are likely to be affected adversely or favorably is entitled to oppose or support a petition for winding up of a company under section 439 of the Act. Such a person is within the expression “any other person” in Form No. 48, read with rule 99 of the Companies (Court) Rules, 1959. When a creditor by petition prays for winding up of a company and that company is the managing agent of another company and the former is surety of the latter for huge loans and advances made by the banks, that other company has the right to intervene and oppose the winding up petition. Cotton Agents (Rajasthan) Ltd., Re, (1969) 39 Com Cases 663 (Raj); Shree Vijay Laxmi Trading Co., Re, (1969) 39 Com cases 663 (Raj); Gwaior Sugar Co. Pvt. v. Shyam Saran Gupta, (1969) 39 Com Cases 657, 662 (MP).
Power to give specific
directions for advertisement
This rule specifically deals with advertisement of petition for winding up and expressly lays down that the manner provided for advertisement is subject to any direction of the court. Therefore, the company court can give specific directions with respect to advertisement and even dispense with publication in the Gazette. U.P. Twigs Fibreglass Ltd. v. Parekh Marketing P. Ltd., (1986) 59 Com Cases 886 at 890 (All).
See also Notes under rule 24.
R. 100. Application for leave to withdraw petition.---(1) A petition for winding-up shall not be withdrawn after presentation without the leave of the Court.
(2) An application for leave to withdraw a petition for winding-up which has been advertised in accordance with the provisions of Rule 99 shall not be heard at any time before the date fixed in the advertisement for the hearing of the petition.
NOTES
Application
for amendment
An application fled under rule 100, for substitution as petitioning creditor in the winding up petition was dismissed for two reasons : firstly, the application was as fresh proceeding, after the orders after the Board for Industrial and Financial Reconstruction under r. 16(4) of SICA were passed, and was made without obtaining the consent of the Board, and, secondly, the court had concluded that no proceedings for winding up would lie, including pending proceedings, and no question of substitution as petitioning creditor in the winding up proceedings survived. Testeels Ltd. v. Radhaben Ranchodlal Charitable Trust, (1989) 66 Com Cases 555 : AIR 1988 Guj 213.
R. 101. Substitution of creditor or contributory for original petitioner.----Where a petitioner,---
(1) is not entitled to present a petition, or
(2) fails to advertise his petition within the time prescribed by these rules by these order of Court or such extended time as the Court may allow, or
(3) consents to withdraw the petition, or to allow it to be dismissed, or the hearing to be adjourned or fails to appear in support of his petition when it is called on in Court on the day originally fixed for the hearing thereof, or any day to which the hearing has been adjourned, or
(4) if appearing, does not apply for an order in terms of the prayer of his petition.
Or
Where in the opinion of the Court there is other sufficient cause for an order being made under this rule, the Court may, upon such terms as it may think just, substitute as petitioner any creditor or contributory who, in the opinion of the court, would have a right to present a petition, and who is desirous of prosecuting the petition.
NOTES
There is nothing in Rule 101 which confines its operation to the proceedings on a petition for winding up only after it has been admitted. Naresh Fabs v. Gudiya Exports P. Ltd., (1986) 60 Com Cases 114 (Del).
Substitution of petitioner
Before exercising the power under this rule the court must see whether the applicant has a case for having his petition admitted if it were filed independently. In this particular case the company had paid off all the creditors after admission of petition. The party claiming substitution as petitioner was not able to show a clear claim. The authenticity of the claim was in doubt. The substitution was accordingly refused. Harakchand Mansraj v. Emerald Woolen Mills Pvt. Ltd., (1990) 68 Com Cases 702 (Bom). Substitution was similarly refused where the petition filed by a partnership firm was liable to be dismissed because of improper representation of the firm and also because the debt was not particularized. The court said: “The exercise of the powers under rule 101 of the Rules is discretionary and in the circumstances of the instant case to substitute the other creditor firm as the petitioner would be starting a fresh proceeding for winding up on the facts alleged by that firm in their supporting affidavit. It is also doubtful whether recourse can be had to rule 101 in view of the powers of the Court under section 443 of the Act at the hearing of a winding up petition. “Kailash Chandra Jain v. Thankur Paper mills Ltd., AIR 1968 Pat 289.
Substitution on death
The applications who have already entered appearance as contributories to support the petition of winding up can be substituted on the death of the petitioner. Where the cause of action is one and common to all of them, the death the petitioner is a sufficient cause for an order of substitution. Even if the words “other sufficient cause” is to be read ejusdem generis with the other clauses, it would cover the case of death which is the ultimate and most absolute default and disability. G. Ravindran, Re, (1965) 2 Comp LJ 316 (ker).
Substitution in cases of
withdrawal and dismissal of petition
Under rule 101(3) permission can be granted to a creditor pf a company or a contributory to be substituted in place of the original, petitioner and pursue the petitioner for winding up the company, when the original petitioner consents to withdraw the same or allows it to be dismissed. The words “allows it to be dismissed” clearly envisage that such permission can be granted even after the petition has been got dismissed by the original petitioner. Stepan Chemicals Ltd., Re, (1987) 62 Com Cases 855 (P&H); Tata Chemicals Ltd. v. Stepan Chemicals Ltd., Re, (1987) 62 Com Cases 855 (P&H).
Procedural orders not
applicable
In Metro Malleable Manufactures P. Ltd., Canara Bank, 91981) 51 Com Cases 616 (Kant) an order fro substitution of parties was passed under order 1, rule 10 of CPC read with Rule 101 of the Companies (Court) Rules. An appeal against the order was dismissed. Such an order does nor affect the rights of the parties are not appeal able.
R. 102. Procedure on substitution.-----Where the Judge makes an order substituting a creditor or contributory as petitioner in a winding-up petition, he shall adjourn the hearing of the petition to a date to be fixed by him and direct such amendments of the petition as may be necessary. Such creditor or contributory shall, within seven days from the making of the order, amend the petition accordingly, and file two clean copies thereof together with an affidavit in duplicate setting out the grounds, o which he supports the petition. The amended petition shall be treated as the petition for the winding-up of the company and shall be deemed to have been presented on the date on which the original petition was presented.
NOTES
Substitution of petitioner
When a petitioner is ordered to be substituted, he has to satisfy the requirements of this rule. The rule requires the new petitioner to file his papers along with an affidavit. Where the subsequently permitted co-petitioners did not file amended petition with affidavits, it was held that the rejection of the petition was justified. Ashok Kumar v. Akal Transport Co. (P.) Ltd., (1991) 72 Com cases 158 (P&H).
Fresh court-fee on amended
petition
The petitioner is not liable to pay fresh court-fee on the amended petition. Sarabhai Machinery v. Haryana Detergents Ltd., (1986) 60 Com Cases 169 at p. 174 (P&H).
R. 103. Affidavit-in-opposition.-----Any affidavit intended to be used in opposition tot eh petition shall be filed not less than five days before the date fixed for the hearing of the petition, and a copy, of the affidavit shall be served on the petitioner or his advocate forthwith.
Copies of the affidavits shall also be given to any creditor or contributory appearing in support of the petition who may require the same, on payment of the prescribed charges.
NOTES
Notice to person likely to be
prejudiced
The exercise by the official liquidator of the power under section 457(1)(c) of the Act, to sell the movable and the immovable property of the company by public auction or private contract, falls within the ambit of this rule. It is implicit in that rule that if the directions which have to be given by the court would affect any person prejudicially he must be served with a notice of the summons under the general rule of natural justice and that on order should be made be affecting the rights of a party without affording a proper opportunity to it to represent its case. Jatan Kanwar Golcha v. Golcha Proprties P. Ltd., (1971) 41 Com Cases 203 : AIR 1971 SC 374 on the facts the lessor of a property was allowed to prefer an appeal against an order of sale which was passed without notice to her.
R. 104. Affidavit in reply.----An affidavit intended to be used in reply to the affidavit filed in opposition to the petition shall be filed not less than two days before the day fixed for the hearing of the petition, and a copy of the affidavit in reply shall be served on the day of the filing thereof on the person by whom the affidavit in opposition was filed or his advocate.
R. 105. Stay of suit or proceeding pending petition.----An application under section 442 for stay of any suit or proceeding shall be made upon notice to all the parties tot eh suit or proceeding sought to be stayed.
PROVISIONAL LIQUDATOR
R. 106. Appointment of Provisional Liquidator.----(1) After the admission of a petition for the winding-up of a company by the Court, upon the application of a creditor, or a contributory, or of the company, and upon proof by affidavit of sufficient ground for the appointment of a Provisional Liquidator, the Court, if it thinks fit, and upon such terms as in the opinion of the Court shall be just and necessary, may appoint the Official Liquidator to be Provisional Liquidator of the company pending final orders on the winding-up petition. Where the company is not be applicant, notice of the application for appointment of Provisional Liquidator shall be given to the company unless the Court, for special reasons to be recorded (in writing), dispenses with the notice.
(2) The order appointing the Provisional Liquidator shall set out the restrictions and limitations if any, on his powers imposed by the Court. The order shall be n Form No. 49, with such variations as may be necessary.
NOTICES
A provisional was appointed under section 450 read with this rule where the company failed to pay its debts despite notice, the affairs were at a total standstill, registered office was closed and statutory liabilities were piling up, the indifferent management had made commitments exceeding assets, making it imperative that the company’s assets be safeguarded. Brunton & Co. Engineers Ltd., Re : Canara Bank v. Brunton & Co., (1988) 63 Com Cases 299 (Ker).
The Rule is procedural and cannot be constructed so as to wipe put statutory jurisdiction of the court under section 450 to appoint provisional liquidator after presentation of petition for winding up of the company and before admission thereof. No implied prohibition on powers of the court can be spelt out from Rule 106. The court ought not to accept such construction of the rule which would make the rule ultra vires. Section 450 is a substantive provision dealing with subject matter of jurisdiction of the court to appoint a provisional liquidator of the company at any time after presentation of the petition. The words ‘at any time’ used in section 450 are of considerable significance and cannot be ignored. In a situation where the court is prima facie satisfied as to jeopardy tot eh assets of the company or a strong case for appointment of provisional liquidator is made out on same other relevant grounds, the court would be justified in appointing provisional liquidator of the company immediately on presentation of the petition, as provided in section 450(1). Darshan Anilkumar Patel v. Geetaneel Hotels & Investment Pvt. Ltd., (1993) 11 Corpt LA 12 (Bom).
R. 107. Rules applicable to Provisional Liquidator.-----The rules relating to Official Liquidators shall apply to Provisional Liquidators, so far as applicable, subject to such directions as the Court may give in each case.
R. 108. Costs, etc., of Provisional Liquidator.----Subject to any order of the Court, all the costs, charges and expenses property incurred by the Official Liquidator, as Provisional Liquidator, including such sum as is or would be payable to the Central Government under the scale of fees for the time being in force applicable where the Official Liquidator acts as liquidator of the company, shall be paid out of the assets of the company.
WINDING-UP ORDER
R. 109. Notice to Official Liquidator of order.----Where an order for the winding-up of a company or for the appointment of a Provisional Liquidator has been made, the Registrar shall forthwith send to the Official Liquidator of the Court notice of the order under the seal of the Court in duplicate in Form No. 50 or 51, as the case may be, together with a copy of the petition and the affidavit, if any, filed in support thereof.
R. 110. Contents of winding-up order and order appointing Provisional Liquidator.----An order to winding-up a company or for the appointment of a Provisional Liquidator shall contain at the foot thereof a note stating that it will be the duty of such of the persons as are liable to make out or concur in making out the company’s statement of affairs under section 454, to attend on the Official Liquidator at such time and place as he may appoint and to give him all information he may require.
R. 111. Order to be sent to Official Liquidator and form of order.----(1) The order for winding-up shall be drawn up by the Registrar as soon as possible, an dafter it is signed and sealed two certified copies thereof duty sealed shall be sent to the Official Liquidator. The order shall be in Form No. 52 with such variations as may be necessary.
(2) Except where the company is the petitioner, the Official Liquidator shall cause a sealed copy of the order to be served upon the company by pre-paid registered post addressed office (if any), or, if there is no registered office, at its principal or last known principal place of business, or upon such other person or persons or in such further directions as the Court may direct.
R. 112. Directions on making the wading-up order.---At the time of making the winding-up order, or at any time thereafter, the Court shall give directions as tot eh advertisement of the order and the persons, if any, on whom the order shall be served and the persons, if any, to whom notice shall be given of the further proceedings, in the liquidation, and such further directions as may be necessary.
R. 113. Advertisement of the order.---Save as otherwise ordered by the Court, every order for the winding-up of a company by the Court, shall within 14 days of the date of making the order, be advertised by the petitioner in one issue each of a newspaper in the English language and a newspaper in the regional language circulating in the State or the Union Territory concerned and shall be in Form No. 53.
R. 114. Official Liquidator to take charge of assets and books and papers of company.---On a winding-up order being made, the Official Liquidator attached to the Court shall forthwith take into his custody of under his control all the property and the effects and the books and papers of the company, to deliver possession thereof to the Official Liquidator.
R. 115. Form of proceedings after winding-up order is made.-----After a winding-up order is made, every subsequent proceeding in the winding-up shall bear the original number of the winding-up petition besides its own distinctive number, but against the name of the company in the cause-title, the words ‘in liquidation’ shall appear in brackets.
R. 116. Form of proceeding after winding-up proceedings.----An application under section 466 fro stay of proceedings in the wading-up shall be made upon notice to the parties tot eh winding-up petition and to such other persons as the Court may direct, and where the application is made by any person other than the Official Liquidator, notice shall be given to the Official Liquidator. Where an order is made staying proceedings, the order shall direct that the applicant forthwith file a certified copy thereof with the Registrar of Companies.
NOTES
Vacation
of stay; who are entitled to notice
It has been held that a contributory of a company in liquidation had no right to notice under Rule 116 of the Rules of the petition under section 466; and that the petition ring creditors were entitled to be heard before the order granting stay of the winding up proceedings was passed and that, therefore, the order of stay was to be recalled, and the winding up proceedings were to be taken up by the official liquidator and finalized expeditiously. Duleep Singh v. Official Liquidator, (1990) 69 Com Cases 791 (P&H); National Transports & General Co. P. Ltd. (In liquidation), Re, (1990) 69 Com Cases 791, 803 (P&H). The rule expressly provides that all parties to the petition are entitled to notice of the application.
APPLICATIONS UNDER SECTION 446
R. 117. Application for leave to commence or continue suit or proceeding.----An application under section 446(1) for leave of the Court to commence or continue any suit or proceeding against the company shall be made upon notice to the Official Liquidator and the parties to the suit or proceedings sought to be commenced or continued.
R. 118. Application for transfer of suit or proceeding.----(1) An application under section 446(3) for the transfer to the Court of any suit or proceeding by or against the company pending in any other Court shall be made on notice to the Official Liquidator where he is not the applicant and to the parties to the suit or proceeding sought to be transferred.
(2) Where an order is made for the transfer of a suit or proceeding pending in any other Court to the Court, the Registrar of the Court shall transmit without delay a certified copy of the order to be Court in which such suit or proceedings is pending, and that Court shall, on receipt of the order, transmit the records of the suit or proceeding tot eh Court.
(3) Upon the making of an order for winding-up, all suits and proceedings by or against the company then pending or thereafter instituted in the Court or transferred to the Court, shall be assigned to and placed in the list of the Judge for the time being exercising jurisdiction under the Act.
NOTES
Notice under section 80 C.P.C.
not necessary
Section 446 and Rule 118 provide that the suit is to be against the company in liquidation but represented through the liquidator. Therefore, in essence the cause of action is against the company, not against any action done by the liquidator as such. Hence, through he is a public officer, no notice under section 80 C.P.C. is necessary. United Bank of India v. Tatanagar Foundry Co. ltd., (1975) 45 Com Cases 171 (Cal).
TRANSFER OF WINIDNG-UP PROCEEDINGS
R. 119. Application for transfer.----(1) Where a winding-up order has been made by a High Court, an application for a direction that all subsequent proceedings in the winding-up be had in a District Court subordinate to the High Court or n any other High Court or in a District Court 9subordinate thereto), shall be made to the High Court that made the wioding-up order by the Official Liquidator of that Court, or by the Official Liquidator of the Court to which proceedings are sought to be transferred, or by a creditor or contributory of the company.
(2) An application for the transfer of winding-up proceedings from a District Court tot eh High Court or to another District Court shall be made to High Court by the Official Liquidator attached to the first mentioned District Court, or by the Official Liquidator attached tot eh High Court, or by s creditor or contributory of the company.
(3) Notice of every application for transfer of winding-up proceedings shall be given to the Official Liquidators of both the Court from which and the Court to which the proceedings are sought to be transferred, and to the winding-up petition, and if so ordered by the Court, by advertisement in such newspapers as the Court may direct.
(4) An order transferring winding-up proceedings from the High Court to a District Court or from one District Court to another shall be in Form No. 54.
R. 120. Transmission of records upon transfer of proceeding.-----(1) Where an order is made transferring the winding-up proceedings in a High Court, the Registrar of the High Court, shall without delay, transmit the records of the proceedings together with a certified copy of the order of transfer to the Court to which the proceedings are transferred.
(2) Where the High Court makes an order withdrawing to its own file the winding-up proceedings in a District Court, the Registrar of the High Court shall forthwith forward a certified copy of the order to the said District Court, and that Court shall, on receipt of the order, dispatch without delay the records of the proceedings to the High Court.
(3) Where the High Court makes an order transferring the winding-up proceedings in a district Court to another District Court, the Registrar of the High Court forthwith forward a certified copy of the order to each of the said District Courts, and the Court whose proceedings are transferred shall, on receipt of the order, dispatch without delay the records of the proceedings to the District Court to which they are transferred.
R. 121. Proceedings to be re-numbered.----Where proceedings are transferred, they shall receive a new distinctive number in the Court to which they are transferred, but below the new number in the cause title, the previous number shall be shown in brackets as follows:
(Transferred petition No. ---------------of 20----------of the High Court/District Court of--------------)
R. 122. Notice to Official Liquidator.-----The Registrar of the Court to which the proceedings are transferred shall, on receipt of the order of transfer, give notice thereof to the Official Liquidator attached to the Court, and the said Official Liquidator shall thereupon give notice of the transfer to the Registrar of Companies
R. 123. Official Liquidator of Transferee Court to be Liquidator.----(1) Upon an order being made by the High Court, either of its own motion or upon applicable made to it as aforesaid, transferring the winding-up proceedings, the Official Liquidator attached to the Court to which the proceedings are transferred shall become the Liquidator of the Company in the place of the Official Liquidator of the Court which made the winding-up order, and the winding-up proceedings shall be continued in the Court to which the proceedings are transferred in the same manner as if the Court had passed the order for winding-up.
(2) Upon the order for transfer being made, the Official Liquidator of the Court whose proceedings are transferred shall forthwith hand over and transfer to the Official Liquidator of the Court to which they are transferred, all the property and assets and the books and papers of the company in liquidation in his hands, subject to the retention out of the costs or expenses incurred by him prior to the transfer.
STATEMENT OF AFFAIRS
R. 124. Notice of submit statement.-----A notice by the Official Liquidator requiring any of the persons mentioned in sub-section (2) of section 454 to submit and verify a statement of affairs of the company shall be in Form No. 55 and shall be served by the Official Liquidator as soon as may be after the order for winding-up or the order appointing the Official Liquidator is made.
NOTES
Sub-section (1) of section 454 prescribes the requirements of the statement of affairs and Rules 124 to 134 describe how the statement of affairs is to be filed and action taken thereon. Globe Associates P. Ltd., Re, (1987) 61 Com Cases 814; Globe Associates P. Ltd. v. P. C. Mehra, (1987) 61 Com Cases 814 (Del).
Extension of time for filling
statement of affairs
Rules 124 to 133 lay down the procedure and the manner in which notice to the persons to submit statement of affairs and for application to be moved by the official liquidator to the court for an order directing any person to furnish a statement of affairs and the manner of preparation of statement of affairs and the form of the statement of affairs. Rule 128 provides that where any person required to submit a statement of affairs under section 454 requires an extension of time for submitting the same, he shall apply in the first instance tot eh official liquidator who may, if he thinks fit, give a written certificate extending the time, which certificate shall be filed with the proceedings and where the official required to submit the statement may apply tot eh judge in chambers for extension of time on notice to the official liquidator.
Rule 132 casts a duty on the official liquidator to report the court any default on the part of any person in complying with the requirements of section 454. Rule 133 empowers the court to dispense with the requirements of section 454 if an application in that behalf supported by a report of the official liquidator showing the special circumstances, which in his opinion render such a course, desirable is filed.
A combined reading of the Act and the Rules thus shows that ordinarily within 21 days or subject to such extended time as may be granted by the official liquidator or the court, not exceeding three months, a statement as to the company in the prescribed form has to be filed by the persons concerned. A person requiring extension has to apply in the first instance to the official liquidator who may grant him extension and if he refuses to do so he may apply to the judge in chambers. Security and Finance Ltd., Re, (1974) 44 Com Cases 499 at pp. 502-503 (Del). Official Liquidator, Security and Finance P. Ltd. v. B. K. Bedi, (1974) 44 Com Cases 499 (Del).
R. 125. Application by Official Liquidator under section 454(2).---The official Liquidator may apply by summons to the Court for an order directing any person who, in his opinion, is liable to furnish a statement of affairs, under section 454, to prepare and submit a statement or concur in making the same. Notice of the application shall be served on the person against whom the order is sought. Where the Court makes the order, such order, shall be in Form No. 56 with the variations as may be necessary.
NOTES
Scope of rule
The rule does not curtail the power of the Official Liquidator to require the persons mentioned in clauses (a) to (d) of section 454(2) to submit an verify a statement of affairs of the company nor does it limit the jurisdiction of the court to give direction tot eh official liquidator in that behalf. Nambudriped (P. M. A.) v. Official Liquidator, (1979) 49 Com Cases 81 at 84 (Ker).
Former directions not liable
Former directors of a company in winding up who did not have any of the books and paers in their possession were not liable to file a statement of affairs. Official Liquidator v. Surjit Singh, (1995) 4 Comp Lj 106 (P&H).
Notice not be served by
official liquidator
Neither section 454 nor rue 125 provides that it if the duty of the official liquidator to serve a notice with respect to the filling of the statement of affairs of the company. It has been statutory made incumbent on the directors to file the statement of affairs of the company within 21 days of the appointment of the official liquidator ort within the extended time which would be more than three months, though extension of time could be granted for reasons to be recorded in writing. Official Liquidator v. Ved Gupta, (1994) 80 Com Cases 675 (P&H).
Court’s duty to give
directions
The official liquidator has to obtain the directions of the court before calling upon any one to file the statement of affairs under s. 454. The direction under s. 454 has to be a judicial direction and reading rr. 125 and 126, the court has to decide the matter and determine at the stage of the motion by the official liquidator under r. 454. There is no other stage at which any further direction can be given, and a criminal trial would not be the stage to give any proper direction. The court cannot allow the matter to drift. Devinder Kishore Mehra v. Official Liquidator, (1980) 50 Com Cases 699 at 700 (Del).
Court order for statement of
affairs
Rule 125 enables the official liquidator to move the court for an order directing an person who, in his opinion, is liable to furnish a statement of affairs under s. 454, to prepare and submit such a statement or concur in making the same, and the court to pass such an order after giving notice to the person against when the order sought. A requisition made by the official liquidator is different from an order passed by the court under r. 125, which is issued, by the court under the signature of the Registrar of the court. Rule 125 is framed with the object of compelling a person who is recalcitrant to submit the statement, or to concur thereto, be he one who has perforce to submit the statement voluntarily or one who is obliged to submit it only on being required y the official liquidator to do so. Rule 125 neither limits the power of the official liquidator to require the persons mentioned in cls. (a) to (d) of s. 454(2) to submit and verify a statement of affairs of the company, nor curtails the jurisdiction of the court to give direction to the official liquidator in that behalf and, at that stage, no question of hearing the person who is required to submit the statement arises. Where the appellants who were the directors of a company contended that the official liquidator did not apply to the court for an order directing the appellants to submit a statement of affairs as envisaged by r. 125 that he required them to file statement of affairs not after forming an opinion that they were liable to furnish such statements but as per the direction of the court and that the appellants were thus denied the opportunity to show that they were not liable to furnish statements, which they were entitled to under r. 125 of the Rules, it was held that there was no merit in any of these contentions. Poomuli Manakkal Anujan Namburipad v. Official Liquidator, (1979) 49 Com Cases 81 at p. 84 (Ker).
R. 126. Preparation of statement of affairs.-----Any person who under section 454 is required to submit and verify a statement as to the affairs of the company shall be furnished by the Official Liquidator with the necessary forms and shall be given such instructions and afforded such reasonable facilities for preparation the statement as the Official Liquidator may in his discretion consider necessary.
R. 127. Form of the statement.---The statement as to the affairs of the company to be submitted under section 454 shall be in Form No. 57 and shall be made out in duplicate, one copy of which shall be verified by affidavit. An affidavit of concurrence in the statement of affairs shall be in Form No. 58. The verified statement and the affidavit of concurrence, if any, shall be submitted to the Official Liquidator within the time prescribed by the section, or, within such extended time not exceeding three months from the ‘relevant date”, as defined in the section as the Official Liquidator or the Court may, for special reasons appoint. The Official Liquidator shall cause the verified statement of affairs and the affidavit of concurrence, if any, to be filed in the Court and shall retain the duplicate thereof for his records.
NOTES
Excuse in filling statement of
affairs
Form No. 57 shows that numerous particulars have to be given which are not easily ascertainable without reference to the books. Sub-section (2) of section 454 of the Act requires the directions to submit this statement of affairs and there is power to get a direction of the court that person other than existing directors, manager or chief officer of the company might be required to submit and verify the statement of affairs. Sub-section (4) permits the person submitting the statement of affairs to claim extension from the official liquidator in this connection. If the records of the company are easily available, there is no difficulty in complying with the provisions of this section and then it can be urged on behalf of the directions that there is a reasonable excuse for not submitting the statement of affairs. Official Liquidator, R. S. Motors P. Ltd., v. Jagjit Singh Sawhney, (1974) 44 Com Cases 381 at p. 386 (Del).
Former directors of a company in winding up who do not have any books and papers in their possession are not liable to file a statement of affairs. Official Liquidator v. Surjit Singh, (1995) 4 Comp LJ 106 (P&H).
R. 128. Extension of time for submitting statement.----(1) Where any person required to submit a statement of affairs under section 454 requires an extension of time for submitting the same, he shall apply in the firs instance to the Official Liquidator who may, if he thinks fit, give a certificate extending the time, which certificate shall be filed with eh proceedings. The certificate shall be in Form No. 59.
(2) Where the Official Liquidator refuses to grant an extension of time for submitting the statement of affairs the person required to submit the statement may apply to the Judge in Chambers for extension of time on notice to the Official Liquidator.
R. 129. Expenses of preparing the statement.------(1) Any person required to make or concur in making any statement of affairs of the company, shall submit to the Official Liquidator for his sanction, a statement, of the estimated costs and expenses of the preparation and making of the statement and shall, after the submission of the statement of affairs, submit his bill of actual expenses.
(2) Except by order of the Court, no person shall be paid out of the assets of the company any costs or expenses, which have not been sanctioned by the Official Liquidator, nor shall such costs and expenses be paid until the statement of affairs verified y affidavit has been submitted to the Official Liquidator.
(3) Any person who has not made or concurred in making the said statement and affidavit and whose bill or costs and expenses has not been allowed in full by the Official Liquidator, may, within 14 days of the notice of the order of the Official Liquidator disallowing any part of his bill, apply by summons to the Judge in Chambers upon notice to the Official Liquidator for sanction of the submit disallowed or any part thereof and the Judge may pass such order thereon as may seem just.
R. 130. Officers of company to attend and give information.-----The Official Liquidator may from time to time hold personal interviews with any such person, as is mentioned in sub-section (2) of section 454 for the purpose of investigating the company’s affairs, and it shall be the duty of very such person to attend on the Official Liquidator at such time and place as the Official Liquidator may appoint and give the Official Liquidator all information that he may require and answer all such questions as may be put to him by the Official Liquidator. The Official Liquidator shall maintain minutes of the interview held by him or memoranda containing the substance of such interviews.
R. 131. Duty of person making or concurring in statement.----After the statement of affairs of the company has been submitted to the Official Liquidator it shall be the duty of every person who has made or concurred in making it, if and when required, to attend on the Official Liquidator and answer all such questions as may be put to him, and give al such further information as may be required of him by the Official Liquidator in relation to the statement of affairs.
R. 132. Default in complying with section 454.---Any default on the part of any person in complying with the requirements of section 454 shall be reported tot eh Court by the Official Liquidator, and the Court may thereupon pass such orders or give such directions as it may think fit.
R. 133. Dispensing with statement of affairs.---An application to dispense with the requirements of section 454 shall be supported by a report of the Official Liquidator showing the special circumstances which, in his opinion, render such a course desirable. Where an order is made dispensing with the requirements, the Court may give such consequential or other directions as it may think fit.
R. 134. Liquidator in voluntary winding-up subject to supervision, to submit statement.---Where before the making of the winding-up order the company was being wound-up voluntarily or subject to the supervision of the Court, the Official Liquidator may require any liquidator and liquidators in such winding-up to furnish him, not later than 14 days of his making the requisition, or such other time as he may fix, with a statement as to the manner in which the winding-up was conducted, how the assets of the company were dealt with, and the position of the liquidation on the date of the order for winding-up by the Court; and on the requisition being made, it shall be the duty of the liquidator or liquidators so required to furnish the statement within the time limited. Where the liquidator fail to furnish the statement as required, the Official Liquidator may apply tot eh Court for such directions as may be necessary.
REPORTS BY OFFICIAL LIQUIDATOR UNDER SECTIONS 455 AND SUMMONS FOR DIRECTIONS
R. 135. Preliminary report by Official Liquidator.----The preliminary report to be submitted by the Official Liquidator sub-section (1) of section 455 shall be in Form No. 60 with such variations as may be necessary.
R. 136. Inspection of statement and preliminary report.--- Every creditor or contributory, by himself, or by his agent, shall be entitled to inspect the statement of affairs submitted under section 454 or the statements submitted by a liquidator under rule 134 of these Rules, and the preliminary report of the Official Liquidator submitted under section 455(1), on payment of a fee Re. 1 and to obtain copies thereof or extracts there from on payment of the prescribes charges.
R. 137. Further report by Official Liquidator.----(1) Where the Official Liquidator makes a further report under sub-section (2) of section 455, such report shall state whether in the opinion of the liquidator, any fraud has been committed by any person in the promotion or formation of the company or by any officer in relation to the company since its formation, and shall set out the names of the persons by whom the fraud, in his opinion, was committed and the facts on which such opinion is based. The report shall set out in a narrative the facts and the matters which the liquidator desires to bring to the notice of the Court.
(2) Where the Official Liquidator makes a further report under sub-section (2) of section 455, the Registrar shall fix a date for the consideration thereof by the Judge and notify the date on the notice board of the Court and to the Official Liquidator.
NOTES
Requirements of notice
The requirements of Rule 137(2) must be strictly complied with and notice of the consideration of the report must be given as required by that rule. If the notice, as contemplated by that rule is not given the report cannot be considered by the court. Publication in the daily list of the court is not sufficient. Lohar Valley Tea Co. Ltd., (1964) 34 Com Cases 952 (Cal).
R. 138. Consideration of report by Court.----The consideration of the report (or reports) made by the Official Liquidator pursuant to sub-section (2) of section 455, shall be before the Judge in Chambers, and the official Liquidator shall personally or by counsel attend the consideration thereof and give the Court any further information or explanation with reference to the matters contained therein which the Court may require. On a consideration of the report (or reports) the Court may pass such orders and give such directions as it may think fit including directions under section 478.
R. 139. Summons for directions to be taken out by Official Liquidator.---(1) As soon as practicable after the winding-up order is made and, in any event, not later than seven days after the filing of his preliminary report under sub-section (1) section 455, the Official Liquidator shall take out a summons for directions with regard to the settlement of the list of contributories and the list of creditors and the exercise by the Official Liquidator of all or any of the powers under section 457(1) and any other matters requiring directions of the Court. Notice of the summons shall be given tot eh petitioner o whose petition the order for winding-up was made. Upon the hearing of the summons, of the Court, after hearing the Official Liquidator and any other than person appearing on notice or otherwise may give such directions as it shall think fir in regard to the said matters, including the fixing of dates for the settlement of the list of contributories and for the filing of proofs by the creditors of the company in respect of their debts and their claims for priority, if any, under section 530.
(2) Where the preliminary report of the Official Liquidator is not filed prior to the hearing of the summons and any of the matters in the summons cannot be properly or fully dealt with, a without a perusal of such report, the Court may adjourn the hearing of any such matter or matters on the summons until after the submission of the preliminary report.
NOTES
Exercise of power under s.
457(1)(c)
The exercise of powers under s. 457(1)(c) to sell the company’s property both immovable and movable by public auction or private contract falls within the ambit of this rule. Jatan Kanwar Golcha v. Golcha Properties (P). Ltd. v. (In Liquidation), (1971) 41 Com Cases 230, 233 : AIR 1971 SC 374.
Broad construction.----The provisions of sub-rule (1) will have to be broadly construed so as to require the Liquidator to give notice to the petitioner of an application for confirmation of sale of the company’s property. Syndicate Bank v. Filed Star Cycle Industries P. Ltd., (1995) Com Cases 687 (Ker).
Directions for sale of
property
The official liquidator making a report to the court for directions under s. 457(1)(c) in regard to the exercise of the power to sell the property of the company in liquidation, ought to take out a summons for directions and notice of the summons ought to go the petitioning creditor as required by rule 139. Sale of assets of a company is certainly a matter relating to the winding up of the company and hence rule 139 is a rule providing for a matter relating to the winding up of the company and hence rule 139 is a rule providing for a matter relating to the winding up of companies which by section 460(4) is required to be prescribed within the meeting of section 643(1)(a). Giving notice of the summons for directions to the petition ring creditor and affording him an opportunity to be heard are matters of substance and not merely of from and they form the “essentials of justice”. Compliance with the requirements of rule 139 is a condition for the exercise of the power to give direction in regard to the sale of property of the company by the official liquidator. If the condition is not satisfied the court cannot exercise the power. The court would lack power and the purported exercise of the power would be no exercise at all; it would be void and of no affect East India Co. v. OL, (1970) 40 Com Cases 297 (Gujarat). Relied on in Syndicate Bank v. Filed Star Cycle Industries P. Ltd., (1995) 83 Com Cases 687 (Del).
In Punjab Finance P. Ltd. v. Malhara Singh, (1975) 45 Com Cases 254 at p. 258 (P&H) the court, however, was of the opinion that rule 139 of the Rules insofar as it relates to application made by the official liquidator to the High Court for obtaining sanction to exercise the powers mentioned I clauses (a) to (e) of section 457(1) was not necessary to be framed by the Supreme Court and, if framed, it has to be considered as merely directory and not mandatory. It is only for the guidance of the official liquidator and the court and not that its non-compliance makes a proceeding taken by the official liquidator as void or nonest or that the court has o jurisdiction to deal with the same. In the present case, the sanction of the High Court was in fact obtained.
Directions of
court not mandatory
Taking out a summons as provided in rule 139 is not mandatory. There is nothing in Form No. 4, the form for a summons for directions, to show that it is an express and specific mode and if this is not adopted the jurisdiction of the court is taken away. For ascertaining the real intention of the legislature whether a provision is mandatory, the court may consider the whole scope of the provisions. The rules themselves provide for a contingency for non-compliance with the provisions. Rule 33 lays down that no proceeding under the Act or the rules shall be invalidated by reason of any formal defect or irregularity, unless the judge before whom the objection is taken is of the opinion that substantial injustice has been caused by such effect or irregularity and that the injustice cannot be remedied. No specific injustice was pointed out in this case and even if the first ingredient of rule 139 had not been complied with, it would be merely a formal defect, which would not invalidate the order passed. Amba Tannin and Pharmaceuticals Ltd. v. OL, High Court, Bombay, (1975) 45 Com Cases 457; United Fire and General Insurance Co. Ltd. v. OL, High Court, Bombay, (1975) 45 Com cases 457 (Bombay).
COMMITTEE OF INSPECTION
R. 140. First meeting of creditors and contributories.----The meetings of the creditors and contributories under section 464 for the purpose of determining whether there shall be a Committee of Inspection; and if so, what shall be its composition, shall be convened held and conducted in the manner hereinafter provided by these rules for the holding and conducting of meetings of creditors and contributories.
NOTES
Committee of Inspection
An application for appointment of committee of inspection has to be made by Judge’s summons. Dhanraj G. Bhatia, Re, (1984) 56 Com Cases 229 (Bombay).
R. 141. Official Liquidator to report result of meeting and apply for directions.----(1_ As soon as possible after the holding of the said meetings, the Official Liquidator shall report the result thereof to the Court, Such report shall be in Form No. 61.
(2) Where the meeting of the contributories has accepted in its entirety the decision of the creditors’ meeting as regards the constitution and composition of a Committee of Inspection and the persons who are to be members thereof, a committee shall, subject to the provisions of section 465(1), be constituted in accordance with such decision, and the Official Liquidator shall set out in his report the names of the numbers of the Committee so constituted.
(3) Where the meeting of the contributories has not accepted the decision of the creditors’ meeting in its entirely, the Official Liquidator shall, at the time of making his report as aforesaid, apply to the Court for directions as to whether there shall be a Committee of Inspection, and if so, what shall be its composition, and who shall be the members thereof, and the Court shall thereupon fix a date for the consideration of the resolution and determination of the meetings of the creditors and contributories. Notice of the date so fixed shall be advertised by the Official Liquidator in such manner as the Court shall direct not less than seven days before the date fixed. The advertisement shall be in Form No. 62.
(4) On the date fixed for hearing of the said application for directions, the Court may, after hearing the Official Liquidator and any creditor or contributory who may appear, appoint a Committee of Inspection, or dispense with the appointment of a Committee of Inspection, or pass such orders or give such directions in the matters, as the Court may think fit.
R. 142. Application for order not to fill vacancy in Committee.----An application by the Official Liquidator under the proviso to sub-section (9) of section 465 for an order that a vacancy occurring in the Committee of Inspection shall not be filled, shall be made upon notice to the remaining numbers of the Committee of Inspection and such other persons as the Court may direct.
R. 143. Liquidator and members of the Committee dealing with company’s assets.----Neither the Liquidator nor any member of the Committee of Inspection shall, while acting as liquidator or member of such committee I any winding-up, either directly or indirectly, by himself or any employer, partner, clerk, agent, servant, or relative, become purchaser of any part of the company’s assets, except by leave of the Court. Any such purchase made contrary to the provisions of this rule may be set aside by the Court on the application of the liquidator or of a creditor or contributory, as the case may be, and the Court may make such order as o costs as it may think fit.
R. 144. Committee of Inspection not to make profit.---No member of the Committee of Inspection shall, except under and with the sanction of the Court, directly or indirectly, by himself or any employer, partner, clerk, agent. Servant or relative, be entitled to derive any profit from any transaction arising out of the winding-up or to receive out of the assets any payment for services rendered by him in connection with the administration of the assets, or for any goods supplied by him to the liquidator for or on account of the company. Where any profit or payment has been made contrary to the provisions of this rule, such payment shall be disallowed or the profit shall be recovered, as the case may be, on the audit of the liquidator’s accounts or otherwise.
R. 145. Cost of obtaining sanction of Court.-----In any case in which sanction of the Court is obtained under the last two proceeding rules, the costs of obtaining such sanction shall be borne by the person I whose interest such sanction is obtained and shall not be payable out of the companies’ assets.
R. 146. Order sanctioning payment to Committee.---- Where the sanction of the Court to payment to a member of the Committee of Inspection for services rendered by him I connection with the administration of the Company’s asses is obtained, the order of the Court shall specify the nature of the services, and such sanction shall only be given where the service performed is of a special nature Except by the express sanction of the Court, no remuneration shall be paid to a member of the Committee for services rendered by him in the discharge of the duties attaching to his office as a member of such committee.
DEBTS AND CLAIMS AGAINST COMPANY
R. 147. Fixing a date for proving assets.----Subject to the provisions of the Act, and in a winding-up by the Court, subject to the directions of the Court, the Official Liquidator in a winding-up by the Court shall, and the liquidator in any other winding-up may, a fix certain day, which shall be not less than 14 days from the date of the notice to be given under the next succeeding Rule, on or before which the creditors of the company are to prove their debts or claims and to establish any title they may have to priority under section 530, or to be excluded from the benefit of any distribution made before such debts or claims are proved, or, as the case may be, from objecting to such distribution.
NOTES
Income-tax
matters
Rules 147 to 179 lay down an elaborate procedure for estimating and finally assessing the company’s liabilities as on the relevant date. The liquidator should firs fix a date for the filing of claims by creditors and after they are all received, he should examine and adjudicate upon them within three months (or such extended time as he court may allow) and pass orders in writing. The creditor dissatisfied with a decision can appeal to the winding up court. After the list of creditors prepared by the liquidator is filed in court, the court settles it. It is only thereafter that dividends can declared and payment effected, with the sanction of the court. Any collection of a sizeable part of the company’s assets should necessarily precede payment. Thus, the Companies Act and the Rules framed there under place legal impediments against the liquidator complying with a demand for tax within 35 days, as required under s. 220 of the I. T. Act; the liquidator functioning under the Companies Act is ot like any other assesses with freedom to deal with his or its funds. ITO, Ernakulam v. Official Liquidator, (1982) 52 Com Cases 156 at pp. 162-163 (Ker). A similar reference to the rules is o be found in Gian Devi v. Bachan Motor Financiers P. Ltd., (1988) 64 Com Cases 766 (P&H).
R. 148. Notice to creditors.---(1) The liquidator shall give not less than 14 days’ notice of the date so fixed by advertisement in one issue of a daily newspaper in the English language and one issue of a daily newspaper in the regional language circulating in the State or Union Territory concerned, as he shall consider suitable. Such advertisement shall be in Form No. 63.
(2) The Liquidator shall also give not less than 14 days’ notice of the date fixed, in a winding-up by the Court, to every person mentioned in the statement of affairs, as a creditor, whose claim to be a preferential creditor has not been established or is not admitted, or where there is no statement of affairs, to the creditors as ascertained from the books of the company and, in any other winding-up, to each person who, to the knowledge of the Liquidator, claims to be a creditor or preferential creditor of the company and whose claim has not been admitted, to the last known address or place of abode of such person. Such notice shall be in Form No. 64 or 65 as the case may be, and shall be sent to each creditor by pre-paid letter post under certificate of posting.
(3) All the rules hereinafter set out as to admission or rejection of proofs shall apply with necessary variations to any claim to priority as a preferential creditor.
R. 149. Proof of debt.----(1) In a winding-up by the Court, every creditor shall, subject as hereinafter provided, prove his debt, unless the Judge in any particular case directs that any creditors or class of creditors shall be admitted without proof.
(2) Formal proof of the debts mentioned in paragraph 9d0 of sub-section (1), of section 530 shall not be required, unless the Official Liquidator shall in any special case otherwise direct, in a winding-up by the Court.
NOTES
In Union of India v. Official Liquidator, (1983) 53 Com Cases 573 (Cal); Indian Electric Works Ltd., Re,(1983) 53 Com Cases 573 (Cal), the Central Government made a combined application under section 457(3), 528 and 539(7)(f) of the Companies Act, 1956, read with r. 7, 9, 149 and 177 of the Companies (Court) Rules, 1959, for treating the petitioner, Union of India, as a secured creditor and for the official liquidator to be directed to execute a deed of assignment and/or reconveyance in favor of the Union of India the claim and also for a return of the title deeds and the original mortgage deeds lying with the respondent in respect of immovable properties in Calcutta and delay in filing proof of debt and/or preferring the petitioner’s claim as an ordinary creditor to be condoned and for an injunction restraining the respondents from making any disbursement to any creditor out of the money lying in the hands of the respondent.
R. 150. Mode of proof and verification thereof.----A debt may be proved by delivering or sending by post to the Liquidator, an affidavit verifying the debt made by the creditor or by some person authorized by him. If the affidavit is made by a person authorized by the creditor, it shall state the authority and means of knowledge of he deponent. A creditor need not attend upon the investigation unless required to do so by the Liquidator.
R. 151. Contents of proof.-----An affidavit proving a debt shall contain refer to a statement of account showing the particulars of the debt, and shall specify the vouchers, if any, by which the same can be substantiated. The affidavit shall state whether the creditor is a secured creditor, or a preferential creditor, and if so, shall set out the particulars of the security or of the preferential claims. The affidavit shall by the liquidator.
R. 152. Workmen’s wages.---In any case where there are numerous claims for wages or accrued holiday remuneration by workmen and other employed by the company, it shall be sufficient if one proof in Form No. 67 for such claims is made either by a foreman or some other person o behalf of all such creditors. Such proof shall have annexed thereto as forming part thereof, a schedule setting forth the names of the workmen and others and the amounts severally due to them. Any proof made in compliance with this Rule shall have the same effect as if separate proofs had been made by each of the said workmen and others.
NOTES
Care for
Interest of employees
In the decision of the Supreme Court in National Textile Workers’ Union v. Ramakrishanan, (1983) 53 Com Cases 185 at p. 224 (SC) VENKATARAMIYAH J. explained the setting or scheme of the act in which this rule appears. He said : “In the Act, there are specific provisions dealing with the rights of employees of a company. Sections 417 to 420 of the Act deal with employees’ securities and provident funds and clauses (b) to (f) of section 530(1) deal with preferential payments to be made to the employees of a company in liquidation from out of its assets. Section 635-B of the act deals with the protection to which the employees are entitled during investigation into the affairs of a company. Rule 152 of the Companies (Court) Rules, 1959 (read with Form No. 67) relates to proof of arrears of workmen’s wages. The right to resist a winding up petition is not one such right”
R. 153. Production of bills of exchange and promissory notes.------Where a creditor seeks to prove in respect of a bill exchange, promissory note or other negotiable instrument or security of a like nature on which the company is liable, such bill of exchange, note, instrument or security shall be produced before the Liquidator and be marked by him before the proof is admitted.
R. 154. Value of debts.----The value of all debts and claims against the company shall, as far as is possible, be estimated according to the value thereof at the date of the order of the winding-up of the company or where before the presentation of the petition for winding-up, a resolution has been passed by the company for voluntary winding-up, at the date of the passing of such resolution.
NOTES
An appeal was filed by a State Financial Corporation against the order of Official Liquidator disallowing its claim in respect of certain items. In respect of the claim of the appellant for expenses and interest from the order passed by the official liquidator, the court found that the said order was neither speaking nor the provisions of law were considered. With regard to expenditure incurred the estimate incurred the estimate has to be made in accordance with rule 154 of the Companies (Court) Rules, 1959, and for the purpose of interest provisions exist under rule 156 of the said rules. The responsibility remains of the creditor for proving the debt. I the order of the official liquidator though it is mentioned that entries in respect of expenditure are not existing in the books of the company in liquidation, it has to be seen as to whether the creditor has been able to establish the claim and the same is the position in respect of interest as to under law how much interest could be allowed. It was held that the order of the official liquidator in this regard cannot be sustained. Rajasthan Financial Corporation v. Official Liquidator, Jaipur Spg. & Wvg. Mills Ltd., (1997) 88 Com Cases 192 (Raj).
It is true that under this rule and Form 35(1), the status of creditor is to be recognized as it existed on the date of winding up order. But, by substituting one creditor with the other does not mean change I the status of the creditors as it existed on the date of winding up order. Seth (H.L.) v. Wearwell Cycle Co. (India) Ltd., (1992) 8 Corpt LA 58 (Del-DB).
R. 155. Discount.-----A creditor proving his debt shall deduct there from all trade discounts, if any.
R. 156. Interest.----On any debt or certain sum payable at a certain time or otherwise, whereon interest is not reserved or agreed for, and which is overdue at the date of the winding-up order, or the resolution as the case may be, the creditor may prove for interest at a rate not exceeding four per cent per annum up to that date from the time when the debt or sum was payable, if the debt or sum is payable by virtue of a written instrument at a certain time, and if payable otherwise, then from the time when a demand in writing has been made, giving notice that interest will be claimed from the date of demand until the time of payment.
NOTES
Claim for
interest after winding up
Where the applicant contended that it is entitled to interest after the winding up also to be calculated at the rate of 4 per cent per annum under rule 156, deals with cases where there is no contract regarding the payment of interest. That rule has no application at all and that rule does not enable a secured creditor to get interest after the date of winding up. Kerala Financial Corpn. V. Official Liquidator, High Court of Kerala, (1996) 87 Com Cases 183.
Wages of
workmen
In haryana Financial Corporation v. PNB Auto Ancillary (India) Ltd., (1994) 81 Com Cases 588 (Del), the following observations may be noted:
The same rules as are set out in section 529 about the valuation of annuities and future and contingent liabilities as are provided under law of insolvency in determining the future liability of the insolvent would apply in the case of companies under liquidation also. The liability relating to interest also and that has been dealt with under section 48 (sic). It is clear from the provisions of sub-section (6) of section 28 of the Provincial Insolvency Act that what is left unimpaired is only the power of the secured creditor to realize or otherwise deal with its security and not the effect of insolvency on the chargeability of interest which is governed by the provisions of section 48 of the said Act and also under the Companies Act in the case of a company I liquidation by rules 156 and 179 of the Companies (Court) Rules. For the purpose of this case, it is sufficient to hold that the claims of the wages of workmen as on the date of winding up shall rank pri passu with the claim of secured creditor, the appellant in the present case, as their claims stood on the date of winding up. Future interest cold be paid in terms of the decree in case any surplus is available for distribution after meeting the claims of the workers for their wages and those of other creditors. This would be only just and equitable way to deal with to deal with the present case. That also appears to be in consonance with the legislative u\intent.
Workmen’s dues in the winding up of a company have priority over all other debts along with debts due to secured creditors to the extent that such debts rank under clause (c) of the proviso to sub-section (1) section 529 of the Act pari passu with workmen’s dues. When such dues are required to be paid by the liquidator and any interest is calculated., the rules come into operation. Rule 156 has put a ceiling on the rate of interest not exceeding 4 per cent per annum from the date the sum or debt becomes payable by virtue of a written instrument and it payable otherwise, then from the time when the demand I writing has been made. Subsequently, interest, however, is again limited to the sum not exceeding for percent per annum. The interest thus grated by the learned single judge in the instant case is contrary to the law and instead of 12 per cent as allowed by the learned single judge, it has be limited to 4 per cent from the date of the notice of payment up to the date of winding up order until paid for the reasons of the aforesaid rule. Anthony Raj (S) v. A. Shanmugam, 1994) 80 Com Cases 531 (DB---Mad). In this case, the learned single judge placed reliance on a judgment of the Supreme Court in the case of State of Kerala v. M. Padmanabhan Nair, AIR 1985 SC 356, to say that o the wages that have remained unpaid, the employee should be paid interest at the rate of 12 per cent per annum. The Supreme Court has considered the case of a Government servant who is entitled to pension and gratuity and has said that if the employer is found to have defaulted in the payment of pension and gratuity beyond a reasonable period of two months, the liability to pay penal interest o the dues at the current market rate would commence.
R. 157. Periodical payments.----When any rent or other payment falls due at stated period, and the order or resolution to wind-up is made at any time other than one of those periods, the persons entitled to the rent or payment may prove for a proportionate part thereof up to the date of winding-up order or resolution as if the rent or payment accrued due from day to day. Provided that where the Liquidator remains in occupation of the premises demised to a company which is being wound-yup, nothing herein contained shall prejudice or affect the right of the land board of such premises to claim payment by the company, or the liquidator, of rent during the period of the company’s or liquidator’s occupation.
NOTES
Payment of
rent
The following statement of the meaning and effect of the rule appears in S.S. Chawlas & Co. v., Globe Motors Ltd., (1987) 62 Com Cases 815 at pp. 820-821 (Del) : “The meaning of the proviso to this rule is that the land board is entitled to payment in full of rent accrued due after the commencement of winding up if the liquidator’s “remains I occupation of the premises demised to a company”, and nothing more is necessary to be shown”. The Supreme Court in Official Liquidators, U.P. Union Bank Ltd. (In Liquidation) v. Rameshwar Nath Agarwal, (1960) 30 Com Cases 114, 117: AIR 1960 SC 332, 333, explained the meaning of rule 97 as follows: “The operative part of the rule deals with the rent or other payment in arrears till the date of winding up. By the proviso, it is declared that the right of the land board to claim payment by the company of the rent accruing due thereafter is not to be prejudiced. The proviso merely affirms the right of the land board to claim payment of rent accruing due since the date of winding up. It does not deal vith any question of priority in payment of debts.”
R. 158. Proof of debt payable at a future time.---A creditor may prove for a debt not payable at the date of the winding-up order or resolution, as if it were payable presently, and may receive dividends equally with the other creditors, deducing only there out a rebate of interest at the rate of four per cent per annum computed from the date of declaration of the dividend to the time when the debt would have become payable according to the terms on which it was contracted.
R. 159. Examination of proof.------The Liquidator shall, with all convenient speed, examine every proof of debt lodged with him and the grounds of the debt. He may call for the production of the vouchers if any referred to I the affidavit of proof or require further evidence in support of the debt. If he requires further evidence, or requires that the creditor should attend the investigation in person, he shall fix a day and time at which the creditor is required to attend or to produce further evidence in support of the debt. If he requires further evidence, or requires that the creditor should attend the investigation in person, he shall fix a day and time at which the creditor is required or to produce further evidence and send a notice to such creditor in Form No. 68 by pre-paid registered post so as to reach him not later than 7 days before the date fixed.
R. 160. Official Liquidator’s right to summon any person I connection with the investigations.----The Official Liquidator in a winding-up by the Court may summon any person whom he may deem capable of giving information respecting the debts to be proved in liquidation and may require such person to produce any documents in his custody or power relating to such debts and shall tender with the summons such sum as appears to the Official Liquidator sufficient to defray the traveling and other expenses of the person summoned for one day’s attendance. Where the person so summoned fails without lawful excuse to attend or produce any documents I compliance with the summons or avoids or evades service, the Official Liquidator may apply to the Court for the issue of a warrant for the apprehension of such person and the production before him of such documents as may be required, or for other appropriate orders.
NOTES
In the exercise of the power under this rule Official Liquidator summoned the Collector of the town for information as to the property of the company. It was held that the Collector was bound to appear and to make complete disclosures. As a special case the Collector was allowed to appear before the court in chambers. Ram Chandra Yadav v. Pipraich Sugar Mills Co. Ltd., (1992) 73 Com Cases 548 (All).
R. 161. Oaths.---For the purpose of his duties I relation to the admission of proof of debts the Official Liquidator may administer oaths and take affidavits.
R. 162. Costs of proof.----Unless otherwise ordered by the Judge, a creditor shall bear the costs of proving his debt.
R. 163. Acceptance or rejection of proof to be communicated.----After such investigation as he may think necessary, the liquidator shall in writing admit or reject the proof in whole or in part. Every decision of the Liquidator accepting or rejecting a proof, either wholly or in part, shall be comminuted to the creditor concerned by post under certificate if posting where the proof is admitted and by registered post for acknowledgment where the proof is rejected wholly or in part, provided that it shall not be necessary to give notice of the admission of a claim to a creditor who has appeared before the Liquidator and the acceptance of whose claim has been communicated to him or his agent in writing at the time of acceptance. Where the Liquidator rejects a proof, wholly or in part, he shall state the grounds of the rejection to the creditor in Form No. 69. Notice of admission of proof shall be in Form No. 70.
NOTES
Removal
of liquidator for wrongful rejection of claims
Under rule 163 the liquidator is duty bound either to accept or reject the proof in support of the claim filed by the creditors either in whole or in part. Every decision of the liquidator accepting or rejecting a proof, either wholly or in part has to be communicated to the creditor concerned by post under postal certificate where the proof is admitted and by registered post for acknowledgement where the proof is rejected. The order passed under rule 163 is made appeal able under rule 164, and non-action on the part of the liquidator to determine the rights rules (sic) has rightly given rise to an apprehension in the minds of the creditors in this case that their interest and that of the company in liquidation is no safe in the hands of the liquidator and further that an official liquidator be appointed I his place to conduct the affairs of the company liquidation under the supervision of this court. The court ordered for removal of the liquidator and for the appointment of official liquidator as the liquidator. Amar Nath kishan Lal v. Hindustan Forest Co. (Pvt.) Ltd., (1993) 77 Com Cases 128 (P&H).
Reasons
to be given for rejecting a claim
Under this rule, the official liquidator can accept the proof or reject the proof of partly accept and partly reject and the proof when a claim is made. He is not required to give reasons when he accept the proof but when he rejects a proof, he shall state the grounds of rejection in Form No. 69. In the instant case, Form No. 70, an order admitting a claim was issued instead of Form 69 for a party admitted claim without giving any reasons. The matter was remanded back to the official liquidator for a fresh decision. Capital Chit Fund P. Ltd., Re, (1974) 44 Com Cases 547, 549, 550 (Del).
R. 164. Appeal by creditor.----If a creditor is dissatisfied with the decision of the Liquidator in respect of his proof, the creditor may, not later than 21 days from the date of service of the notice upon him of the decision of the Liquidator, appeal to the Court against the decision. The appeal shall be made by a Judge’s summons, supported by an affidavit which shall set out the grounds of such appeal, and notice of the appeal shall be given to the Liquidator. On such appeal, the Court shall have all the powers of an appellate Court under the Code.
NOTES
A creditor (Sales Tax Officer I this case) who is not satisfied with the treatment given to his claim by the liquidator can file his appeal before the Company Judge under Rule 164. Rajratna Naranbhai Mills Co. Ltd. v. STO, (1991) 71 Com Cases 149 (SC).
Appeal
by creditors in the context of S. 446
The role of rule 164 as to the mode of proving debts has been explained in Vinod Motors P. Ltd., Re, (1978) 48 Com Cases 462; Sushil Prasad v. OL, Vinod Motors P. Ltd., (1978) 48 Com Cases 462 (Del) at p. 463.
The scheme of the Companies Act is that debts have to be proved under section 528 of the Act. The procedure for dealing with these matters is set out in the Companies (Court) Rules, 1959. Unfortunately, the procedure is such that the debt has to be proved before the official liquidator, who also represents the indebted company. The decision of the official liquidator, therefore, amounts to a decision I his own favor, because he acts not only as the representative of the company in liquidation, but also acts as a court whose decision is subject to appeal to this court. In such a case it is difficult for the rights of the parties to be properly worked out, because one party appears before the otter party. The result is that both the material as well as the conclusions are incomplete and also liable to be unsound. This court sitting in appeal under rule 164 is limited by the record with the official liquidator. The present case involves a very substantial amount and the court would not like to decide a claim of this type in this manner.
Rule 164 is meant to cover disputes between the official liquidator and the claimant relating to the quantum of the debt rather than the nature of the debt and an appeal under the rule is not suitable in a case in which the dispute relates not to the amount of the debt but to inter se priority or its preferential nature in relation to the other creditor of the company. That is a matter which has to be decided by the court on an application under section 446(2) of the Companies Act, 1956, and for which application leave of the court has first to be sought under section 446(1).
Appeals
against rejection of claim
When, the provision of sub-section (6) of section 460 of the Act is read with rule 164, it become quite clear that there is justifications for the argument that the appeal is really by way of an application n for the scrutiny, by the court, of the decision complained against. There is no requirement that this right or opportunity is subject to any rigid rules of procedure for, while rule 164 provides that, on the presentation of an appeal, the court shall have all the powers of an appellate court under the Code in Civil Procedure it does not go on to provide further that the rigid of procedure contained in the Code in respect of an appeal shall be applicable to such appeals also. While considering an appeal against the rejection of a creditor’s proof, the court is at liberty to consider any additional evidence that may be led by the parties. Bharatpur Oil Mills P. Ltd., Re, (1969) 39 Com Cases 670 (Raj); Babulal Rukmanand v. Official Liquidator, (1969) 39 Com Cases 670 (Raj).
Appeal
against official liquidator’s rejection of State priority
In State of Kerala v. Kerala Transport Corpn., (1967) 37 Com Cases 538 (Ker) the State filed an application under rule 164 by way of an appeal against refusal by the official liquidator to give priority to the State dues I respect of claims other than taxes.
R. 165. Procedure where creditor appeals.----(1) The liquidator shall, upon receiving notice of the appeal against a decision rejecting a proof wholly or in part, file with the Registrar such proof with the order containing the grounds of rejection.
(2) It shall be open to any creditor or contributory to apply to the Court for leave to intervene in the appeal, and the Court may, if it thinks fit, grant the leave subject to such terms and conditions as may be just. Where such leave has been granted notice of the meaning of the appeal shall be guven to such creditor or contributory.
R. 166. Official Liquidator not to be personally liable for costs.---The Official Liquidator shall in no case be personally liable for costs I relation to an appeal from his decision rejecting any prrof wholly or in part.
R. 167. Proofs and list of creditors to be filed in Court.----In a winding-up by the Court, the Official Liquidator shall, within three months from the date fixed for the submission of proofs, under Rule 147 of these Rules or such further time as the Court may allow, file in Court a certificate in Form No. 71 containing a list of the creditors who submitted to him proofs of their claims in pursuance of the advertisement and the notices referred to in Rule 148, the amounts of debt for which they claimed to be creditors, distinguishing I such list the proofs admitted wholly, the proofs admitted or rejected in part, and the proofs wholly rejected. The proofs, with the memorandum of admission or rejection of the same in whole or in part, as the case may be, endorsed thereon, shall be filed in Court along with the certificate.
R. 168. List of creditors not to be varied. -----The list as certified by the Official Liquidator not filed in Court shall be the list of the creditors of the company, and shall not be added to or varied except under orders of Court and in accordance with such orders. Where an order is made adding to or varying the list of creditors, the Official Liquidator shall amend the list in accordance with such order.
R. 169. Notice of filling the list and inspection of the same.----Upon the filing of the certificate containing the list of creditors as settled by the Official Liquidator, the Registrar shall notify the filing thereof on the Court notice board, and the certificate and the creditors as settled and the proofs relating thereto shall be open to the inspection of every creditor or contributory on payment of a fee of one rupee.
R. 170. Procedure in the District Court regarding proof of claims.----Rules 163 to 169 of these Rules shall not apply to proceedings in a winding-up in the District Court and in lieu thereof Rules 171 to 175 of these Rules shall apply.
R. 171. List of proofs and summons for directions.----Where the winding-up is in a District Court, the Official Liquidator attached to the Court shall, after such investigation as he may think necessary, make out and file I the Court, within two months of the date fixed for submissions of proofs under Rule 147 of these Rules, or within such extended time as the Court may allow, a list verified by his affidavit of all the debt sand claims sent to him, distinguishing in such list which of the debts and claims or parts thereof are in his belief justly due and proper to be allowed without further evidence, without the reasons for his belief, and which of them ought to be proved by the creditors, and shall also file with the list all the proofs and the evidence received by him from the several creditors in connection with their claims. He shall at the same time take out a summons for the statement of the list of creditors by the Court. The affidavit verifying the list shall be in Form 72 and the summons shall be in Form No. 73.
R. 172. Direction at hearing of summons.-----It shall not be necessary to issue notice of the summons in the first instance and the summons shall posted before the Court for directions together with the list of creditors and the affidavit verifying the same, filed by the Official Liquidator. Upon the hearing thereof, the Court may allow such of the debts and claims or such parts thereof as in the opinion of the Court do not require further proof such of he debts and claims or part thereof as in the opinion of he Court require to be proved by the claimants. The Court shall fix a date for the adjudication of the claims which are to be proved, and shall adjourn the summons to the date so fixed.
R. 173. Notice to be given to creditors.-----Not less than 14 days before the date fixed for the proof of claims under the last preceding Rule, the Official Liquidator shall give notice by registered post individually to each of the creditors who are required to prove their debts or claims or parts thereof, as the case may be, to come in and prove before the Court on the date fixed. Such notice shall be in Form No. 74. The Official Liquidator shall also give notice of the admission of their claims by post individually to the creditors whose claims have been admitted.
R. 174. Settlement of list of creditors.-----On the date fixed or on any adjourned date, the Court shall, after hearing such evidence as may be tendered, adjudicate upon the claims and settle the list of creditors. The settlement of the list of creditors shall be recorded in a certificate signed by the Judge in Form No. 75.
R. 175. Inspection of the list of creditors and the proofs filed.-----The list of creditors as settled and the proofs fled shall be open to the inspection of every creditor and contributory on payment of a see of the rupee.
R. 176. Expunging of proof.-----(1) If after the admission of a proof, the Liquidator has reason to think that the proof has been improperly admitted by a mistake, he may apply to the Court upon notice to the creditor who made the proof, to expunge the proof or reduce its amount, as the case may be.
(2) Any creditor or contributory may also apply to the Court to expunge a proof or reduce the amount thereof, if the Liquidator declines to move in the matter, and on such application, the Court may pass such orders as it may think just.
NOTES
Application
by liquidator for expunction of proof admitted improperly or by mistake
Such an application was allowed in Gauri Shankar Jalan v. OL, Dawn Watch Co. ltd., (1965) 1 Comp LJ 99 (All). In a subsequent ruling on the subject, viz., Sri Mukund Nath v. Official Liquidator, (1965) 1 Comp LJ 248 the Court said that rule 1786 expressly empowers the Court to expunge an entry relating to proof of a debt. The power conferred by the said rule is analogous to the power of review. When a Court exercise the power of review, no consideration relating to res judicata will arise. The words “the proofs has been improperly admitted or admitted by mistake” in rule 176 are comprehensive enough to cover mistakes of fact and law. The rule will also apply where the Official Liquidator failed on the initial occasion in consider the question of limitation, but came to consider that point subsequently.
R. 177. Procedure on failure to prove the debt within the time fixed.---If any creditor fails to file p[roof of his debt with the Liquidator within the time specified in the advertisement referred to in Rule 148, such creditor may apply to the Court for relief, and the Court may thereupon, adjudicate upon the debt or direct the Liquidator to do so.
NOTES
Filling of claims after the fixed by
liquidator/court
In Ganeshilal Gupta v. Bharatpur Oil Mills, 1972 Tax LR 2363 (Raj) a claim was filed after a long period o ftime and the court proceeded as follows (p. 2364):
Where there has been a long delay in filing the proof, but the claim is within the period of limitation prescribed by the Limitation Act, the only consequence of the delay will be that prescribed by section 474 of the Companies Act according to which a creditor, who does not prove his debt or claim within the time fixed by the Court, has to be excluded from the benefit of any distribution made before his debt or claim is proved. A perusal of Rules 177 and 178 lends support to this view, for the reason that while Rule 177 provides for relief by the Court to a creditor who fails to file proof within the prescribed time-limit, Rule 178 lays down that a creditor who has not proved his debt before the declaration of any dividend shall not be entitled to disturb the distribution of any dividend declared before the proof of his debt by reason of the fact that he did not participate in it. He is however, entitled to be paid out of any money for the time being in the hands of the Liquidator available for distribution of dividend. The scheme of the law therefore does not prescribe any other penalty in the case of a belated claim. The court is fortified in this view by the decision in Re, General Rolling Stock Co., (1872) 7 Ch A 646. There the winding up order was made in February, 1865 and the certificate of debts and claims was made in December, 1870. A dividend was paid on the established debts I January., 1871. I March, 1871, the holder of some bills of exchange to a large amount, which had become payable in February, 1865, gave the first notice of his claim and applied for leave to prove, not disturbing the previous dividends. It was held on appeal that he was entitled to do so without distributing the previous dividends. A similar point arose for consideration in Re, Metcalfe, (1879) 13 Ch D 236, and it was held that a creditor may come in as long as there are undistributed assets still available. That decision was followed in Kit Hill Tunnel, Re, (1881) 16 Ch D 590. The position of the law on the point is thus quite clear and has been stated as follows in BUCKLEY ON THE COMPANIES ACTS, (544, 13th Edition):
“A creditor may come in and prove at any time before the company is dissolved; the penalty of not coming I before the day fixed by the Court is not exclusion altogether, but exclusion from the benefit of any distribution made before proof.” The same view has been expressed in PALMER’S OMPANY LAW, (761, 21st Edition). Reference may also be made to the decisions in Isack Josudasen Pillai v. Divan Bahadur Ramaswamy Chetty, (1904) ILR 27 Mad 496, which appears to have been based on the decision in Re, General Rolling Stock Co., (1872) 7 Ch A 646, and to T.R. Rajakumari v. Motion Picture Producers Combine Ltd., (1942) 12 Com Cases 113 : AIR 1942 Mad 349. It is thus a well-settled proposition of the law that a creditor may come in and prove his debt at any time before the final distribution of the assets, but he cannot disturb any dividend, which has already been paid..
R. 178. Right of creditor who has not proved debt before declaration of dividend.---Any creditor who has not proved his debt before the declaration of any dividend or dividends shall be entitled to be paid out of any money for the time being in the hands of the Liquidator available for distribution of dividend, any dividend or dividends which he may have failed to receive before that money is applied to the payment of any future dividend or dividends, but he shall not be entitled to disturb the distribution of any dividend declared before his debt was proved by reason that that he has not participated therein.
R. 179. Payment of subsequent interest.---In the event of there being a surplus after payment in full of all the claims admitted to proof, creditors whose proofs have been admitted shall be paid interest from the date of the winding-up order or of the reduction as the case may be, up to the date of the declaration of the final dividend, at a rate not exceeding 4 per cent per annum, on the admitted amount of the claim, after adjusting against the said amount the dividends declared as on the date of the declaration of each dividend.
NOTES
Rule
not apply to secured creditors
This rule does not apply to secured creditors who have elected to rely on the security I view of the provisions contained in the Presidency Towns Insolvency Act read with section 529 of the Act. A. Shanmugam v. Official Liquidator, (1992) 75 Com Cases 181 at 187 (Mad).
“The learned judge was of the view that there was a reasonable chance of paying the ordinary creditors also I full, that after such payment there would be surplus which could be distributed among the preferential creditors as provided I rule 179.” NAP Alagiri Raja v. N. Guruswami, (1989) 65 Com Cases at p. 763.
The workmen are entitled to claim interest from the date of the winding up order till the date of realization of the security from which they are to be paid. A Shanmugham v. Official Liquidator, (1992) 75 Com Cases 181 (Mad). Affirmed in Anthony Raj (S). v. A. Shanmugam (1994) 80 Com Cases 531 (Mad—DB).
See also Notes under rule 156.
SETTLEMENT OF THE LIST OF CONTRIBUTORIES INA WINDING-UP BY THE COURT
R. 180. Provisions list of contributories.----(1) Unless the Court dispenses with the settlement of a list of contributories, the Official Liquidator shall prepare and file in the Court not later than 21 days after the date of the order on the application for directions referred to in Rule 139 of these Rules, a provisional list of contributories of the company with their names and addresses, the number of shares or the extent of interest to be attributed to each contributory, the amount called up and the amount paid up in respect of such shares or interest, and distinguishing in such list the several classes of contributories.
(2) The list shall consist of every person who was a member of the company at the commencement of the winding-up or his representative, and shall be divided into two parts the first part consisting of those who are contributories in their own right, and the second part, of those who are contributories as being representatives of, or liable for the debts of, others. The lists shall be in Form No. 76.
R.181. Notice to be given of date of settlement of list.----(1) Upon the filing of the provisions list, the Official Liquidator shall, subject to any directions of the Judge on the application for direction referred to in Rule 189 of these Rules, fix a date not later than one month from the date of the filing of the provisional list for the settlement of the list before him, and shall give notice thereof to every person included I such list, stating in such notice in what character and for what number of shares or extent of interest such person is included in the list, the amount called up and the amount paid up I respect of shares or interest. Such notice shall be in Form No. 77 and shall be sent by pre-paid letter post under certificate of posting to every person included in the list at the address mentioned therein so as to reach him in the ordinary course of post not later than 14 days before the date fixed for the settlement.
(2) The person who posted the notices shall swear to an affidavit n Form No. 78 rearing to the dispatch thereof and the affidavit shall be filed with the proceedings.
NOTES
The requirement of the rules as to posting of notice was not given any importance when the notice was actually delivered I accordance with the time requirements. If the notice had not been delivered at all, the deviation from the prescribed method of posting would have gained importance. Pure Milk Supply Co. Ltd. v. Hari Singh, (1963) 33 Com Cases 459 (Punj).
R. 182. Settlement of the list.----On the date fixed for the settlement of the list, the Official Liquidator shall hear any person who objects to being settled as a contributory or to being settled as a contributory in such character or for such number of shares or extent of interest as is mentioned in the provision list, and after such hearing, shall finally settle the list. The list when so settled shall be the list of contributories of the company.
R. 183. Certificate of final settlement to be filed in Court.---Within 7 days after the settlement of the list the Official Liquidator shall file in Court a certificate of the list contributories as finally settled by him. Such certificate shall be in form No. 79.
R. 184. Notice of settlement to contributories.---(1) Upon the filing of the certificate, the Official Liquidator shall forthwith give notice to every person placed on the list of contributories as finally settled, stating in what character and for what number of shares or interest he has been placed on the list, what amount has been called up and what amount paid up in respect of such shares or interest and in the notice he shall inform such person that any application for the removal of his name from the list or for a variation of the list, must be made to the Court within 21 days from the date of service on the contributories of such notice.. Such notice shall be in form No. 80, and shall be sent to each person settled on the list by pre-paid registered post for acknowledgement at the address mentioned n the list as settled.
(2) An affidavit of service relating to the dispatch of the notices to the contributories under this Rule shall be sworn to by the persons who dispatched the said notices and shall be filed Court within 14 days of he filing by the Official Liquidator of his certificate of the list of contributories under Rule 153 183 of these rules. Such affidavit shall be in Form no. 81.
R. 185. Supplemental list of creditors.------The Official Liquidator may from time ad to the list of contributories by a supplemental list or lists and any such addition shall be made I the same manner in all respects as the settlement of the original list. A supplemental list shall be in Form No. 82.
R. 186. Variation of list.-----(1) Save as provided in the list preceding Rule, the certificate of the list of contributories shall not be varied, and no person settled on the list as a contributory shall be removed from the list, or his liability in any way varied, except by order of Court and in accordance with such orders.
2. Where the Court makes an order varying the list of contributories, the Official Liquidator shall amend the list in accordance with the order of the Court.
R. 187. Application by Official Liquidator for rectification of list.-----If after the settlement of the list of contributories the Official Liquidator has reason to think that a contributory who had been included in the provisional list has been improperly or by mistake excluded or omitted from the list of contributories as finally settled or that the character in which or the number of shares or extent of interest for which he has been included in the list as finally settled or any other particular contained therein requires rectification in any respect, he may, upon notice to the contributory concerned, apply to the Court for such rectification of the list as may be necessary and the Court may, on such application, rectify or vary the list as it may think fit.
R. 188. Application by contributory to vary the list.----Subject to the power of the Court to extend the time or to allow an application to be made notwithstanding the expiration of the time limited for that purpose, no application to the Court by any person who objects to his being settled on the list of contributories as finally settled by the Official Liquidator shall be entertained after the expiration of 21 days from the date of services on such person of the notice of the settlement of the list. An order varying a list of contributories shall be in Form No. 83, and an order rectifying the Register of Members and the list contributories shall be in Form No. 84.
R. 189. Official Liquidator not to be personally liable for costs.---The Official Liquidator shall not in any case be personally liable to pay any costs of, or in relation to, an application to set aside or vary his act or decision settling the name of a person on the list of contributories of a company.
R. 190. Settlement of the list of contributories in District Courts.---Where winding-up proceedings are heard in a District Court, the Court shall settle the list of contributories and Rules 181 to 1`89 of these Riles shall not apply and in lieu thereof Rules 191 to 194 of these Rules shall apply to proceedings in a district Court.
R. 191. Notice to be given of date of settlement.---(1) In a District Court, upon the filing of the provisional list of contributories mentioned in Rule 180, the Official Liquidator shall obtain an appointment from the Judge to settle the list, and shall give notice of he date appointed to every person included in such is included in the list, the amount called up and the amount paid up in respect if such shares or interest, and informing such person by such notice that if he intends to object to his being settled as a contributory in such character and for such number of shares or interest as mentioned in the list, he should file in Court his affidavit if any in support of his contention sand serve a copy of the same on eh Official Liquidator not less than 2 days before the date fixed for the settlement, and appear before Court on the date appointed for the settlement in person or by advocate. Such notice shall be in Form No. 85, and shall be sent by registered post for acknowledgement to every person included in the list so as to reach him in the ordinary course of post not less than 14 days before the date fixed for the settlement.
(2) The person who posted the notices shall sear to an affidavit in Form No. 78 relating to the dispatch thereof, and file the same in Court not later than 2 days before the date fixed for the settlement of the list.
R. 192. Settlement of the list.----On the date appointed for the settlement of the list the Court shall hear any person who objects to being settled as a contributory or as a contributory I such character or for such number of shares or extent of interest as is mentioned in the list, and after such hearing, shall finally settle the list. The list when settled shall be certified by the Judge under his signature and shall be in Form No. 86.
R. 193. Supplemental list of contributories.----The Court may from time to time add to the list of contributories by a supplemental list or lists and any such addition shall be made in the same manner I all respects as the settlement of the original list.
R. 194. Application for rectification of list.----if after the settlement of the list of contributories the Official Liquidator has reason to think that a contributory who had been included in the provision list has been improperly or by mistake included or omitted from the list of contributories as finally settled or that the character in which or the member of shares or extent of interest for which he has been included in the list as finally settled or that the character in which or the number of shares or extent of interest for which he has been included in the list as finally settled or any other particular contained therein, requires rectification in any respect, he may, upon notice to the contributory concerned, apply to the Court for such rectification of the list as may be necessary, and the Court may on such application, rectify or vary the list as it may think fit.
R. 195. List of contributories consisting of past members.-----It shall not be necessary to settle a list of contributories of past members of a company, unless so ordered by the Court. Where an rider is made for settling a list of contributories consisting of the past numbers of a company, the provisions of these Rules shall apply to the settlement of such list in the same manner as they apply to the settlement or their list of contributories consisting of the present members.
R. 196. List of contributories under section 104(1)(b).----Where, on the application of a creditor made under section 104(1)(b) the Court thinks for to direct that a list of persons liable to contribute to his debt or claim be settled, such lists shall be settled in the same manner as a list of ordinary contributories of a company in a winding-up.
GENERAL MEETINGS OF CREDITORS AND CONTRIBUTORIES IN A WINIDNG-UP BY COURT AND OF CREDITORS IN A CREDIOTR’S VOLUNTARY WINDING-UP
R. 197. ‘Court meetings’ ‘Liquidators’ meetings’ and ‘Voluntary Liquidation meetings’.----(1) In addition to the meetings of creditors and contributory which may be directed to be held by the Court under section 557, hereinafter referred to as Court meetings of creditors and contributories, the Official Liquidator may, in a winding-up by the Court, as and when he thinks fit, summon and hold meetings of the creditors and contributories, hereinafter referred to as Liquidator’s meetings of creditors and contributories, for the purpose of ascertaining their wishes in all matters relating to the winding-up and such meetings shall be summoned, held and conducted in the manner provided by these Rules and subject to the control of the Court.
(2) In a creditor’s voluntary winding-up, the liquidator from time to time summon, hold and conduct meetings of creditors for the purpose of ascertaining their wishes in all matters relating to the winding-up----(Such meetings and all meetings of creditors which a liquidator of a company is by the Act required to convene in or immediately before such a voluntary winding-up and all meetings convened by a creditor in a voluntary winding-up under these Rules are hereinafter called voluntary liquidation meetings).
NOTES
Court
can allow any person to attend meting
This rule states that certain persons shall be entitled to be present. This means that they have a legal right to be present. Though a creditor or contributory has no legal right to be present, in an appropriate case, the court may allow them to be present although they are not entitled they are not entitled to do so as a matter of right. Shankaralal Agarwalla v. Satyanarain Jugal Kishore, (1967) 37 Com cases 146 at 155 : AIR 1967 Cal 1. (See also Rule 247(2)).
R. 198. Application of Rules to meetings.---Except where and so far as the nature of the subject-matter or the context may otherwise require, the Rules as to meetings as hereinafter set at shall apply to Court meetings, Liquidator’s meetings of creditors and contributories voluntary liquidation meetings, provided that in the case of Court meetings, the Rules shall apply only subject to any directions given by the Court.
R. 199. Notice of meetings.---(1) The liquidator shall summon all meetings of creditors and contributories by giving not less than 14 days notice of the time and place appointed for the meetings by advertisement in one daily newspaper in the English language and one daily newspaper in the regional language circulating in the State or Union Territory concerned as the liquidator may consider suitable, and by secondary of the company notice of the meetings of contributories, by prepaid letter post under certificate of posting so as to reach such person in the ordinary course of post not less than 14 days before the date fixed for the meeting.
(2) The notice to each creditor shall be sent to the address given in his proof or, it he has not proved, to the address given in the statement of affairs, or if there is no statement of affairs, to the address given in the books of the company, or to such other address as may be known to the person summoning the meeting. The notice to each contributory or to such other address as may be known to the person summoning the meeting.
(3) In the case of meet8ngs under section 506, the continuing liquidator, or if there is no continuing liquidator, any creditor may summon the meeting.
(4) The notices shall be in such of the Forms Nos. 87 to 91 as may be appropriate, and Forms Nos. 90 and 91 may be used suitably altered in the case of voluntary liquidation meetings.
(5) This Rules shall not apply to meetings under section 500 or 509.
R. 200. Place and time of meeting.----Every meeting shall be held at such place and time as the person convening the same considers most convenient for the majority of the creditors or contributories of both. Different times or places or both may, if thought fit, be appointed for the meetings of creditors and the meetings of contributories.
R. 201. Notice of first or other meeting to officers of company.---(1) In a winding-up by the Court, the Official Liquidator shall also give to each pf the officers of the company who in his opinion ought to attend the first or any other meeting of creditors or contributories, fourteen days’ notice of the time and place appointed for such meeting. The notice may either be delivered personally or sent by registered post for acknowledgement as may be convenient. It shall be the duty of every officer who receives notice of such meeting to attend if so required by he liquidator, and if any such officer fails to attend the Liquidator may report such failure to the Court. Such notice shall be in form No. 92.
(2) The Official Liquidator, if he thinks fit, may instead of requiring ay of the officers of the company to attend the meeting as aforesaid, require such officer to answer any interrogatories or to furbish in writing any information that he may require for purposes of such meeting, and if such officer fails to answer the interrogatories or furnish such information, he shall respect such failure to the Court.
R. 202. Proof of notice.----An affidavit by the clerk of the official Liquidator, or by any person who sent the notices, that such notices have been duly sent, shall be sufficient evidence of the notices having been sent to the persons to whom the same were addressed. In the case of Court meetings, the affidavit shall be fio3d in Court and in the case of Liquidator’s meetings; the affidavit shall be filed with the Official Liquidator. Such affidavit shall be in Form No. 93.
R. 203. Costs of calling meetings at the instance of creditor or contributory.----Where a creditor or contributory desires the liquidator to convene a meeting the liquidator may require such creditor or contributory to deposit as a condition precedent thereto a sum sufficient for the costs thereof, to be computed as hereinafter provided; and on any application to the Court by a creditor of contributory to direct the Liquidator to convene a meeting the Judge may, if he thinks fit, require the applicant to deposit a similar sum for such costs. Such sum shall include all disbursements necessary to be made for printing, stationery, postage and hire of room, to be calculated at the rate of Re. 1 for each creditor or contributory up to the first 25 creditors or contributors, 50 Poise for each creditor or contributory for the next 75 creditors or contributories, 25 Poise for each creators or contributory above the first 100 creditors or contributories. The sum so deposited shall be repaid to the person depositing the same out of the assets of the company, if the Court shall by order, or if the creditors shall by resolution, so direct.
This Rule shall not apply to meetings to be summoned by the Official Liquidator under section 460(3)(b) or to a meeting summoned at the instance of a creditor under section 506.
R. 204. Chairman of meeting.-----Where a meeting is summoned by the liquidator, the liquidator or some person nominated by him, shall be the chairman of the meeting. The nomination shall be in Form No. 94. At every other meeting of creditor or contributories, not being Court meetings of creditors and contributories, the chairman shall be such person, as the meeting by resolution shall appoint. This Rule shall not apply to meetings under section 500.
R. 205. Resolution at creditors’ meeting.-----At a meeting of creditors, a resolution shall be deemed to be passed, when a majority in number and value of their creditors present personally or by proxy and voting on the resolution have voted I favor of the resolution. In a winding-up by the Court, the value of a creditor, shall, for the purposes of a first meeting of the creditors or of a meeting held under section 464, be deemed to be the value as shown in the books of the company, or the amount mentioned in his proof, whichever is less, and for the purposes of any other meeting, the value for which creditor has proved his debt or claim.
R. 206. Resolution of contributories’ meeting.—At a meeting of the contributories, a resolution shall be deemed to be passed when a majority in number and value of the contributories present personally or by proxy and voting on the resolution have voted in favor of the resolution. The value of the contributories shall be determined according to the number of votes to which each contributory is entitled as a member of the company under the provisions of the Act, or the regulations of the company, as the case may be.
R. 207. Copies of resolutions to be filed.----In a winding-up by the Court, the Official Liquidator shall file in Court a copy certified by him of every resolution passed at a meeting of creditors or contributories. The Registrar shall keep in each case a file of such resolutions.
R. 208. Non-receipt of notice by a creditor or contributory.---Where a meeting of creditors or contributories is summoned by notice, the proceedings and resolutions at the meeting shall, unless the Court otherwise orders, be valid notwithstanding that some creditors or contributories may not have received the notice sent to him.
R. 209. Adjournments.-----The chairman may, with the consent of the meeting, adjourn it from time to time, but the adjourned meeting shall be held at the same place as the original meeting unless in the resolution for adjournment another place is specified or unless the Court otherwise orders.
R. 210. Quorum.---A meeting may not act for any purpose except for adjournment thereof unless there are present or represented thereat in the case of a creditors’ meeting at least three creditors entitled to vote or in the case of a meeting of contributories at least three contributors or all the creditors entitled to vote or all the contributories if the number of creditors entitled to vote or the number of contributories as the case may be shall not exceed three.
R. 211. Procedure in the absence of quorum…If, within half an hour from the time appointed for the meeting, a quorum of creditors or contributories, as the case may be, is not present or represented, the meeting shall be adjourned to the same day in the following week at the same time and place, or to such other day, or time or place as the chairman may appoint, but the day appointed shall be not less than 7 or more than 14 days from the day from which the meeting was adjourned. If at such adjourned meeting, a quorum be not present, two creditors or contributories present in person shall form a quorum and may transact the business for which the meeting was convened.
R. 212. When creditor can vote.----In the case of a meeting of creditors held under section 464 or of any adjournment thereof a person shall not be entitled to vote as a creditor unless he has duly lodged with the Official Liquidator not later than the time mentioned for that purpose in the notice convening the meeting, a proof of the debt which he claims to be due to him from the company. In the case of other meetings of creditors a person shall not be entitled to vote as a creditor unless he has lodged with the Official Liquidator a proof of the debt which he claims to be due to him from the company and such proof has been admitted wholly in part before the date on which the meeting is held:
Provided that this Rule and the next four following Rules shall not apply to a Court meeting of creditors held prior to the meeting of creditors under section 464:
Provided further that this Rules not apply to any creditors or class of creditors who by virtue of these Rules or any directions given there under are not required to prove their debts, or to any voluntary liquidation meetings.
R. 213. Cases to which creditors may not vote.----A creditor shall not vote in respect of any unliquidated or contingent debt or any debt the value of which is not ascertained, nor shall a creditor vote in respect of any debt on or secured by a current bill of exchange or promissory note held by him unless he is willing to treat liability to him thereon of every person who is liable there on antecedently to the company, and against whom no order of adjudication has been made, as a security in his hands, and to estimate the value thereof, and for the purposes of voting, but not for purposes of dividend, to deduct it from his proof.
R. 214. When secured creditor can vote.--- (1) For the purposes of voting at a meeting, in a winding-up by the Court, a secured creditor shall, unless he surrenders his security, state in his proof the particulars of his security, the date when it was given and the value at which he assesses it, and shall be entitled to vote only in respect of the balance due to him, if any, after deducing the value of his security.
(2) For the purposes of voting at any voluntary liquidation meeting, a secured creditor shall, unless he surrenders his security, lodge with the liquidator, or where there is no liquidator, at the registered office of the company, before the meeting, a statement giving the particulars of his security, the date when it was given the value at which he assesses it, and shall be entitled to vote only in respect of balance due to him ig any, after deducting the value of his security.
R. 215. Effect of voting by a secured creditor.-----If a creditor votes in respect of his whole debt he shall be deemed to have surrounded his security, unless the Court an application is satisfied that the omission to value the security was due to inadvertence.
R. 216. Procedure when secured creditor votes without surrendering security.---The liquidator may within 28 days from the date of the meeting at which a secured creditor voted on the basis of his valuation of the security, require him to give up the security for the benefit of the creditors generally on payment of the value so estimated by him, and may, if necessary, apply to the Court for an order to compel such creditor to give up the security.
Provided that the Court may, for good cause shown a permit a creditor to correct his valuation before being required to give up the security, upon such terms as to costs as the Court may consider just.
R. 217. Admission or rejection of proofs for purposes of voting.-----The chairman shall have power to admit to reject a proof for the purpose of voting, but his decision shall be subject to appeal to the Court. If he is in doubt whether a proof shall be admitted or rejected, he shall mark it as objected to and allow the creditor to vote subject to the vote being declared invalid in the event of the objection being sustained.
R. 218. Minutes of proceedings.----(1) The chairman shall cause minutes of the proceedings at the meeting to be drawn up and fairly entered in the Minute Book and the minutes shall be signed by him or by the chairman of the next meeting.
(2) A list of creditors and contributories present at every meeting shall be made and kept as in Form No. 95.
R. 219. Report of Court meetings.-----Where a meeting is summoned under the direction of the Court, the chairman shall, within the time fixed by the Court, or if no time is fixed, within 7 days of the conclusion of the meeting, report the result thereof to the Court. Such report shall be in Form No. 96.
PROXIES IN RELATION TO A WINDING-UP BY COURT AND TO MEETINGS OF CREDIOTRS IN A CREDIOTRS’ VOLUNTARY WINIDNG-UP
R. 220. Voting by proxies.-----A creditor or contributory may vote either I person or by proxy. Where a person is authorized in the manner provided by section 187 to represent a Corporation at any meeting of creditors or contributories, such person shall procedure to the Official Liquidator or other chairman of the meeting a copy of the resolution so authorizing him Such copy must be certified to be a true copy by a director, the manager, the secretary or other officer of the company duly authorized in that behalf who shall certify that he is so authorized.
R. 221. Form of proxies.-----A creditor or contributory may give a general proxy or a special proxy to any person. A general proxy shall be in form No. 97 and a special proxy in Form No.98.
R. 222. Proxies to Liquidator or chairman.----A creditor or contributory in a winding-up by the Court may appoint the Official Liquidator, and in a voluntary winding-up, the liquidator, or if there is no liquidator, or if there is no liquidator, the chairman of the meeting, to act as his general or special proxy.
R. 223. Use of proxies by deputy.-----Where an Official Liquidator who holds any proxies cannot attend the meeting for which they are given, he may in writing depute some person under his official control to use the proxies on his behalf and in such manner as he may direct.
R. 224. Forms to be sent with notice.-----Forms of proxies shall be sent to the creditors and contributories with the notice summoning the meeting. No name shall be inserted or printed in the form before it is sent.
R. 225. Proxies to be lodged.----A proxy shall be lodged not later than 48 hours before the meeting at which it is to be used, with the Official Liquidator a winding-up by the Court, with the company at its registered office for a meeting under section 500, and the liquidator, or if there is no liquidator, with the person named in the notice convening the meeting to receive the same, in a voluntary winding-up.
R. 226. Holder of proxy not to vote on matter in which he is financially interested.------No person acting either under a general or special proxy, shall vote in favor of any resolution which would directly or indirectly place himself, his partner or employer in a position to receive any remuneration out of the assets of the company otherwise than as a creditor rate ably with the other creditors of the company.
R. 227. Minor not to be appointed proxy.------No person shall be appointed as a general or special proxy who is a minor.
R. 228. Filling I proxy where creditor or contributory is blind or incapable.-----The proxy of a creditor or a contributory blind or incapable of writing may be accepted if such creditor or contributory has attached his signature or mark thereto in the presence of a witness who shall add to his signature his description and address: provided that all insertions in th epoxy are the handwriting of the witness and such witness shall have certified at the foot of the proxy that all such insertions have been made by him at the request and in the presence of the creditor or contributory before he attached his signature or mark.
R. 229. Proxy of person not acquainted with English.----The proxy of a creditor or contributory who does not know English may be accepted if it is executed in the manner prescribed in the last preceding Rule and the witness certificates that it was explained to the creditor or contributory in the language known to him, and gives the creditor’s ir contributor’s name English below the signature.
ATTENDENCE AND APPEARANCE OF CREDITORS AND CONTRIBUTORIES
R. 230. Attendance at proceedings.------(1) Save as otherwise provided by these rules or by an order of Court, every person for the time being on the list of contributories of the company and every creditor whose debts has been admitted by Official Liquidator wholly or in art shall be at liberty at his own expense to attend the proceedings before the Court or before the Official Liquidator and shall be entitled upon payment of the costs occasioned thereby to have notice of all such proceedings as he shall, by request in writing addressed to the Official Liquidator, desire to have notice of; but if the Court shall be of opinion that the attendance of any such person has occasioned any additional costs which ought not to be paid by such person and such person shall not be entitled any further proceedings until he had paid the same.
(2) No contributory or creditor shall be entitled to attend any proceedings before the Judge, unless and until he or an Advocate on his behalf has filed an appearance with the Registrar. The Registrar shall keep an “Appearance Book” in which all such appearances shall be entered. Such book shall be open to the inspection of the Official Liquidator.
NOTES
Appeal
against order of accepting highest bid
Right of appeal is a creature of statute parties to a sale proceeding at an auction, that is to say, the particulars, may appeal against confirmation and not others, not even the petitioner at whose petition the winding up was ordered. He could have taken the benefit of Rule 230 by appearing at any stage of the proceedings. But having not done so, he was not entitled to prefer an appeal. Manharlal Manilal Shah v. Official Liquidator, (1968) 38 Com Cases 643 (Gujarat).
R. 231. Representation of creditors and contributories before Court.------The Court may, if it thinks fit, appoint from time to time any one or more of the creditors or contributories to represent before the Court at the expense of the company all or any class of creditors or contributories upon any question or in relation to any proceedings before the Court, and may remove any person so appointed, if more than one person is appointed under this Rule to represent one class, the persons so appointed, shall employ the same advocate to represent them, ad where they fail to agree as to the advocate to be employed, the judge may nominate an advocate for them.
COLLECTION
AND DISTRIBUTION OF ASSETS IN A WINIDNG-UP BY COURT
R. 232. Powers of Official Liquidator.-----The duties imposed on the Court by sub-section (1) of section 467 with regard to the collection of the assets of the company and the application of the assets in discharge of the company’s liabilities shall be discharged by the Official Liquidator as an officer of the Court subject to the control of the Court and to the proviso in section 643(2).
R. 233. Official Liquidator to be in the position of a receiver.----For the discharge by the Official Liquidator of the duties imposed by sub-section (1) of section 467 and the last preceding Rule the Official Liquidator shall, for the purpose a acquiring and retaining possession of the property of the company, be in the same position as if he were a Receiver of the property appointed by the Court, and the Court may on his application enforce such acquisition or retention accordingly.
NOTES
Official
Liquidator as receiver
The effect of this rule has been explained in the decision of the Calcutta High Court in International Shipping Co. Ltd. v. Chandpur Jute Co. Ltd., (1982) 52 Com Cases 121 at 123 (Calcutta). It is elementary that after the company is wound up it is only the official liquidator who becomes the custodian and all the assets and properties of the company come into the custody of the court under section 456 of the Companies Act, 1956 read with Rule 233 of the Companies (Court) Rules, 1959. In law and in fact nobody else has the right to represent the company save and except the official liquidator. For an explanation of the difference between the position of a receiver and official liquidator, see Indo-Burma Wood Products P. Ltd., Re, AIR 1968 Cal 198.
Taking
property by liquidator
In trying to reduce to his possession properties of the company, whether mortgaged to third parties or not, the liquidator is not trying to recover any property from anybody; he was acting on behalf of the court into whose custody the properties have already come by virtue of the winding up order. In the event of any third party resisting or opposing or questioning his attempts to reduce the property to his possession in the name of the court, if the liquidator considers it necessary to approach the court for directions, he is merely acting under sub-section (4) of section 460 and invoking the powers of the court under section 446(2) (d) and rule 233. In such circumstances, the liquidator is not obliged to file a suit. The proper proceeding is undoubtedly an application to the winding up court. Yallamma Cotton, Wollen and Silk Mills Co. Ltd., Bank of Maharashtra Ltd. v. O.L., Mysore HC, (1970) 40 Com Cases 466 (Mysore).
R. 234. Company’s property to be surrendered to Official Liquidator on requisition.----The powers conferred on the Court by section 468 may be exercised by the Official Liquidator. Any contributory for the time being on the list of contributories, trustee, receiver, banker or agent or officer of a company which is being wound-up under order of the Court, shall on notice from the Official Liquidator and within such time as he shall by notice require, pay, deliver, convey, surrender or transfer to or into the hands of the Official Liquidator any money; property or documents, books or papers which happen to be in his hands for the time being and to which the company is prima facie entitled. Where the person so required fails to comply with the notice, the Official Liquidator may apply to the Court for appropriate orders. The notice shall be in Form No. 99.
CALLS IN A WINIDNG-UP BY THE COURT
R. 235. Calls by the Official Liquidator.----Subject to the proviso to sub-0sectio (2) of section 643, the powers and duties conferred upon the Court by section 470 I relation to making calls, may be exercised by the Official Liquidator as hereinafter provided.
R. 236. Official Liquidator o realize uncalled capital.----Notwithstanding any charge or encumbrance on the uncalled capital of the company. The Official Liquidator shall alone be entitled to call and realize the uncalled capital of the company and to collect the arrears if any due on calls made prior to the winding-up, but shall hold all moneys so realized subject to the rights, if any, of the holder of any such charge or encumbrance.
R. 237. Application for leave to make call.----(1) The Official Liquidator shall not make any call without obtaining the leave of the Court for the purpose.
(2) At any time after the settlement of the list of contributories, the Official Liquidator may apply by summons to the Court for leave to make a call on the contributories. The summons shall state the proposed amount of such call and shall be I Form No. 100. It shall be supported by the affidavit of the Official Liquidator, which shall be in Form No. 101.
R. 238. Notice of applications.----Notice of an applications for leave to make a call shall be served on every contributory proposed to be included in such call, by post under certificate of posting so as to reach such contributory, in the ordinary course of post not less the 7 clear days before the date appointed for the hearing thereof, or if the Court so directs, notice of the application may be given by the date advertisement in Form No. 102, in such papers as the Court shall direct not less than 7 clear days before the date appointed for the hearing, without a separate notice to each contributory. The affidavit of service relating to the dispatch of notice to each contributory, as the case may be, shall be filed three days before the date fixed for the hearing.
R. 239. Order granting leave to make a call and document making the call.----The order granting leave to make a cal shall be in Form No. 103, and shall contain directing as to the time within which such calls shall be paid. When an order has been made granting leave to make a call the Official Liquidator shall in Court document making the call in Form No. 104. with such variations as circumstances may require.
NOTES
Interest
on calls
Direction for payment of interest should be along with the call. The Madras High Court explained this position in Mahalakshmi Oil Mills and Industries Ltd., (1967) 37 Com Cases 270(Mad0; S.P. Subbiah v. PR PR SP Periakaruppan Chettiar, (1967) Com Cases 270 (Mad). The court said:”it is only after such an order (under rule 239, order of court) is made by the company court that the official liquidator has the power to enforce the call and ask for an order for payment of the call amount due from the contributory. Forms Nos. 106 and 108 appended to the Companies (Court) Rules, 1959, red with Rules 240 and 241 make it very clear that the liquidator is not entitled to any interest prior to the order of this court giving leave to him to make a call. To the same affect Pars Ram Kishore v. Jagraon Trading Syndicate, (1936) 6 Com Cases 347 (Lah-DB).
R. 240. Service of notice of call.----Soon after filling the document making the call under the last preceding Rule, the Official Liquidator shall serve by registered post a copy of the order granting leave to make the call upon each of the contributories included I such call together with a notice in Form No. 105 specifying the amount or balance due from such contributory in respect of such call. The order granting leave to make a call need not be advertised unless the Court otherwise orders for any special reason.
R. 241. Order for payment of call.----The Official Liquidator may apply to the court for an order against any contributory or ocntributories for payment of moneys due on the calls made by him. The application shall be made by summons in Form No. 106 and shall be supported by an affidavit in Form No. 107. Notice of the application together with a copy of the affidavit shall be served on the contributory by registered post for acknowledgement not less than 14 days before the date fixed for the hearing of the summons. The order for payment shall be in Form No. 108.
R. 242. Other moneys due by contributories.----When any money is due to the compsany from a contributory or from the estate of the person whom he represents, other than moneys due on calls made sub-sequent to the winding-up but including moneys due on calls made prior to the winding-up the Official Liquidator may make an application to the Court supported by an affidavit for an order against such contributory for the payment of such moneys. Notice of the application shall be given to such contributory by registered post not less than 14 days prior to the date fixed for the hearing of the application.
EXAMINATION UNDER SECTIONS 477 AND 478
R. 243. Application for examination under section 477.-----(1) An application for te examination of a person under section 477 may be made ex parte, provided that where the application is made by any person other than the Official Liquidator, notice of the application shall be given to the Official Liquidator.
(2) The summons shall be in Form No. 109 and, where the application is by he Official Liquidator, it shall be accompanied by a statement signed by him setting forth the facts on which the application is based. Where the application is made by a person other than the Official Liquidator, the summons shall be supported by an affidavit of the applicant setting forth the matters in res;pect of which the examination is sought and the grounds, relied on in support of the summons.
NOTES
Ex
party orders
The requirements of such a order were listed by the Supreme Court in Satish Churn Lal v. H.K. Ganguly, (1962) 32 Com Cases 97 at pp. 106-107, 109 (SC).
Under Rule 243 an application for the examination of a person under section 477 may be made ex parte. Where the application is made by the official liquidator, it need not be accompanied by a verified affidavit. The rule only requires that a statement signed by him setting forth the facts on which the application is made, should be filed with the application. Where the court is satisfied that an ex parte order which has been obtained under Rule 243 is vexatious or oppressive, or other adequate grounds exist, the court has jurisdiction to vacate that order. But a person against whom an ex parte order for examination has been obtained is not entitled to have it vacated merely on the ground that it was passed without giving notice to him or on the ground that no prima facie case has been made out. For obtaining an ex parte order under Rule 243 it is not necessary to make out a prima faie case—the probability of a case is enough—and an order may be if a case for fair suspicion is made out.
The object of a making an ex party order under Rule 243 is to keep the proceedings secret from the person sought to be affected, and the person against whom an order is made not entitled to get a copy of, or inspect, the statement filed by the official liquidator along with his application under Rule 243. Though Rule 360 gives to officers of companies a right to inspect the file of the proceedings of liquidation the statement filed by the liquidator under Rule 243 does not form part of the file of the proceedings and a person who is summoned, even if he is an officer or director of the company, is not entitled to inspect the statement filed by the official liquidator under Rule 360.
There can be dispute that from a bare reading of Rule243 of the Rules the official liquidator can make an application for examination of the person under section 477 of the Act and an order for issue of summons ex party can be made. But, in my opinion, even if an ex party summons has been issued, the other side can always challenge it and the court will decide as to whether summon issued for the examination should be withdrawn or whether there should be any examination under section 477 of the officers of the company and other persons mentioned therein. Official Liquidator v. Ganesh Narain R. Podar, (1991) 70 Com Cases 588 (Rajasthan).
Ex
party order under this Rule cannot be modified
An ex party order passed on an application by the official liquidator under this rule does not adversely affect the rights of any of the person s summoned. The court has no jurisdiction to vary, alter or set aside such an order after it has been drawn up and completed. Ballugunge Real Property Building Society Ltd., In Re, (1962) 32 Com Cases 458, 459, 461 (Cal). See Shankarlal Agarwalla v. Satya Narain Jugal Kishore, (1967) 37 Com Cases 148: AIR 1967 Cal 1, application by petitionering creditor.
R. 244. Directions at hearing of summons.---Upon the hearing of the summons the Judge may, if satisfied that there are grounds for making the order, make an order directing the issue of a summons against the person named in the order for his examination and/or for the production of documents. Unless the Judge otherwise directs the examination of such person shall be held in Chambers. The order shall be in Form No. 110.
R. 245. Examination on commissioner or by interrogatories.----The Court may, if it thinks fit, instead of issuing a summons to any person for his appearance before the Court for examination, issue a commission to the District Judge within whose Jurisdiction such person resides for the examination of such person, or make an order for his examination by interrogatories, as the Court may think fit.
R. 246. Service of the summons.----The summons issued in pursuance of the order shall be in Form No. 111 and shall be examined not less than 7 days before the date fixed for the examination. When the summons is served in person there shall be paid or tendered to the person summoned along with the summons a reasonable sum for his expenses to be fixed by the Judge or Registrar with due regard to the scale of fees in force in the Court. When the summons is served by registered post, such sum shall be sent to such person by postal money order.
R. 247. Conduct of the examination (1) The Official Liquidator shall have the conduct of an examination under section 477, provided that the Court may, if for any reasons it thinks for to so, entrust the conduct the examination to and person other than the Official Liquidator, the Official Liquidator shall nevertheless be entitled to be present at the examination in person or by advocate, and may take notes of the examination for his own use and put such questions to the person examined as the Court may allow.
(2) Save as aforesaid, no person shall be entitled to take part in an examination under section 477 except the Official Liquidator and his advocate, but any person examined shall be entitled to have the assistance of his advocate, who may re-examine the witness:
(3) Notes of the examination may be permitted to be taken by the witness or any person on his behalf on his giving and undertaking to the Court that such notes shall be used only for the purpose of the re-examination of the witness. On the conclusion of the examination, the notes shall, unless otherwise directed, be handed over to the Court for destruction.
R. 248. Notes of the deposition.-----(1) The notes of the deposition of a person examined under section 477 shall be singed by such person and shall be lodged in the office of the Registrar. But the notes shall not be open to the inspection of any creditor, contributory or other person, except the Official Liquidator, not shall be a copy thereof or extract there from be supplied to any person other than the Official Liquidator, save upon orders the Court.
(2) The Court may from time to time give such general or special directions as it shall think expedient as to the custody and inspection of such notes and the furnishing of copies thereof or extracts there from.
R. 249. Order for public examination under section 478.----(1) Where an order is made for the examination of any person or persons under section 478, the examination shall be held before the Judge: provided that in the case of a High Court, the Judge may direct that the whole or any part of the examination of any such person or persons, be held before any of the officers mentioned in sub-section (10) of the said section as may be mentioned in the order. Where the date of the examination has not been fixed by the order, the Official Liquidator shall take an appointment from the Judge, or officer before whom the examination is to be held as to the date of the examination. The order directing a public examination shall be in Form No. 112.
(2) The Judge may, if he thinks fit, either in the order for examination or by any subsequent order, give directions as to the specific matters on which such person is to be examined.
R. 250. Notice of public examination.-----Not less than 7 clear days before the date fixed for the examination, the Official Liquidator shall give notice thereof to the creditors and contributories of the company of advertisement in Form No. 113 in such newspapers as the Judge shall direct, and shall within the same period, serve, either personally or by registered post, on the person or persons to be examined, a notice in Form No. 114 of the date and hour fixed for the examination and the officer before whom it is to be held, together with a copy of the order directing the examination. Where a public examination is adjourned, it shall not be necessary to advertise the adjournment or serve notice thereof unless otherwise ordered.
R. 251. Adjournment of public examination to Court.------Where on an examination held before an officer appointed by the Judge under Rule 249 of these rules such officer is of the opinion that the examination is being unduly or unnecessarily protracted or, for any other sufficient cause, he is of the opinion that the examination should be held before the Judge, such officer may adjourn the examination of any person, or any part of the examination to be held before the Judge and submit his report to the Judge. The Judge may thereupon hold the examination himself the examination or pass such orders as he may think fit.
R. 252. Procedure for contumacy.-----If a person examined before an officer appointed by the Judge under Rule 249 of these refuses to answer to the satisfaction of such officer any question which he may put or allow to be put such officer shall officer shall report such refusal to the Judge and upon such report being made the person in default shall be in the same position and be dealt with in the same manner as if he had made default in answering before the Judge.
The report shall set forth the question or questions put and the answer or answers given (if any) by the person examined, and the officer shall notify the person examined of the date when he should attend before the Judge. The report shall be in Form No. 115. Upon receiving the report, the Judge may take such action thereon as he shall think fit.
R. 253. Notes of examination.---The notes of every public examination shall, after being signed as required by sub-section (8) of section 478, form part of the records of winding-up. The Official Liquidator, the person examined and any creditor or contributory of the company, shall be entitled to obtain a copy thereof from the Court on payment of the prescribed charges.
R. 254. Shorthand notes of examination under sections 477 and 478.---In respect of any examination under section 477 and 478, the Court may order that the evidence be taken down in shorthand. Where such order is made, the Judge or the officer before whom the evidence is taken shall nominate a person to take down the evidence and the costs, if any, occasioned thereby shall be paid out of the assets of the company. The shorthand note of the examination shall be transcribed and the transcript shall be read over to or by the person examined, and signed by him.
R. 255. Application under section 478(7)(a).----An application under sub-section (7)(a) of section 478 by any person ordered to be publicly examined to be exculpated from any charges made or suggested against him, shall be made upon notice to the Official Liquidator and to such other person as the Court may direct.
R. 256. Default in attending examination under section 477 or 478.-----(1) If any person who has been directed by the Court to attend for examination under section 477 or 478 fails to attend at the time and place appointed for holding or proceeding with the same and no good cause is shown by him for such failure, or it before the day appointed for such examination the Official Liquidator satisfies the Court that such person has absconded or that there is reason to believe, that he is about to abscond with the view of avoiding the examination, the court may, if satisfied that notice of the date and hour fixed for the examination was duly served on such person, issue without any further notice a warrant in Form No. 116 for the arrest of the person, required to attend, or make such other order as the Court thinks just.
(2) Every warrant of arrest of any person issued under these rules shall remain in force until is cancelled by the Court which issued it or by the Court to which appeals ordinarily lie from the decisions of such Court, or until it is excused.
R. 257. Prison to which person arrested or warrant is to be taken.-----Where the Court issues a warrant for the arrest of a person under these Rules, the prison (to be named in the warrant) to which the person shall be committed shall, unless the Court otherwise orders, be the prison to which commitments are made by the Court in the exercise of its ordinary civil jurisdiction.
A warrant committing a person to prison shall be in Form No. 117 and an order releasing him on bail in Form No. 118
R. 258. Execution of warrant of arrest outside ordinary jurisdiction of court.----(1) Where a warrant has been issued by the Court under these Rules for the arrest of any person who is or is believed to be outside the ordinary jurisdiction of the Court, the Court issuing the warrant may send the warrant of arrest for execution to the District Court or, to the Court of Small Causes at Bombay, Calcutta or Madras (if the warrant has to be executed in any of these places) within the ordinary jurisdiction of which such person shall then be or be believed to be, with a requisition in Form No. 119 annexed thereto under the seal of the Court requesting execution of the warrant by the Court to which it is sent the last mentioned Court shall seal the warrant with its seal and shall cause the arrest to be made by its own officers or by a Court subordinate to itself and all police officers shall aid and assist within their respective jurisdictions in the execution of such warrant.
(2) The Court making the arrest shall send the person arrested in proper custody to the Court by which the warrant of arrest originally issued, unless he furnishes the required security to the satisfaction of the former Court for his appearance before the latter Court, in which case the Court shall release him on such security and inform the Court by which the warrant was originally issued accordingly.
R. 259. Public examination under section 519.-----Where, in a voluntary winding-up, an order is made under section 519 for the public examination of any of the persons mentioned in the said section, the rules relating to a public examination under section 478 in a winding-up by the Court shall apply mutates mutandis in respect of such examination.
APPLICATION AGAINST DELINQUENT DIRECTORS, PROMOTERS
AND OFFICERS OF THE COMPAMY
R. 260. Application under section 542 or 543.----An application under sub-section (1) of section 542 or under sub-section (1) of section 543, shall be made by a summons returnable in the first instance in chambers. The summons shall state the nature of the declaration or order for which the application is made, and the grounds of the application, and shall be served on every person against whom an order is sought not less than 8 days before the day named in the summons for the hearing of the application. It shall not to be necessary to file any affidavit or respect before the return of the summons. The summons shall be in Form No. 120 or 121 with such variations as may be necessary.
NOTES
Applications
under section 542-543
The procedure for applications under these sections was explained in Official Liquidator, R.S.Motors P. Ltd. v. Jagjit Singh Sawhney, (1977) 47 Com Cases 219 at pp. 221-222 (Del). “The procedure prescribed by the Companies (Court0 Rules, 1959, is somewhat different from the procedure prescribed under the Code of Civil Procedure and indeed differs materially from the procedure normally followed even in the original side of this court. The Rules have dividend the various applications which can be moved before the court under the Companies Act, 1956, into two categories. One category described as petitions and the other as applications. The nomenclature being used by this court is company petitions and company applications. The provisions of Rule 10, say that all applications under the Act shall be moved either by a petition or by a judge’s summons. Then Rule 11 proceeds to specify which applications are to be moved in the form of petitions and which applications are to be moved by a judge’s summons. There are 23 specified applications, which are to be moved by petitions and the remaining applications are to be moved by a judge’s summons. There is no doubt that an application under section 543 moved in respect of a company which is being wound up has to be moved by judge’s summons. Somewhat inconsistently, similar application moved during the tendency of an application under section 397 or 398 has to be moved by a petition because of item No. 19 in rule 11. Now, when a company application has been moved by a judge’s summons, the question still remains as to what the respondent it to do when he appears before the court.”
Rule 260 deals specifically with applications under section 542 or 543 of the Act. This rule states that an application under these sections has to be moved by a judge’s summons in Forms Nos. 120 and 121. An examination of form No. 120 or 121 shows that it does not require the applicant to state the facts, which are relied upon. Then, Rule 261 shows that after the summoned party has put in appearance, the court can give directions as to the filing of points of claim and points of defense. The relevant forms appertaining to this stage of the proceedings under sections 542 and 543 are respectively Forms Nos. 122 and 123. These forms show that the material facts which are relied upon have to be stated at this stage of the proceeding. It, therefore, seems that the procedure to be adopted in cases under sections 542 and 543 is materially different from the procedure followed under the Code of Civil of Procedure. It corresponds in fact to the procedure, which is generally followed in the courts in England. It may be recalled that there ate two general methods to commerce proceedings in the English High Court: the proceedings can be commenced by a writ of summons by writ of summons with the statement of claim endorsed. The Rules of the English Supreme Court specify which summons have to be endorsed to state the claim. In other cases the statement of claim is to be presented to the party after the appearance of that party. It is open to an intending suitor to endorse his statement of claim even if he is not required to do so by law. The English procedure has also been varied from time to time with the object of getting th party before the court first and enabling the pleadings, etc., to be settled after appearance. This seems to be the procedure under sections 542 and 543 as envisaged by the Companies (Court) Rules. In this particular case the respondent were not required to file a written statement on appearance because the provisions of Order 8, rule 1, of the Code, were not applicable in this particular case.” Relied on in Official Liquidator, Swashraya Benefit Pvt. Ltd. v. B.H. Talati, (1996) 87 Com Cases 197 (Gujarat).
In a Stock and Co. Ltd., Re, (1992) 1 Comp LJ 323 (Calcutta), it was held that the word “may” in Rule 261 could not be constructed as “shall”. This rule read as a whole shows that the matter is entirely discretionary and no mandatory duty has been last upon the court to follow a particular from of procedure. On the facts, the respondent was allowed to be heard on the basis of his affidavit regarding the maintainability of the application. The court made it clear that if any disputed question of fact would show itself, the court would relegate the respondent to the normal procedure of trial of misfeasance proceedings.
It has been observed in K.V. Desinga Raja v. D.K. Raju, (1968) 38 Com Cases 935 : (1969) 1 Comp LJ 1 at p. 4 (Mad), that Rule 260 makes it clear that it is only in an application under section 542 or 543 that the applicant need not file any affidavit I support thereof.
See Pravin Chandra Shah v. D.B. Dalal, (1966) 1 Comp Lj 204 (Bombay), an application for setting aside an order of examination.
It is appearance that under Rule 260 when an application is made under section 542 or 543, it shall be in the form of summons returnable in the first instance in chambers. The summons so issued shall state the nature of the declaration or order for which an application is made, and the grant of the application, and it shall be served on every person against whom an order is sought under Rule 261, it provides that on return of the summons, the Court may give such directions as it shall think fit, as to whether points of claims and defense are to be delivered, as to the taking of evidence wholly or partly by affidavit or orally. It further provides that the procedure is of summary nature and for the hearing thereof. The preliminary hearing after return of summons does not mean that the Court has not to apply its mind to prima facie satisfy itself about the merit of the application. The word “as it thinks fit” occurring in Rule 261 makes it clear and points out that directions could be given by the Court on preliminary hearing if it thinks fit to do so, not otherwise. Thus, on the basis of the Act and Rules, it is not compulsory for the Court to give directions as to whether points of claims or defense are to be delivered or as to the taking of evidence. The Court has, in its inherent power under Rule 9 of the Companies (Court) Rules, to reject the application without resorting to the directions on points of claims under section 543 in order to secure the ends of justice. Chamundi Chemicals & Fertilisers Ltd. v. M.C. Cherian, (1993) 77 Com Cases 1 (Karn).
In Official Liquidator, Palai Central Bank Ltd. (In liquidation) v. K. Joseph Augusti, (1966) KLJ 246 (Ker), it was observed:
“- - - - When the liquidator, or a creditor, or a contributory makes an application under section 543 he does not do so as representing the company but in his own independent right, although for the benefit of the company. His position is analogous to that of a junior member suing in respect of joint family property. In making an application under section 543, the liquidator is not exercising the power conferred by section 457(1). He does not apply in the name and on behalf of the company, but as Forms Nos. 120 and 121, rightly set out, in his own name, and applies in his own behalf although on the terms of section 543, the order can only be for payment or restoration to the company.” Followed in B. Patnaik Mines Pvt. Ltd. v. Bijoyananda Pattnaik, (1994) 80 Com Cases 237, 240 (Ori).
R. 261. Directions at preliminary hearing of summons.------On the return of the summons the Court may give such directions as it shall think fit as to whether points of claim and defense are to be delivered, as to the taking of evidence wholly or in part by affidavit ort orally, as to the cross-examination, before the Judge on the hearing, either in Court or in Chambers, of any deponents to affidavits in support of or in the procedure on the summons and for the hearing thereof. Points of claim to be delivered shall be in Form No. 122 or 123 with such variations as may be necessary.
DISCLAIMER
R. 263. Application for disclaimer.-----(1) An application for leave to disclaim any part of the property of a company pursuant to sub-section (1) of section 535 shall be made by a summons supported by an affidavit setting out the full facts relating to the property, the parties interested and the nature of their interests, and staying whether the company is solvent and whether any notice has been served on the liquidation by any party under sub-section (4) of the said section requiring him to elect whether or not he will disclaim.
(2) Forms Nos. 124 to 130 shall be used in respect of the maters to which they relate with such variations as may be necessary.
NOTES
Necessary
parties
The liquidator of a company took out summons under Rule 11(b) and 263 seeking permission for disclaimer of shares of the company in another company from which no benefit could be expected. That company’s defense that the liquidator had lost the right of disclaimer because he had been seeking time for payment of calls was negative because section 535 authorities the liquidator to disclaim notwithstanding his endeavors in reference to the property. That other company also contended that a credit institution, which had promised to help the company thereby taking the company out of the category of burdensome investments, should have been invited as a necessary party. The court did not agree with this view. Official liquidator, Madras H.C. v. Raka Chemical and Food Products Ltd., (1968) 1 Comp LJ 220 (Madras).
R. 264. Preliminary hearing of the summons.-----The summons shall be posted before the Court ex party in the first instance for direction as to the persons on whom notice of the summons should be served, and the Court shall thereupon fix a date for the hearing of the summons and give such directions as may be necessary as to the persons on whom notice of the summons should be served.
R. 265. Claimant to furnish statement of his interest.----Where a person claims to be interested in any part of the property of a company which the Liquidator wishes to disclaim, such person shall, if so required by the Liquidator, furnish a statement of the interest claimed by him.
R. 266. Service of notices.-----Notice of the date fixed for the hearing of the summons shall be in Form No. 131 and shall be served not less than 7 days before the date fixed for the hearing, together with a copy of the summons and of the affidavit filed in support thereof. The notice shall require that any affidavit-in-opposition to the summons shall be filed in Court and a copy thereof served on the Liquidator of the company not later than 2 days before the date fixed for the hearing.
R. 267. Order grating leave to disclaim.----On the hearing of the summons, the Court may after hearing the Liquidator and such parties as may appear in response to the notices issued, and such other persons appearing and interested as the Court may think fit to hear, grant leave to the Liquidator and to disclaim on such terms and conditions if any, as to the Court may seem just. The order granting leave to disclaim shall be in Form No. 132.
R. 268. Disclaimer to be filed in Court.----Every disclaimer shall be filed in Court by the Liquidator and shall not be operative until it is so filed. Where the disclaimer is in respect of a leasehold interest, it shall be filed in Court forthwith. Notice of the filing of the disclaimer shall be given to the persons interested in the property. The disclaimer shall contain particulars of the interest disclaimed and a statement of the persons to whom notice of the disclaimer has been given. A disclaimer shall be in Form No. 133, and a notice of disclaimer in Form No. 134.
Where a disclaimer has been filed in Court, the Liquidator shall file a copy thereof with the Registrar of Companies.
NOTES
When
disclaimer takes effect
In Ritz Continental Hotels Ltd., Re, (1986) 60 Com Cases 526 (Calcutta); Maneck Noshinwan Kala v. O.L. High Court, Calcutta, (1986) 60 Com Cases 526 (Calcutta), the court had to consider as to when in view of the Rule 268 the disclaimer becomes operative. M.M. DUTT J. explained the position as follows (at p. 531): “Indeed, Rule 263 of the Rules provides for making such an application for leave to disclaim. The court, after hearing the parties and considering the facts and circumstances of the case, may grant leave to the liquidator to disclaim the property. Rule 268, provides that every disclaimer shall be filed in court by the liquidator and shall not be operative until it is so filed. On the other hand, section 535(2) of the Companies Act provides that the disclaimer shall operate to determine as from the date of the disclaimer the rights, interest, and liabilities of the company, and the property of the company, in or in respect of the property disclaimed. Therefore, the combined effect of section 535(2) and Rule 268 is that the disclaimer will not be operative so long as it is not filed in court, but after it is filed in court, it will become operative from the date of the disclaimer.”
R. 269. Vesting of disclaimed property.---- Where the disclaimed property is a leasehold interest and an application is made under sub-section (6) of section 535 for an order vesting the property in any person and it appears that there is an under-lessee or mortgage or holder of a charge by way of demise in respect of such property, claiming under the company, the court may direct that notice shall be given to such under-lessee, mortgage or holder of charge, that if he does not elect to accept and apply for a vesting order upon the terms required by the abovementioned sub-section and such other terms as the Court may think just, within a time to be fixed by the Court and stated in the notice, he will be excluded from all interest in and security upon the property. The Court may adjourn the application for such notice to be given and for such under-lessee, mortgage or holder of charge, to be added as a party to and served with a copy of the application, and to make, if he sees fit, such election and application as is mentioned in the notice. If at the expiration of the time so fixed by the Court, such under-lessee, mortgage or holder of charge, fails to make such election and application, the Court, may make an order vesting the property in the applicant or other person who, in the opinion of the Court, may be entitled thereto, and excluding such under-lessee, mortgage or holder of charge, from all interest in or security upon the property.
An order requiring parties interested in a disclaimed lease to apply for a vesting order or to be excluded from all interest in the lease shall be in Form No. 135, and an order vesting lease and excluding persons who have not elected to apply, shall be in Form No. 136.
COMPROMISE OR ABANDONMENT OF CLAIMS
R. 270. No claim to be compromised or abandoned without sanction of Court.----In a winding-up by or subject to the supervision of the Court, no claim by the company against any person shall be compromised or abandoned by the Liquidator without the sanction of the Court upon notice to such person as the Court may direct.
R. 271. Application for sanction of compromise.----Every application for sanction of a compromise or arrangement with any person under clauses (ii) and (iii) of sub-section (1) of section 546 shall be accompanied by a copy of the proposed compromise or arrangement and shall be supported by an affidavit of the Liquidator stating that for the reasons set out in the affidavit he is satisfied that the proposed compromise or arrangement is beneficial tot eh company. The Court may, if it thinks fit, direct notice of the application to be given to the Committee of Inspection, if there is one, and to such other person as it may think fit.
SALES BY THE OFFICIAL LIQUIDATORS
R. 272. Sale to be subject to sanction and to confirmation by Court.----The control of the Court for the purpose of deciding as to the genuineness of the sale and confirming the same is of paramount importance. It cannot be said that the Court has abdicated its power simply by asking the liquidator to sell the property to the highest bidder. At the stage of confirmation the inadequacy of the price can be a relevant ground for the Court to interfere in such sales and the Court can issue directions for securing an adequate return. Universal Dye Stuff Industries Ltd., In Re, (1998) 63 Com Cases 842, 846 (Gujarat) (DB).
Court’s
power of confirmation of sale
While sanctioning or confirming a sale under section 457(1) read with Rule 272 and Rule 273, exercise of discretions is vested in the court. It is the duty of the court to satisfy itself that, having regard to the market value of the property, the price offered is reasonable. Unless the court is satisfied about the adequacy of the price, the act of confirmation of the sale would not be a proper exercise of judicial discretion. Amba Tannin and Pharmaceuticals Ltd. v. O.L., High Court, Bombay, (1975) 45 Com Cases 457 (Bombay); United India Fire and General Insurance Co. v. O.L., High Court, Bombay (1975) 45 Com Cases 457 (Bombay); U.P. Financial Corp. V. Surinder Stein Malt Ltd., (1990) 3 Comp LJ 78 (Del), sale confirmed because price adequate. Rule 273 contemplates more modes than one for sale of the assets of a company in liquidator. Undoubtedly, the mode permitted by the company judge was one of the modes prescribed by that rule However, if at the stage of sanctioning the sale, the court feels that an adequate price is not realized for the assets of the company, notwithstanding due and adequate publicity, it is the duty of the court to even direct adoption of another mode permitted by that rule by which the assets of the company ought to be sold. Reference was also made to Rules 16, 136, 230, 231, 286, and 360 for concluding that apart from this, there are ample provisions in the Act and rules which enable the court to retain overall control and supervision of the court (1975) 45 Com Cases at p. 489). This judgment was set aside for non-application of mind to the above principle. Surinder Stein Malt Co. Ltd. v. U.P. Financial Corpn., (1995) 4 Comp LJ 484 (DB—Del).
Fro a statement as to procedure of sale, which the court considered to be well, established see Navalakha & Sons v. Ramanuja Das, (1970) 40 Com Cases 936 at p. 941 (SC); Navalakha & Sons v. G. Ramanjulu Naidu (1967) 40 Com Cases 48 (AP); Kedar Rout v. Sricharandas, (1996) 1 Comp LJ 142 : AIR 1995 Ori 279. Also see Jainsons Exports India v. Binatone Electronics Ltd., (1996) 85 Com Cases 802 (DB—Del).
Confirmation
by court mandatory
The liquidator must have first the sanction of the court to sell the property. After sale, the confirmation by court is required because sale by liquidator with previous consent, but without confirmation, will not because final. N. Babu Janardhanam v. Golden Films P. Ltd., 91993) 78 Com Cases 455 (Madras).
Commercial
morality and public interest in sales
The only object of a sale is not to fetch a maximum price. The court. In its discretion, having regard to the prevailing socio-economic questions, which are involved in a welfare State should apply the law in a pragmatic manner having regard to the realities and interest of the public. Rules 272 and 273 of the Companies (Court) Rules, 1959, and settled law clearly lay down that the court is to see that a reasonable price is obtained and the rule is not so rigid that in every case it must be sold by public auction and fetch the highest price. The industry, commerce, commercial morality and public interest should also be taken into account before making any order. The court cannot by its order destroy an industry which has been built up by the industry, lab our. No sale can be confirmed unless notice has been given to the petitioner. Elvoc P. Ltd., Re, (1982) 52 Com Cases 308 at p. 313 (Calcutta);Syndicate Bank v. Filed Star Cycle Industries P. Ltd., (1995) 83 Com Cases 687 (Ker); East India Company v. O.L., (1970) 40 Com Cases 297 (Gujarat).
Setting
aside of sale
The court in the exercise of its discretion will not ser aside a sale of the company’s assets only on the ground that the sale already confirmed by the court was out bidden by a higher bidder. The court said that a fresh sale may be ordered where the discretion of the court is shown to have been exercised unreasonably. Capriciously or by adoption of an unjudicial approach. Shrawan Kumar Agarwal v. Shrinenp Investment Ltd., (1990) 2 Comp LJ 231 (Calcutta). See Lica (P). Ltd. v. Official Liquidator, (1996) 85 Com Cases 788 (SC), wherein the Supreme Court re-fixed more than once the minimum/upset price at each stage of higher offer.
No violation of the requirements of Rules 272 and 273 was held to have taken place where a sale was advertised 5 times and ultimately the property had to be knocked down to the highest bid of Rs. 1 crore as against the reserve price Rs. 2.5 crores. The court found no irregularity or illegality in procedure regarding advertisement and sale. The sale was confirmed by the company court. The court in appeal refused to inference in the matter. United Bank of India v. bharat Electrical Industries Ltd., (1993) 76 Com Cases 317 (Calcutta).
R. 273. Procedure of sale.-----Every sale shall be held by the Official liquidator, or, if the Judge shall so direct, by an agent or an auctioneer approved by the Court, and subject to such terms and conditions, if any, as may be approved by the Court. All sales shall be made by public auction or by inviting sealed tenders or in such manners as the Judge may direct.
R. 274. Expenses of sale.----Where property forming part of a company’s assets is sold by the Official Liquidator through an auctioneer or other agent, the gross proceeds of the sale shall, unless, the Court otherwise orders, be paid over to the Liquidator by such auctioneer or agent and the charges And expenses connected with the sale shall afterwards be paid such auctioneer or agent in accordance with the scales, if any, fixed by the Court.
DIVIDENDS AND RETURNS OF CAPITAL IN A WINIDNG-UP BY COURT
R. 275. Declaration of dividend or return of capital.-----No dividend to creditors or return of capital to contributories shall be declared by the Official Liquidator without the sanction of the Court.
R. 276. Notice of declaration.----The Official Liquidator shall give notice of the declaration of dividend not less than one month prior to the date fixed for the payment thereof. Unless otherwise directed by the Judge, such notice shall be given by advertisement in such newspapers as the Judge shall direct and by sending by prepaid letter post under certificate of posting a notice to every person whose name appears in the list of creditors as on such date. The advertisement shall be in form No. 137. and the notice to creditor in form No. 138.
R. 277. Form of authority to pay dividend.---A person to whom dividend is payable may lodge with the Official Liquidator an authority in writing to pay such dividend to another person named therein. Such authority shall be in Form No. 139.
R. 278. Transmission of dividends by post.---Dividends and returns of capital may, at the request and risks of the person to whom they are payable, be transmitted to him by registered post or by money order, as may be appropriate.
R. 279. Form of order directing return of capital.----Every order by which the Official Liquidator is authorized to make a return to contributories of the company, shall, unless the Court otherwise directs, contain or have appended thereto a schedule or list (which the Official Liquidator shall prepare) setting out in a tabular form the full names and addresses of the persona to whom the return is to be paid, and the amount of money payable to each person, and particulars of the transfers of shares (if any) which have been made or the variations in the list of contributories which have arisen since the date of the settlement of the list of contributories and such other information as may be necessary to enable the return to be made. The schedule or list shall be in Form No. 140 with such variations as circumstances shall require and the Official Liquidator shall send a notice of return to each contributory by ordinary post under certificate of posting in Form No. 141.
NOTES
Under Rule 279 read with Form No. 141, before a return of capital is made to a contributory, the share certificates should be handed over to the official liquidator. This does not amount to a surrender of shares. Nor the contributory cases to be a member. Vasant Investment Corpn. Ltd., Re, (1952) 52 Com Cases 139 (Bombay).
R. 280. Payment of dividend or return of capital due to a deceased creditor or contributory.---Where a claim made in respect of a dividend due to a deceased creditor or a return of capital due to a deceased contributory is Rs. 500 or less, the Official Liquidator may, upon satisfying himself as top the claimant’s right and title to receive the dividend or the return as the case may be, apply to the Court for sanctioning the payment of such dividend or return to the claimant without the production of a succession certificate or like authority. Where the Court sanctions the payment, the Official Liquidator shall make the payment upon obtaining a personal indemnity from the payee.
TERMINATION OF WINIDNG-UP
R. 281. Official Liquidator to apply for dissolution.----As soon as the affairs of the company have been fully wound-up the Official Liquidator in a winding-up by the Court shall file his final account into Court and apply for orders as to the dissolution of the company subject to his final account being passed in accordance with these Rules. The application shall not be set down for hearing until the completion of the audit of the final account and the filing of the auditor’s certificate in relation thereto.
R. 282. Dissolution of the company.---Unless the hearing of the application, the Court may, after hearing the Official Liquidator and any other person to whom notice may have been ordered by the Court, upon perusing the account as audited, make such orders as it may think fit as to the dissolution of the company, the application, subject to the provisions of the Act, of he balance in the hands of the Official Liquidator or the payment thereof into the Companies Liquidation Account in the public account of India in the Reserve, Bank of India, and the disposal of the books and papers of the company and of the Liquidator.
R. 283. Liquidator to pay the balance into public account.---Upon an order for dissolution being made, the Official Liquidator shall forthwith pay into the Companies Liquidation Account in the public account of India in the Reserve Bank of India any unclaimed dividends payable to creditors or undistributed assets refundable to contributories in his hands on the date of the order of dissolution, and such other balance in his hands as he has been directed by the Court to deposit into the Companies Liquidation Account in the Reserve Bank of India. Every order of dissolution shall direct that the Official Liquidator do forward a certified copy of the order shall be filed with the Registrar of Companies, a statement signed by the Official Liquidator that the directions of the Court regarding the application of the balance as per his final account have been duly complied with.
R. 284. Conclusion of winding-up.-----The winding-up of a company shall, for purposes of section 551, be deemed to be concluded—
(a) in the case of a company wound-up by order of the Court, at the date on which the order dissolving the company has been reported by the Liquidator to the Registrar of Companies;
(b) in the case of a company wound-up voluntary, or under the supervision of the Court, at the date of the dissolution of the company, unless at such date any fund or assets of the company remain unclaimed or undistributed in the hands or under the control of the Liquidator, or any person who has acted as Liquidator, in which case the winding-up shall not be deemed to be concluded until such funds or assets have either been distributed or paid into the Companies Liquidation Account in the Reserve Bank of India.
R. 285. Application to declare dissolution void.---An application under section 559 shall be made upon notice to the Central Government and the Registrar of Companies. Where the Court declares the dissolution to have been void, the order shall direct that the applicant to file a certified copy of the order with the Registrar of Companies not later than 21 days from the date of the order.
NOTES
Application
to be made within time specified
R. 286. Registers and Books to be maintained by the Official Liquidator.----(1) The Official Liquidator shall maintain the following Registers and Books:---
1. Register of Liquidation in Form No. 142-A.
2. Central Bank in Form No. 142-B.
3. Company’s Cash Book in form No. 142-C.
4. General Ledger in Form No. 142-D.
5. Cashier’s Cash Book in From No. 142-E.
6. Bank Ledger in Form No. 142-F.
7. Register of Assets in Form No. 142-G.
8. Securities and Investments Register in Form No. 142-H.
9. Register of Book Debts and Outstanding in Form No. 142-I.
10. Tenants Ledger in Form No. 142-J.
11. Suits Register in Form No. 142-K.
12. Decree Register in Form No. 142-L.
13. Sales Register in Form No. 142-M.
14. Register of Claims and Dividends in Form No. 142-N.
15. Contributories Ledger in Form No. 142-O.
16. Dividends Paid Register in Form No. 142-P.
17. Commission Register in Form No. 1420Q.
18. Suspense Register in Form No. 142-R.
19. Documents Register in Form No. 142-S.
20. Books Register in Form No. 142-T.
21. Register of unclaimed dividends and undistributed assets, deposited into the companies liquidation account in the Reserve Bank, in Form no. 142-U, and
22. A Record Bank for each company in which shall be entered all minutes of proceedings and the resolutions passed at any meeting of the creditors or contributories or of the Committee of Inspection, the substance of all orders passed by the Court in the liquidation proceedings, and all such matters other than matters of account as may be necessary to furnish a correct view of the administration of the company’s affairs.
In maintaining the registers and books mentioned above, the Official Liquidator shall follow the instructions contained in the respective forms prescribed for the said books and registers.
(2) The Official Liquidator shall, in addition to the Registers and Books prescribed above, maintain such books as may be necessary for the proper and efficient working of his office shc as Petty Cash Register, Correspondence Register, Daily Register of Money Orders and Cheques received, and so, on, and shall also keep the necessary files of correspondence and of proceedings in respect of each company under liquidation in his charge.
(3) Where the accounts of the company are incomplete, the Official Liquidator shall, with all convenient speed, as soon as the order for winding-up is made, have them completed and brought up-to-date.
(4) (i) Where the Official Liquidator is authorized to carry on the business of the company he shall keep separate books of account in respect of such business and such books shall, as far as possible, be in conformity with the books already kept by the company in the course of its business. The Official Liquidator shall incorporate in the Central Cash Book and in the company’s Cash Book, the total weekly amounts of the receipts and payments on such trading account.
(ii) The trading account shall from time to time not less than once in every month, be verified by affidavit, and the Official Liquidator shall thereupon submit such account to the Committee for that purpose, who shall examine and certify the same.
(5) The Official Liquidator shall also keep a counterfoil Receipt Book in triplicate in From No. 143 the leaves of which shall be machine numbered serially, from which shall be issued all receipts for payment made to the Official Liquidator. The duplicate and the triplicate shall bear the same number as the original
(6) The Official Liquidator shall keep proper vouchers for all payments made for expenses incurred by him. The vouchers shall be serially numbered.
(7) In respect of companies the winding-up of which was commenced under the Act prior to the coming into force of these Rules and is pending on the date these rules come into force, the Official Liquidator shall, as soon as may be and not later than 3 months after the coming into force of these rules or such extended time as may be allowed by the Court, prepare and bring up-to-date the books and registers prescribed under sub-rule (1) of this rule, provided that the Court may, if it thinks fit, dispense with this requirement in any particular case.
NOTES
Contributor’s
right of inspection
Under section 461(2) of the Companies Act, 1956, a contributory is entitled to inspect only these books, which are required to be kept by the liquidator under section 461(1), viz., the books containing entries or minutes of meetings and such other matters as may be prescribed. He is not entitled to inspect the account books, which are prescribed under Rule 286 to be maintained by the liquidator. Gulzari Lal Bhargava v. O.R. and O.L. of Ammonia Supplies Corporation. P. Ltd., (1972) 42 Com Cases 401 (Del).
BANKING ACCOUNT OF THE OFFICIAL LIQUDATOR
R. 287. All money to be paid into the Reserve Bank.----(1) The Official Liquidator shall pay into the public account of India in the Reserve Bank of India (hereinafter referred to as the Bank) to the credit of an account in his Official name, all moneys received by him as the Official Liquidator of any company, and the realizations of each day shall be paid into the Bank without deduction not late than the next working day of the Bank, provided that the remittance of money into the Bank may be deferred until the realizations exceed Rs. 100. The money needed for meeting expenses or for making payments in cash shall be drawn from the Bank by cheque drawn upon the bank by Official Liquidator. All payments out of the account by the Official Liquidator above Rs. 50 shall ordinarily be made by cheque drawn against the said account.
(2) The Official Liquidator shall maintain a Bank remittance Chelan book in counterfoil, the leaves of which shall be serially numbered in which the acknowledgement of the bank shall be obtained for all moneys (whether in cash or cheque) deposited into the Bank to the credit of he account mentioned in clause (1) above. The Form of the Chelan book shall be settled by the Official Liquidator in consultation clause (1) above. The Form of the challan book shall be settled by the Official Liquidator in consultation with the bank.
R. 288. Bills, cheque and securities to be deposited into bank.---All bills, cheque, bundies notes and other securities of a like nature payable to the company or to the Official Liquidator thereof shall, as soon as they come into the hands of the Official Liquidator, be deposited by him with the Bank for the purpose of being presented for acceptance and payment or for payment only, as the case may be, and the proceeds when required shall be credited by the Bank to the account of he Official Liquidator,
R. 289. Payments into Bank under section 471.----Where the Court makes an order directing any person to pay any money due to the company into the public account of India, in the Reserve Bank of India instead of the Official Liquidator, the person so directed shall, at the time of making the payment, produce to the Bank a certified copy of the order or a payment in chelan endorsed by the Official Liquidator under his signature. The money so paid shall be credited to the Official Liquidators account with the Reserve Bank of India. The person making the payment shall give notice thereof to the Official Liquidator and produce him the Bank receipt relating thereto.
R. 290. Official Liquidator’s Dividend Account.---The Official Liquidator shall also open a separate dividend account for each company under liquidation either in the State Bank of India or its subsidiaries, or, with the sanction of the Court, in any other Schedule bank, as may be convenient, under the name ‘the Dividend Account of ------ (name of the company) in liquidation by the Official Liquidator’, into which account he shall, upon a declaration of dividend being made in the winding-up of any company, deposit by transfer from his account, with the Reserve Bank of India the total amount of the dividend payable upon such declaration. There shall be a separate account in respect of each declaration of dividend,. All payments dividend shall be made from the said Official Liquidator’s dividend account and any unpaid balance in the account shall be transferred back to the Official Liquidator’s account in the Reserve Bank of India before being paid into the companies liquidation account as claimed dividends.
All payments of dividends above Rs. 50 shall ordinarily be made by cheque drawn against the said account.
(Note.---In this Rules, the word ‘dividend’ includes refund of capital to contributories.)
R. 291. Fees to be credited to Central Government.------in every wining-up where the Official Liquidator becomes or acts as Liquidator, there shall be paid into the public account of India in the Reserve Bank of India to the credit of the Central Government, from out of the assets of the company in liquidation (or by the petitioner in clause (1) below), the fees determined I accordance with the following provisions:---
(1) Where the Official Liquidator acts as provisional Liquidator only.
Such Fees as the Court may consider reasonable, to be paid out of the assets of the company or by the petitioner as the Court may direct, in respect of the services of the Official Liquidator as Provisional Liquidator.
(2) Where a winding-up order is made and the Official Liquidator acts as liquidator of a company.
(i) Upon the total assets, including produce of calls on contributories, interest on investments and rents from properties, realized or brought to credit by the Official Liquidator, after deducting sums on which fees are chargeable under clauses (3) and (4) below and the amount spent out of the money received in carrying on the business of the company, upon each year’s collections.
On the first Rs. 10,000 or faction thereof …3 per cent.
On the next Rs. 40,000 or faction thereof …2 per cent.
On the next Rs. 50,000 or faction thereof …1 per cent.
Above Rs. 1,00,000 …3/4 per cent.
(ii) On the total amount distributed in dividend or paid to contributories, preferential creditors, and debenture-holders by the Official Liquidator, half the above percentages.
Note----(a) In computing the collections of each year, the year shall be taken as ending with 31st of March.
(c) (b) The said fees shall include the Official Liquidator’s services as Provisional Liquidator and shall be subject to clauses (8) and (9) hereunder.
(3) Where the Official Liquidator collects, calls or realizes property for debenture-holders.
The same scale of fees as under clause (2) to be paid out of the proceeds of such calls or property.
(4) Where the Official Liquidator realizes property for secured creditors other than debenture-holders.
On the amount realized for each secured creditor.-----
On the first Rs. 10,000 or fraction thereof 4 per cent.
On the next Rs. 40,000 or fraction thereof 2 ½ per cent.
On the next Rs. 50,000 or fraction thereof 2 per cent.
Above Rs. 1,00,000 1 ½ per cent.
(5) Where the Official Liquidator performs any special duties not provided for above such fees as the Court may fix on the application of the Official Liquidator, in addition to any other fees payable.
(6) When the Official Liquidator acts as liquidator in a creditor’s voluntary winding-up, such fees as Court may fix on the date application the scale under clause (2) above.
(7) Where the Official Liquidator acts as liquidator in a creditor’s voluntary winding-up, such fees as the Court may fix, not proceeding the scale under clause (2) above.
(8) Where under section 527, the Court appoints any persons who are already liquidators in a winding-up subject to the supervision of the Court to be additional liquidators in a winding-up of the company by the Courts, subject to the control of the Official Liquidator, such fees as may be fixed by the Court after taking into consideration the remuneration payable to such additional liquidators.
(9) Where the Court has sanctioned the reconstruction of the company under liquidation or a scheme of arrangement of its affairs, or where for any reason the Court is of the opinion that the fees prescribed in paragraphs (2) and (3) above would be excessive, such reduction may be made in the said fees as the Court thinks fit.
NOTES
Increasing
remuneration of voluntary liquidator
One of the effects of sections 490(2), 524, 525, 526(2), 527 read with Rule 291 is that the remuneration of a liquidator fixed at the time of his appointment in the voluntary winding-up of a company cannot be increased under any circumstances even after the voluntary liquidation is brought under the supervision of the Court. A voluntary winding-up, even when brought under the supervision of the court, remains a voluntary winding-up. V. Rajaraman, Liquidator, Globe United Engg. & Foundry Co. Ltd. v. ROC, (1974) 44 Com Cases 330 (Del).
Recovery
of liquidator of debts of secured creditor
When a liquidator affects recovery on behalf of a secured creditor, he cannot be said to be acting on behalf of the company. Hence the benefit of section 458-A cannot be claimed by him in claiming a time barred debt, Gleitlager (India) P. Ltd. v. Killick Nixon, (1977) 47 Com cases 79 (Bombay).
Where the book debts of a company were hypothecated to a bank and on the company going into liquidation, the bank asked the liquidator to initiate proceedings to recover the debts, the bank bearing the costs and expense, it was held that the liquidator was realizing the company’s debts and was, therefore, entitled to the benefit of section 458-A. H.S. Kamlani v. Mazgaon Dock Ltd., (1985) 57 Com Cases 742 (DB---Bombay).
Payment
of fees to official liquidator
The effect of the rule has been stated in the following terms in Capital Chit Fund P. Ltd. v. O.L., (1978) 48 Com Cases 176 at pp. 180-181 (Del):”This question raises a point of considerable importance in connection with what are the rights of the official liquidator after the winding-up order has ceased to be effective and the company has come under a scheme or arrangement. Is the official liquidator to continue to receive his connection, even on amount disbursed under the scheme and is the official liquidator entitled to get commission all or amounts received hereafter by the company? These two questions require a considered analysis of the scheme of the Companies Act and the Companies (Court) Rules, 1959.
The relevant rules dealing with the fees to be paid on account of the work done by the official liquidator are contained in Rule 291 of the Companies (Court) Rules, 1959. That rule states that, if the official liquidator becomes the liquidator of a company, certain amounts as specified in the rule have to be paid into the public account of India in the Reserve Bank of India to the credit of the Central Government from out the assets of the company in liquidation. In Case the official liquidator acts as provisional liquidator, then either the company or the petitioner as the court may direct, have to pay such fees as the court may consider reasonable for the services of the official liquidator. In case a winding up order is made and the official liquidator acts as a liquidator, then all realizations made, a certain percentage as prescribed in the rule has to be paid on each year’s collection. Similarly, there is a commission to be paid for realizations of property for debenture-holders and other secured creditors. If the official liquidator acts as a trustee under a scheme of arrangement, or performs any special duties, the court can fix the scale of fees. Similarly, if the official liquidator acts as liquidator in a creditors’ voluntary winding up or, in case of there are additional liquidators under section 527 of the Act, the fees payable are adjustable by the court. Finally, if there is a reconstruction of the company in liquidation or a scheme of arrangement concerning its affairs, or if for any other reason the ocurt is of opinion that the fees prescribed excessive and a reduction should be made, the court has power to reduce the same. The present is a case where there is now a concerning the affairs of this company and, hence, the court has power to reduce the gees to be paid on account of the services of the official liquidator if the court finds them excessive. This is the relevant rule.”
Where the property of the company was auctioned by the court through the District Judge, and the auctioneer’s fee was duly paid by the District Judge, and the other expenses incurred for 5auctioning the property were also paid out of the auction money, it was held that the official liquidator did not do anything for the banker or the secured creditors. Consequently, the official liquidator could not derive any benefit from the provisions of section 451 of the Companies Act and Rule 291 of the Rules. Under this rule the Central Government was entitled to the fees according to the rates given in the rules., only where the official liquidator realizes the property for secured creditors. Hence, the rule was not applicable. State Bank of India v. Depro Foods Ltd., (1988) 64 Com Cases 831, 833 (P&H).
R. 292. Where the company has no available assets.----Where a company against which a winding-up order has been made has no available assets, the Official liquidator may, with the leave of the Court, incur any necessary expenses in connection with the expenses so incurred shall be recouped out of the assets of he company in priority to the indebts of the company:
Provided that where any money has been advanced to the Official Liquidator by the petitioning creditor or contributory for meeting any preliminary expenses in connection with the winding-up, the Official Liquidator may incur any necessary expenses out of such amount, and the money so advanced shall be pad out of the assets of the comp-0any in priority to the debts of the company.
NOTES
Liability
of secured creditor to contribute to expenses
Reading rules 292 and 338 together and on the facts, the secured creditors were directed to make contributories in the manner stipulated by the court to enable the liquidator to make payments to the employees of the watch and ward staff engaged to protect the securities in question. Official Liquidator, New Swadeshi Mills v. Central bank of India, (1987) 1 Comp LJ 151 (Gujarat). Also see Official Liquidator, Pubjab United Forge Ltd. v. Chairman & Managing Director, Financial Corporation., (1993) 10 Corpt LA 158 (P&H).
Where a company was put on winding up on the petition of the Cement Controller who advanced an amount o the provisional liquidator for preliminary expenses which the controller was to be paid back under Rule 292 in priority of the company’s debts, it was held that he could not be charged with the burden of providing money for unpaid labor whom the provisional liquidator retained. Since the company was taken over by the Government, wages had to be paid by the Commissioner of Payments under the takeover Act. Cement Controller of India v. Dalmia Dzdri Cement P. Ltd., (1988) 63 Com Cases 93 (P&H).
Subrogation
of creditor to position of employees
In Mohinder Singh v. Indian Overseas Bank, (1996) 86 Com Cases 101 (P&H), as the official liquidator was not on possession of funds to meet the watch and ward charges for the security staff of the company, he filed a petition under proviso to Rule 292 read with Rule 9 of the Companies (Court) Rules, 1959, against the respondent-bank for a direction to the respondents who were secured creditors to advance adequate funds to the official liquidator to enable him to meet the watch and ward charges to be made to the security staff and the amount so paid be treated as a advance to be recovered out of the assets of the company in priority in respect of such payments, i.e., the priority to which the employees were entitled, but they did not become employees of the bank only because the latter was paying them wages.
INVESTMENT OF SURPLUS FUNDS
R. 293. Investment of moneys.----All such money for the time being standing to the creditor of the Official Liquidator at the Bank is not immediately required for the purposes of winding-up, shall be invested in Government securities or in interest bearing deposits in the State Bank of India, or, with the previous sanction of the Court, in interest bearing deposits in any other Scheduled Bank, in the name of the Official Liquidator as Official Liquidator of the company to which the funds belong.
NOTES
Where the court found that the liquidator had to incur unnecessary expenditure for getting appropriate relief from the Income-Tax Authorities as to the interest on funds invested by him in terms of this rule, the ocurt declared all expenses incurred by the liquidator are allowable expenses in the winding-up administration of the company. Wanddor Jupiter Chits (P). Ltd., Re, (1992) 74 Com Cases 215 (Ker).
R.294. Official Liquidator to examine the accounts for purposes of investment.----The Official Liquidator shall, at the end of every three months, examine the account of each liquidation in his charge to ascertain what moneys are available for investment, and shall make an entry at the end of every three months in the Record Book relating to the company of his having examined the account for the purpose and of the decision taken by him regarding the investment, and in the case he decides not to invest any surplus funds, the reasons for such decision.
R. 295. Investments to be made by the Bank.---All investments shall be made by the Bank upon the written request of the Official Liquidator. The securities shall be retained in the Bank in the name and on behalf of the Official Liquidator, shall not be sold except by the Bank and under the written instructions of the Official Liquidator. When the securities are sold the proceeds shall be credited by the bank to the account of the Official Liquidator.
(Note.—In this rule, the word ‘Bank” shall mean the Reserve Bank of India and its Branches, but not its agencies.)
R. 296. Dividend and interest to be credited.---All dividends and interest accruing from any securities or investment shall from time to time be received by the Bank and placed to the credit of the account of the Official Liquidator and intimation thereof shall be given to the Official Liquidator, who shall thereupon such dividend or interest in his accounts to the company to which the security or the investment relating thereto belongs.
R. 297. Refunds of Income-Tax.----The Official Liquidator shall claim such refunds of income-tax as may be due in respect of any every year, the account for the period ending 31st March being filed not later than the 30th of June, following, and account for the period ending 30th September, not later than the 31st of December following:
Provided that the final account of the Official Liquidator shall be filed as soon as the affairs of the company have been finally wound-up, irrespective of the period prescribed above.
NOTES
No
share capital in winding up
In the case of a company in liquidation, on analyzing the provision of sections 210 and 211 of the Companies Act, 1956, and Rules 298 and 299, it would be clear that the concept of share capital is unknown to such a company and that the accounts do not show the capital or reserves with respect to which the capital of the company has to be worked out for the purpose of levy of super-tax as provided in the Schedule. Therefore, no assessment under the Super Profits Tax Act, 1963, can be made on a company in liquidation. CIT, Kerala v. Pillai Central bank Ltd., (1979) 49 Com Cases 268 (Ker).
R. 299. Form of account.----The account shall be a statement of receipts and payments in Form No. 144 and shall be prepared in accordance of the assets of the company, he shall file an affidavit of no receipts be filed, amd the account shall be verified by an affidavit of the Official liquidator in Form No. 145. The final account shall be in Form No.146.
R. 300. Nil account.----Where the Official Liquidator has not during the period of account received, or paid any sum of money on account of the assets of the company, he shall file a affidavit of no receipts or payments on the date on which he shall have to file his accounts for the period.
R. 301. Registrar to send copy of account to the Auditor.----As soon as the accounts are filed, the Registrar shall forward to the auditor one copy thereof for purposes of audit with a requisition in Form No. 147 requesting that the accounts may be audited and a certificate of audit issued to the Court not later than 2 months from the date of receipts of the copy of the account.
R. 302. Audit of the Official Liquidator’s accounts.---The accounts shall be audited by one or more Chartered Accountants appointed by he Court, by the Court, or if the Court so directs, by the Examiner of Local Fund Accounts of the State concerned. The audit shall be a complete check of the accounts of the Official Liquidator shall produce before the auditor all his books and vouchers for the purposes of the audit, and shall give the auditor all such explanations as may be required of him in respect of the accounts.
R. 303. Audit certificate to be filed.---After the audit each of the accounts of the Official liquidator filed in Court, the auditor shall forward to the Registrar a certificate of audit relating to the accounts with his observations and comments, if nay, on the account, together with a copy thereof and shall forward another copy to the Official Liquidator. The Registrar shall file the original certificate with the records and forward the copy to the Registrar of Companies together with a copy of the account to which it relates.
R. 304. Audit fees.---(1) Audit fees according to the following scale on the gross amount brought to credit, including the produce of calls on contributories interest on investments and rents from properties, but after deducing (a) the amount spent out of the money received in carrying on the business of the company and (b) the amounts paid by the Official Liquidator to secured creditors (other than debenture-holders), shall be to the auditor and debited to the account of the liquidation to which the audit relates:-
On the amount brought to credit including the produce of calls on contributories, Interest on investments and rents from properties, but after deducting (a) the Amount spent out of the money received in carrying on the business of the Company, and (b) amounts paid by the Official Liquidator to secured creditors (other than debenture-holders) …1/2 per cent.
On disbursements, other than payments to secured creditors not being Debenture-holders. …1/2 per cent.
(2) Where the audit is by the Examiner of Local Funds Accounts, audit fees calculated on the above scale shall be paid into the public accounts of India in the Reserve Bank of India to the credit of State Government concerned.
(Note.---Rules 301 to 304 have been held to be ultra vires of the Supreme Court’s rule making power by the Calcutta High Court in Re Fire & General Insurance Co. (1962) 66 CWN 566.)
NOTES
The Calcutta High Court in its decision in Fire and Insurance Co. India ltd., Re, (1962) 32 Com Cases 257 (Calcutta), that the extent to which these rules lay down the manner of audit they are beyond the power delegated to the Supreme Court. The court said (at pp. 964-965):”It is clear from section 462 that the Supreme Court may prescribe by rules the number of times the liquidator has to present an account to the court but not less than twice in each year. And the Supreme Court must prescribe the form in which the accounts shall be presented. But the manner in which the account is to be audited has been left to the court having jurisdiction under the Act. The Supreme Court has no power to prescribe rules relating to the manner in which the court shall cause the liquidator’s account to be audited. There is no doubt that Rules 301 to 304 deal with the manner of auditing and the Supreme Court has in this respect gone beyond the powers conferred on it by section 643 of the Companies Act.” This case was referred to in Chotanagpur Banking Assn., Re, (1969) 1 Comp LJ 75 (Pat), where the court noted the difference between the powers of the Central Government to make rules and that of the Supreme Court. The court was considering the validity with section 462(3) of the Act. The court said: “On a construction of section 643(1)(a) read with section 2(33) defining ‘prescribed’ absolute power is conferred on the Supreme Court after consulting the High Court to make rules relating to the winding up of companies such as Rules 301 to 304. It will be open to a Court to exercise in a given case under special circumstances its general power under section 462(3) in variation of the procedure and the fees prescribed for audit of liquidator’s account in Rules 301 to 304 thus brining about harmony. Thus viewed Rules 301 to 304 are intra vires and valid but are subject to the general and wide power of the court under section 462(3) of the Act.”
R. 305. Inspection of the account and certificate of audit.----Any creditor or contributory shall be entitled to inspect the accounts and the auditor’s certificate in the office of the court on payment of a fee of Re., 1, and to obtain a copy thereof on payment of the prescribed charges.
R. 306. Account and auditor’s report to be placed before Judge.---Upon the audit of the account, the Registrar shall place the statement of account and the auditor’s certificate before the Judge for his consideration. And orders.
R. 307. Legal Assistance for the Official Liquidator.---The Official Liquidator shall, as far as possible, personally appear and conduct all proceedings before the Court in the liquidation, provided that the Official Liquidator may apply to the Court for sanction to employ an advocate or advances to assist him, and the Court may, on such application, sanction such employment or pass such further or other orders as it may think fit.
NOTES
If an official liquidator desires to employ an advocate or attorney, he must take sanction of the company court, in each individual matter. It is the duty of the taxing officer, before passing the bills or charges of an advocate, first to satisfy himself that the official liquidator has obtained the sanction of the court. The applicable rules are: 2(11), 307, 338, 340, 343, 348, 356. It is not a matter for the taxing master of the High Court. It is only the company registrar of the High Court who is to be the taxing officer for this purpose and the taxation of costs has to be in accordance with the rules provided under the Companies (Court) Rules, 1959. Reginald Edward Bnegus Re: NGK Electrical Industries v. O.L., Devidayal Tube Industries Ltd., (1989) 65 Com Cases 443 (Bombay); Dhimant Harilal Thakar v. Devidayal Tube Industries, (1989) 65 Com Cases 443 (Bombay).
R. 308. Employment of additional or special staff.----Where the Official Liquidator is of opinion that the employment of any special or additional staff is necessary in any liquidation, he shall apply to the Court for sanction, and the Court may sanction may such as it thinks fit on such salaries and allowances as to the Court may seem appropriate.
NOTES
Termination
of employee by liquidator
Setting aside the termination of an employee in his office by the official liquidator, the court observed: The scheme of the Act does not visualize any action by he liquidator, which is beyond the control and supervision of the court. In fact, Rule 308 dealing with employment of additional or special staff, requires the liquidator to apply to the court for sanction which may be given on terms considered appropriate by the court. Even the apportionment of he salaries of the staff, is subject to the directions of the judge as is evident from Rule 309. Again, Rule 338 providing for costs and expenses payable from the assets in winding up by the court contemplates payment of the costs of any person properly employed by the official liquidator. The use of the world ‘properly’ indicates that tit should have been done in accordance with the provisions of the Act and rules. There is no provision in the act, which empowers the official liquidator to appoint any staff on his own. In fact, the official liquidator in this case is an employee of the Central Government and the staff and the establishments in his office are subject to the rules governing the Central Government employees. However, in case of the need for any special or additional staff, the official liquidator its to seek the sanction of the court for such employment. In this case, that the petitioner has been continuously in employment since 1964, i.e., even long before the present official liquidator has taken over. Any action of the official liquidator, which affects the rights of a [person like creditor, debtor, shareholder, director or even an employee appointed after obtaining the sanction of the court, is subject to the examination by this court regarding its validity. Babu Rao (M.R.) v. Sri Jaya Investment (P.) Ltd., (1997) 1 Comp LJ 416 (AP).
R. 309. Apportionment of expenses of common staff.---Where any staff is employed to attend to the work of more than one liquidation, or any establishment or other charges are incurred for more than one liquidation, the expenses incurred on such staff and the common establishment and other charges, shall be appointed by the Official Liquidator between the several liquidations concerned in such proportions as he may think fit, subject to the directions of the Judge, if any.
R. 310. Applications under section 463(2) and section 545(3).-----An application under section 463(2) to examine on oath the liquidator or any other person concerning the winding-up, and an application under section 545(3) for an order conferring on any person designated by the Central Government the powers of investigating the affairs of the company concerned, shall be made ex party and shall be supported by an affidavit stating the circumstances in which the application is made.
R. 311. Annual statement by the Official Liquidator under section 551.----(1) The Official Liquidator shall file his first annual statement under section 551(1) within one month after the expiry of a year from the date of commencement of the winding- up and thereafter his subsequent statements at intervals of one year until the conclusion of the winding-up. The annual statement to be filed by the Official Liquidator shall be in Form No. 148.
(2) Upon the filling of the statement, the Registrar shall obtain orders of the Judge fixing a date for as consideration thereof and notify the date on the notice board of he Court and to the Official Liquidator. The Official Liquidator shall attend the consideration of the statement and shall give the Judge any explanation or information with reference to the matters contained therein as the Judge may require.
(3) Any creditor or a contributory shall be entitled to inspect the statement on payment of a fee of Re. 1 and to obtain a copy thereof on payment of the prescribed charges.
R. 312. Applicability of rules.----(1) Where an application is made to the Court under the provision of the Act in the voluntary winding-up of a company, whether or not an order shall have been made that the voluntary winding-up shall continue subject to the supervision of the Court, these Rules, so far as may be, shall be applied to the subject-matter and mode of such application.
(2) Save as aforesaid, Rules which from their nature and subject-matter, or by the headlines above the group in which they are contained or by their terms are made applicable only to proceedings in a winding-up by the Court or only to such proceedings and to proceedings and to proceedings in a creditors’ voluntary winding-up, shall not apply to; proceedings in a voluntary winding-up, or, as the case may be, in a members’ voluntary winding-up, whether an such voluntary winding-up is or not being continued under the supervision winding-up, whether any such voluntary is or not being continued under the supervision of the Court.
A suit was filed on behalf of a company. Subsequently to that it went into voluntary winding up. It was held that amendment of the title of the plaint was not necessary but that it would be convenient. One of the liquidators singing on behalf of all applied for the amendment. The court allowed it, there being no violation of Rules 312, 315 and 321. The court said that even if there was any such violation, it would not have stood in he way of the amendment. Eastern Coal Co. Ltd. v. Sunil Kumar Roy, (1969) 39 Com Cases 126 (Calcutta).
R. 313. Declaration of solvency in a member’s voluntary winding-up.----The declaration of solvency to be made by the directors of a company under section 488(1), shall be in Form No. 149, with such variations as the circumstances may require.
In order to initiate a valid voluntary winding-up, it is essential that a declaration of solvency should be drawn up and filed in conformity with the provisions of section 488 and Rule 313. Raja Mohan Manucha v. Lakshmi Nath Saigal, (1963) 33 Com cases 719 (All).
R. 314. Statement to be laid before meeting of creditors under section 495(1).----The statement of the assets and liabilities of the company to be laid before a meeting of creditors by a liquidator in a members’ voluntary winding-up under section 495(1) shall be in Form No. 150 with such variations, as may be necessary.
R. 315. Notice of appointment of liquidator.---The notice of his appointment which every liquidator is required to publish in the Official Gazette under section 516, shall be in Form No. 151 and the notice of the appointment to be delivered to the Registrar of Companies shall be in Form No. 152.
R. 317. Security by liquidator appointed by Court.-----(1) Unless otherwise ordered, every liquidator appointed by the Court in a voluntary winding-up, other than the Official Liquidator shall, before entering upon his duties as liquidator, furnish security in such sum and in such manner as the Court may direct, for the due discharge of his duties as liquidator. The cost of furnishing the required security, including any premiums, which he may pay to a Guarantee Society, shall be borne by the liquidator personally, and shall not be charged against the assets of the company as an expense incurred in the winding-up.
(2) If it shall appear at any time to the Court that the security furnished by the liquidator is inadequate, the Court may require the liquidator to furnish additional security. Where the security furnished is excessive, the liquidator may apply to the Court for reducing the amount of security, and the Court may make such order thereon as it if thinks fit.
R. 318. Limit of remuneration if liquidator.------Where the liquidator shall not, under any circumstances whatever, make any arrangement for, or accept from any advocate, auctioneer or any other person connected with company, any gift, remuneration, or pecuniary or other benefit whatever b3eyond the remuneration to which under the Act and the Rules he is entitled as liquidator, nor shall he make any arrangement for given up, or give up any part of such remuneration to any such person.
R. 319. Restriction on purchase of goods by liquidator.----Where the liquidator carries on the business of the company, he shall not, without the express sanction of the Court, purchase goods for the carrying on of such business from any person whose connection with him is of such a nature as would result in his obtaining directly or indirectly any benefit out of the transaction. Where the liquidator applies for sanction, he shall disclose in his application the nature of his interest in the transaction, and the cost of obtaining sanction of Court shall be borne by the liquidator personally.
R. 320. Office of liquidator vacated by his insolvency.----A liquidator against whom an order of adjudication is made shall thereby vacate his office, and for the purposes of the application of the Act and the Rules, he shall be deemed to have been removed.
R. 321. Resignation of liquidator.---(1) In a member’s voluntary winding-up, a liquidator who desires to resign his office, shall summon a meeting of the company and submit his resignation to it.
(2) In a creditor’s voluntary winding-up, a liquidator who desires to resign to resign his office shall summon separate meetings of the creditors and contributories of he company to decide whether or not his resignation shall be accepted. If the creditors and contributories by ordinary resolution both agree to accept the resignation of the liquidator, the resignation shall take effect. In any other case, the liquidator shall report to the Court the result of the meetings and apply for appropriate orders of the Court and the Court may, upon such application, determine whether or not the resignation of the liquidator shall be accepted, and may give such directions and make such orders as it considers necessary.
(3) The liquidator shall, along with his resignation, submit an account of his acts and dealings as liquidator and a statement as to the position of the liquidation, in a form in all respects similar to the statement prescribed under these Rules under section 551(1), commencing from the date when the last previous statement, if any, under the said section terminated, or from the date of his appointment as liquidator, whichever is later, and brought down to the date of his resignation.
(4) The expenses of summoning a meeting of the company under sub-rule (1) of this rule, or of the meetings of creditors and contributories under sub-rule (2) of the application to be made to the Court under sub-rule (2), shall be part of the expenses of the liquidation.
R. 322. Duty of liquidator upon resignation.----Upon a liquidator resigning or being released or removed from his office, he shall deliver over to the new liquidator all books kept by him, and all other books, documents, papers and accounts in his possession relating to the company or to the office of the liquidator.
R. 323. Books to be kept by the liquidator.-----(1) The liquidator shall keep proper books of accounts showing all receipts and payments made by him in he course of the liquidation.
(2) In a creditor’s winding-up, he shall keep such books as the Committee of Inspection, or if there is no such Committee, as the creditors, direct, and submit all he books and accounts and documents and papers in his possession relating to his office as liquidator or to the company, to the Committee or creditors as the case may be.
(3) In addition to the books of account, the liquidator shall keep a record book in which shall be entered all minutes of proceedings and the resolutions passed at any meeting of he creditors or contributories or of the Committee of Inspection, particulars of all his transactions and negotiations in relation to the winding-up and all such matters other than matters of account as may be necessary to furnishes a correct view of the administration of he company’s affairs. He shall also keep a book showing the dates at which all notices to creditors and shareholders were sent out and posted. The person who dispatched the notices shall initial the entries in the book relating thereto.
(4) The accounts of he liquidator shall be open to the inspection of every creditor or contributory during office hours upon payment of a fee of re 1 for every hour of inspection or part thereof.
R. 324. Banking account of the liquidator.----The liquidator shall open a special account of the liquidation called the “Liquidation Account of --------- Company Ltd.”
_________________
Company Private Ltd.”
Company.”
In a Schedule Bank, or with the previous sanction of the Court, in any other Bank, as provided in section 553(1) into which he shall pay all money received by him as liquidator, and the realizations of each day shall be paid into the said account without deduction not later than the next working day of the Bank, provided that the remittance of moneys into the Bank may be deferred until the realizations exceed Rs. 100. The money needed for meeting the expenses of liquidation or for making any payments by the liquidator in cash shall be drawn from the Bank of cheque drawn upon the Bank by he liquidator. All payments by the liquidator above Rs. 50 shall ordinary be made by cheque.
Unless the contrary appears, all references in these Rules to the Bank in a voluntary winding-up shall mean references to the bank in which an account has been opened as aforesaid.
R. 325. Bills, cheque and securities to be deposited in Bank.----All bills, cheque, bundies, notes and other securities of a like nature payable to the company or to the liquidator thereof shall, as soon as they come into the hands of the liquidator be deposited by him with the Bank for the purpose of being presented for acceptance and payment or for payment only, as the case may be, and the proceeds when realized shall be credited by the Bank to the account of the liquidator.
(2) Rules 294 to 297 of these Rules relating to investments shall apply mutates mutandis to investments made by the liquidator in every voluntary winding-up.
R. 327. Liquidator’s statement under section 551.----In a voluntary winding-up or a winding-up under the supervision of the Court, the statements required to be filed under section 551 with respect to the proceedings in and position of the liquidation of a company the winding-up of which is not concluded within a year after its commencement, shall be filed with the Registrar of Companies twice in every year as follows:-
(1) The first statement, commencing from the date when a liquidator was first appointed nd brought down to the end of twelve months from the commencement of the winding-up shall be filed within one month from the expiration of such twelve months, and subsequent statements shall be filed at intervals of half a year, each statement being brought down to the end of the half year for which it is filed. Where the winding-up is concluded before the expiation of a half-yearly interval, the final statement of account brought down to the close of the winding-up shall be filed forthwith.
(2) Where the time for filling the statement has expired the Court may on application extend the time, and unless the Court otherwise orders, the costs of such application shall be borne by the liquidator personally.
(3) The statements shall be in Form No. 153 (with such variations as may be necessary in the case of the final account) and shall be prepared in accordance with the instructions contained in the Form, and verified by an affidavit in Form No. 154.
(4) Where the liquidator has not, during any period for which the statement has to be filed, received or paid any money on account of to company, he shall, at the period when he is required to file his statement, file with the Registrar of Companies the prescribed statement in the above Form No. 153, in duplicate, containing th particulars therein required with respect to the proceedings in and the position of the liquidation, together with an affidavit of no receipt or payment.
(5) Every statement shall be filed in duplicate with the Registrar of Companies, and, in a winding-up under the supervision of the Court, a copy of the statement shall also be filed in the Court, within the time prescribed in clause (1) above.
Notes.---In view of the statement of section 551, by Act 65 of 1960 giving two months time for filing the first statement after the expiry of one year after the commencement of the winding-up, sub-rule (1), prescribing one month’s time for filing such statement has no effect.
NOTES
Statements in accounts
It is highly unsatisfactory if in he liquidator’s statement of accounts in Form No. 153, the liquidator includes in the figures of realizations and disbursements not only the amounts realized and disbursed by the company but also the amounts advanced by him to the company from time to time and repayments thereof by the company to the liquidator. Registrar of Cos., Delhi v. Dr. hardit Singh Ginay, (1069) 30 Com Cases 404 (Del).
R. 328. Annual statement under sections 496(1)(b) and 508(1)(b).----The statement to be laid in the case of members voluntary winding-up before a general meeting of the company under section 496(1)(b) and, in the case of a creditors, voluntary winding-up, before a general meeting of the company and a meeting of the creditors under section 508(1)(b), shall be prepared in he same form as the Liquidator ‘s statements under section 551.
R. 329. Notice convening final meeting and the account to be laid before the meeting.----The notice convening the final meeting of the company in a members voluntary winding-up, or the final meetings of the company and the creditors in a creditor’s voluntary winding-up shall be in Form No. 155. The Account of the winding-up to be laid by the liquidator before the sad meeting or meetings shall be in Form 156. In a winding-up subject to supervision of the Court, a copy of the account shall also be filed in the Court.
NOTES
Final accounts
Where the liquidator of a company was sought to be charged with the liability for failure to comply with the requirements as to final accounts as contained in Rule 329, it was held that the facts showed that the liquidator did not commit the irregularity with a dishonest motive and was, therefore, entitled to relief under section 633(2). Prahlad Bai Lath v. ROC, (1979) 49 Com Cases 317 (Ori).
R. 330. Consideration by Court of the statements under section 551 and final account in a winding-up subject to the supervision of the Court.----In a winding-up subject to the supervision of the Court, upon the filing into Court of each of he statements under section 551(1) referred to in rule 327 or of the account referred to in the last proceeding Rule, the Registrar shall obtain orders of the Judge fixing a date for the consideration thereof by the Judge, and notify the date on the notice board of the Court and to the liquidator. The liquidator shall attend the consideration of the statement or of the final account, as the case may be, and shall give the Judge such further explanation or information with reference to the matters contained therein as the Judge may require.
R. 331. Returns to Registrar of Companies.----The returns to be made to the Registrar of Companies under sub-sections (3) and (4) of sections 497 and 509 shall be in Forms Nos. 157 and 158 respectively.
R. 332. Inspection by creditor or contributory of statements filed by liquidator.---Any creditors or contributory of a company which is being wound-up shall be entitled to inspect any of the statements filed under sections 496, 497, 509 and 551 on payment of a fee of Re. 1 each, and to obtain a copy thereof or extract there from on payment of the prescribed charges.
R. 333. Audit of the liquidator’s account.—The company in general meeting in a members’ voluntary winding-up, and the creditors in a creditors’ voluntary winding-up, may, if and when they think fit, appoint an auditor to audit the accounts of the liquidator, and shall fix the fees to be paid to such auditor.
R. 334. Applications under section 518.----(1) An application under section 518 shall be made by a Judge’s summons, and notice of the application shall be given to the liquidator where he is not the applicant, to the respondents, if nay, named in the application, and to such other persons and in such manner as the Court may direct.
(2) Where an order is made under section 518 staying the proceeding in the winding-up, the order shall direct that the applicant at whose instance the order for stay was made shall, within ten days of the making of the order, file a certified copy thereof with the Registrar of Companies.
PAYMENT OF UNCLAIMED DIVIDENDS AND UNDISTRIBUTED ASSETS INTO THE COMPANIES LIQUIDATION ACCOUNT IN A WINDING-UP
R. 335. Statement to accompany payment.---(1) The statement to be furnished, under section 555(3) to the officer appointed by the Central Government, by the Official Liquidator in a winding-up by the Court and by a Liquidator in a voluntary winding-up, when making any payment of unclaimed dividends or undistributed assets into the Companies Liquidation Account in the Reserve Bank of India under sections 555(1) and (2), shall be in Form No. 159.
(2) The liquidator shall, whenever called upon by the Central Government to do so, certify whether a person claiming payment from the Companies Liquidation Account under section 555(7) is or is not entitled to the whole or any part of the amount claimed.
R. 336. Unclaimed dividends or undistributed assets under investment.----For purposes of payment of unclaimed dividends `nd distributaries assets into the Companies Liquidation Account, money invested or deposited at interest by the liquidation shall be deemed to be money in his hand, and when such money forms part of the unclaimed dividends or undistributed assets of the company, the liquidator shall realize the investment or withdraw the deposit and shall pay the proceeds into the Companies Liquidator Account.
R. 337. Application by person for payment of money paid into the Companies Liquidation Account.---An application under sub-section (7)(a) of section 555 by any person claiming to be entitled to any money paid into the Companies Liquidation Account for payment of such money shall state whether the application had made an application to the Central Government for the payment, and, if so, the result of the application.
R. 338. Cost and expenses payable out of the assets in a winding-up by the Court.----(1) The assets of a company in a winding-up by the Court remaining after payment of the fees and expenses properly incurred in preserving, realizing or getting in the assets including, where the company has previously commenced to be wound-up voluntary, such remuneration, cost and expenses as the Court may allow to the liquidator in such voluntary winding-up, shall, subject to any order of the Court and to the rights of secured creditors if any, be liable to the following payments which shall be made in the following order of priority, namely:-
Fist.---the taxed costs of the petition including the taxed costs of any person appearing on the petition, whose costs are allowed by the Court.
Next.---the necessary disbursements of the Official liquidator other than expenses properly incurred in preserving, realizing or getting in the properties of the company;
Next.---the costs and expenses of a person who makes, or concurs in making, the Company’s statement of affairs;
Next.---the cost of any person properly employed by the Official Liquidator,.
Next.---the fees to be credited to Government under section 451(2),
Next.---the actual out of pocket expenses necessarily incurred by the members of the Committee of Inspection, and sanctioned by the Court.
(2) Save as otherwise ordered by the Court no payments in respect of bills of advocates, shall be allowed out of the assets of he company without proof that the same have been considered and allowed by the taxing officer of the Court, the taxing officer shall before passing the Bills, or charges of an advocate, satisfy himself that the appointment of an advocate to assist the liquidator in the performance of his duties ahs been duly sanctioned.
(3) Nothing contained in this Rule shall apply to or effect costs which, in the course of legal proceedings or against the company, which is being wound-up by the Court, is ordered by the Court in which such proceedings are pending, to be paid by the company or the liquidator, or the rights of the person to whom such costs are payable.
NOTES
Discretion of court to award costs
The matter of company’s costs in the light of the above rule was explained in Jaibabs Textile Mills P. Ltd., Re, (1977) 47 Com Cases (Bombay); Amersey & Sons v. Jaifabs Textitle Mills P. Ltd., (1977) 47 Com Cases 434 at pp. 436-437: The company which was ordered to be wound up claimed to be paid its costs of the winding petition from out of the assets of the company. The company rested its claim on Rule 338. It was held that Rule 338 in terms says that the order of priority contemplated in that rule is subject to any order of the court. Hence, it is th eocurt’s duty to consider in each case the question as to whether, in applying Rule 338, the facts permit the ocurt to do so. In the present case, the company had been responsible lengthening the proceedings, in multiplying the proceedings and in making one application after another. One of the directors of the company had indulged consciously in manipulation of accounts and fabrication of documents. Cheque had been issued to creditors many of which had rebounded. The companies wound have a very small surplus even accepting the plea of the company that it had assets in excess of its liabilities. Any payment to the company in this case would be reducing of defeating the claim of the unsecured creditors who will rank after the secured creditors. There would be grave injustice to the unsecured creditors of the company of this kind is allowed not to suffer at least by way of costs. The court observed that this was a fit case in which the costs of the company should not be awarded.
PART
IV
COSTS
AND TAXATION OF COSTS
R. 339. Taxation of costs in Bombay, Calcutta and Madras.----Notwithstanding anything contained in these Rules, costs all proceedings under the act or these Rules in the High Courts of Bombay, Calcutta and Madras shall be taxed in accordance with the rules and the scale of fees in force in the said High Courts respectively and in accordance with the practice and procedure in the said respective Courts.
R. 340. Registrar to be Taxing Officer.---The Registrar shall be the Taxing Officer of the Court for purposes of these rules.
R. 341. Costs in the discretion of the Court.---(1) Costs shall be in the discretion of the Court and no costs of, or incidental to, a proceeding shall be allowed between party and party, unless the same are expressly awarded by an order of the court.
(2) The Court may, in any proceeding where costs are awarded to a part, direct payment of a sum in gross in lieu of taxed costs.
R. 342. Costs to be taxed in accordance with the practice and procedure of the Court.-----Save as provided by these Rules, the costs shall be taxed in accordance with the practice and procedure of the Court relating in its other proceedings.
R. 343. All proper charges to be allowed.---The taxing officer shall allow all such costs, charges and expenses as appear to have been necessary and proper, and shall not allow any costs, charges or expenses which appear to him to have been incurred or increased unnecessarily or through negligence or mistake.
R. 344. Contents of bill of costs.---Every bill of costs shall be properly dated thought out, and shall show in separate columns professional charges and out-of-pocket expenses. The advocate of the party on whose behalf if is presented shall sign the bill, or, where the party has appeared, in person in the proceedings to which the bill relates, by the party or his duly authorized agent.
R. 345. Vouchers to be filed.-----Every bill of costs shall, whenever possible, be accompanied by vouchers, and every item of disbursement and the nature thereof shall be distinctly specified, and no payment out-of-pocket shall ordinary be allowed except on production of the necessary voucher, and, in the case of advocate’s fees in z taxation between party and party, without a certificate signed by the advocate that the fee has been paid:
Provided that in the case of an advocate appearing for the Government on for the Official Liquidator, the fee may be allowed without the production of a certificate that the fee has been paid.
R. 346. Time for lodging bill.----(1) Within four weeks from the date the date of the order awarding costs to any party, or within such further time s the Court may allow, the party to whom costs have been awarded shall lodge the bill of costs and file proper of such service with the Taxing Officer. The Taxing Officers shall fix a date for taxation of the bill and notify the parties of the date fixed.
(2) A bill of costs presented out of time shall be returned to the party and the Taxing Officer shall not receive or tax the bill without an order of the Court.
R. 347. Bill of costs by advocate or other person employed by Official Liquidator.---Every advocate, accountant, auctioneer or other person employed by the Official Liquidator in a winding-up by the Court, shall, on request by the Official Liquidator (to be made in sufficient time before the declaration of a dividend), deliver bill of costs or charges to the Official Liquidator , and if he fails to do so within 4 weeks of the receipt of such extended time as the Court may allow the Official Liquidator shall declare and the distribute dividend without regard to such person’s claim and the claim shall be forfeited:
Provided that the Court may, at any time before the declaration of the final divided, for good cause shown, restore the claim and order the bill to be received without prejudice to the distribution of dividends declared prior to the making of the order. The request by the Official Liquidator shall be in Form No. 160 and shall be served personally or by registered post.
R. 348. Scale of advocate’s fee.---Save as otherwise provided by these Rules or by an order of the Court, the Taxing Officer shall allow on taxation fees to advocates not exceeding the scales set out in Appendix III, having regard to the nature and complexity of the case.
R. 349. Fees in misfeasance proceeding.-----In a proceeding against the promoters or officers of a company under section 542 or 543, the fees to advocates shall, subject to any order of the Court and to Rule 351 hereunder, be allowed on the same scale as if the proceeding were a suit for the amount claimed in such proceeding, and the scales of fees relating to suits in the Courts concerned shall be applied to such proceedings.
R. 350. Fees when proceeding is compromised.----Where a proceeding is compromised prior to its being set down for hearing, the fess to be allowed to advocates between party an party shall be not more the half the amounts specified in Appendix III.
R. 351. Fees to more than one advocate.----The Taxing Officer shall not allow a fee for more than one advocate for the same party unless the Court has certified for more than one advocate. Where such a certificate is given, the fee for the second advocate shall be allowed at three-fifths of the fee prescribed in Appendix III.
R. 352. Costs of parties having common interest.----(1) Where two or more petitions or applications raise a common issue and are heard together and decided by a common judgment, unless the Court otherwise orders, only set of costs shall be allowed to all the parties together in the said petitions or applications who have a common interest.
(2) Where different parties in the same proceeding have a common interest, only one set of fees shall be allowed to all of then together, though they may be represented by different advocates, unless the Court otherwise orders.
R. 353. Court’s power to fix a fee.---(1) Nothing in these Rules shall be deemed to prevent the Court from fixing a fee for any matter not provided for in these Rules, or from fixing a higher or lesser fee than the fees prescribed in Appendix III, if in particular case the Court considers it necessary to do so in the interest of justice.,
(2) In any case where the contest has not been of a substantial nature, the Court may direct that the costs shall be on the uncontested scale.
R. 354. Reference to Judge in Chamber.----Where nay question arises in taxation on which the Taxing Officer considers it necessary to obtain the directions of the Court, he may refer the matter to Judge in Chambers for necessary directions and the taxation shall proceed in accordance with such direction.
R. 355. Allowance to witness.---The allowances to ba made to witness shall be on the same scale as are in force in the Court in respect of its their proceedings.
R. 356. Taxation between advocate and client.---(1) Where a dispute arises between an advocate and his client as to the fees and charge payable to the advocate, either parry may apply to the Judge in Chambers for an order to have the bill fixed, and on an order fro taxation being made, the Taxing Officer may proceed tax the bill. The application when made by the advocate shall be accompanied by a copy of the bill to be taxed:
Provided that the where the taxation between advocate and client, the client shall be duly summoned by the himself and this advocate in any proceeding, the advocate may present the bill of costs in such proceedings for taxation without an order of the Judge, and the taxiing Officer shall thereupon proceed to tax the bill.
(2) In every case of taxation between advocate and client shall be duly summoned by the Taxing Officer to attend the taxation, and the summoned shall be served not less than 14 days’ prior to the date fixed for taxation.
(3) Subject to any agreement in writing to the contrary, the rules regulating the taxation of costs between party and party shall be applicable, as far as may be to taxation between advocate and client:
Provided that all such charges and expenses as in the opinion of the Taxiing Officer where necessary or proper or where incurred at the instance of the client, shall be allowed.
(4) No agreement between the advocate and his client to pay fees higher those prescribed in Appendix III shall be recognized unless the sane has been recorded in writing and is signed by the client and has been filed along with the appearance of the advocate in the case.
(5) Where the Taxing Officer is of opinion that any such agreement is unfair or unreasonable, he may refer the matter to the Judge who may thereupon make such order as the thinks just, and the taxation shall proceed in accordance with such order.
(6) This Rule shall not apply to a taxation of a bill of courts and between an advocate employed by the Official Liquidator and the Official Liquidator, which shall be taxed, subject to any order of the Court, according to the rules regulating taxation of costs between party and arty.
R. 357. Review of taxation.----(1) Any party who is dissatisfied with the allowance by the Taxing Officer of all or any of the items in the Bill of Costs, ,may within 10 days of the passing of the Bill on taxation, apply to the Taxing Officer to review his decision in respect thereof.
(20 An application for review shall be made by a summons returnable before the Taxing Officer, and shall be accompanied by a statement of objections specifying the items or parts of the Bill with respect to which the review is sought and the grounds of objection. The summons together with a copy of the statement shall be reserved on the opposite party not less than four clear days before the date fixed for hearing the review.
(3) Upon an application to review his order, the Taxing officer shall reconsider the taxation and may, where he thinks fit, receive further evidence in respect thereof, and shall state in a certificate the grounds of his decision on such review.
R. 356. Appeal against Review.----(1) Any party dissatisfied with the decision of the Taxing officer on review may, not less than seven days from the date of he decision, or such further time as the Judge may allow, appeal to the judge in Chambers against the decision of the Taxing Officer. The appeal shall be made by a judge’s summons and shall be accompanied setting out the grounds of appeal. The summons together with a cop of the memorandum shall be served on the opposite party not less than four clear days before the date fixed on the hearing. On such appeal, the Judge may pass such orders as may seem just.
(2) Subject to the orders of the Court on such appeal, if any, the decision of the Taxing Officer shall be final.
R. 359. Certificate of taxation.---Upon the Bill of Costs being taxed and subject to the orders of the judge on appeal, if any, the Taxing Officer shall issue a certificate of taxation showing the amount as taxed.
PART
V
MISCELLANEOUS
R. 360. Inspecting of file.---(1) Every duly authorized officer of the Central Government and, save as otherwise provide by these Rules, every persons who has been a director or officer of a company which is being wound-up, shall be entitled, free of charge, at all reasonable times to inspect the file of proceedings of the liquidation and of take copies or extracts from any document therein, and on payment of he prescribed charges, to be furnished with such copies and extracts.
(2) Save as otherwise provided by these Rules, every contributories and every creditor whose claim or proof has been admitted, shall be entitled, o payment of the prescribed charges, at all reasonable times to inspect the file of proceeding and to be furnished with such copies or extracts.
NOTES
Persons not entitled to
inspection
Examination under section 477 of he Act cannot be held to be a proceeding of the liquidation as contemplated by this rule. These ate proceedings for the purpose of assisting the winding-up. The statement of the official liquidator, which accompanies the summons in Form 109, is not a oath or affirmation and this rule cannot include such statement of the official liquidator which merely contains certain confidential information for the Court’s consideration. It is a matter entirely between the court and its officer. Ballyguage Real Property & Building Society Ltd., Re, (1962) 32 Com Cases 458, 464 (Calcutta).
R. 361. Saving of Rules under Special Acts.---Nothing in these rules shall affect the operation of any rules framed under the Banking Companies Act, 1949 or the Insurance Act, 1938, or other Special Acts relating to any class of companies and these Rules shall apply to such Companies subject to the Rules, if any, made under the special Acts.