M/S
Ammonia Supplies Corporation(P)Ltd. Vs. M/S Modern Plastic Containers Pvt.
Ltd.& Ors [1998] INSC 463 (4 September 1998)
G.B.Pattanaik,
A.P. Misra Misra, J.
ACT:
HEAD NOTE:
The
present appeal arises out of an order dated May 16, 1994 dismissing the appellant- Company appeal by the High Court.
The short question raised by the appellant is:
"Whether
in the proceedings under Section 155 of the Companies Act, the Court has
exclusive jurisdiction in respect of all the matters raised therein or have
only summary jurisdiction?" According to the appellant, there are
conflicting decisions of the various High Courts in India which resulted into reference of
Appellant's case to the Full Bench by the Delhi High Court. The Full Bench
decided that the jurisdiction is summary in nature, thus rejecting the case of
the appellant that the power of the Court under this is exclusive in respect of
all the matters raised therein.
In
order to appreciate the point it is necessary to refer to certain facts. M/s
Ammonia Supplies Corporation (P) Ltd. (hereinafter referred to as an
appellant-Company) went in liquidation and was directed to be wound-up by the
Punjab High Court Circuit Bench at Delhi. By Order dated 24th Dec.1962 the said High Court was pleased to
transfer all proceedings to the Court of District Judge, Delhi. It is said Shri Murarilal Bhargava
is the sole beneficiary of the said Company. He filed an application for
absolute stay of the liquidation proceedings which was granted on the 1st February, 1978 till further orders. He was authorised
to carry on the business of the Company. The stay order was in respect of all
the affairs except with regard to the assessment and of income tax payment
thereof in respect of which it was directed that the same shall be prosecuted
by the official liquidator.
On the 3rd January, 1977 the appellant-Company made
investment in the shares of M/s Modern Plastic Containers (P) Ltd. (hereinafter
referred to as the respondent-Company) to the extent of 50% shares that is to
say 1,265 shares of Rs. 100 each amounting to Rs.1,26,500/-. Shri O.P. Bhargava
S/o Shri M.L.Bhargava married the sister-in-law of one Shri V.K.Bhargaval, one
of the Managing Directors of the respondent-Company. On account of this Shri
M.L. Bhargava became closer to Shri V.K. Bhargava. It is for this reason
appellant-Company invested into the aforesaid shares of the respondent-Company.
The dispute pertains about this investment. According to respondent-Company
there was no such investment made by the appellant-Company nor any share was
transferred by the respondent-Company in favour of the appellant-Company. On
the other hand, the bone of contention of the appellant-Company is inspite of
payment of the aforesaid amount for shares it was not invested in such shares.
The appellant-Company became 50% share holders of the respondent-Company about
which there is an acknowledgment by the respondent-Company. Strong reliance is
placed on the basis of various documents mainly the Balance Sheet of the
appellant-Company dated 31st March, 1977 showing investment in the respondent-Company.Accounts
of the appellant-Company were audited which took notice of this investment
which was subjected to income tax assessment orders dated 19th May, 1978 and
4th August, 1979. On 18th
January, 1983 Shri V.K.Bhargava
dies in a car accident, which according to the appellant is the reason of
dispute between the appellant-Company and the respondent-Company, being raised
by the brothers of the deceased Shri V.K.Bhargava. It is because of this the
appellant filed a composite petition on 10th September, 1984 under Sections
397, 398 and 155 of the Companies Act for rectification of the Register of
Members and for oppression and mismanagement of the respondent-Company which
was admitted on 14th September, 1984. However, it seems that the petition which
was filed by the appellant under Sections 397, 398, read with 155, the Court by
its order confined the relief under Section 155, that is to say, rectification
prayer made therein. In this appeal we are only concerned with this part viz.,
the jurisdiction of the Court under Section 155 while dealing with any
application for the rectification.
Further
case of the appellant-Company is that Shri V.K.Bhargava informed the appellant
that his group of share-holders in the respondent-Company wanted to get rid of Mittal
Group of share-holders as the joint functioning was not proceeding well. It is
on account of this he desired that the appellant-Company of whom the sole
beneficiary is Shri M.L.Bhargava and ultimately Shri O.P. Bhargava-son should
have 50% shares by purchasing the shares belonging to Mittal group. On account
of this the appellant-Company sent the aforesaid amount to Shri V.K. Bhargava
for purchasing the shares in the name of the appellant-Company. Reliance is
placed on the basis of various letters, some of which according to the
appellant are admission for the appellant-Company being entitled to the shares
holding of 50%. According to the facts as recorded by the Company Judge in its
order dated 4th March,
1994 refers to the
averment in the petition before him, that 1265 shares belonging to Mittal Group
were to be transferred in the name of the appellant-Company in the records of
the respondent-Company but due to fraudulent intentions the same was not done.
The alternative plea was taken that Shri V.K.Bhargava has no fund acquire the
said 1,265 shares in January and February 1977 and it should be hold that said Shri
V.K.Bhargava held those shares benami in his name for the benefit of the
appellant-Company. In other words, the money was given by the Appellant-Company
though the shares were purchased in the name of Shri V.K.Bhargava. It is from
the money which was advanced by the appellant-Company the respondent-Company
allotted 470 shares, that is to say, 265 and 205 shares to the Respondent Nos.
2 & 3 respectively before the Company Judge to bring the distribution of
shares ratio of 50% each. A prayer was made that the Court should declare that
470 shares allotted to the said respondents is null and void and it should be
held that the appellant-Company is having share-holding of those 1265 shares.
Accordingly, necessary rectification be made in the Register of the members of
the respondent-Company.
Contesting
the case set up by the appellant-Company before the learned Company Judge the
respondents vehemently disputed the claim. The contention is as the claim, if
at all of the appellant-Company of having advanced the aforesaid amount of Rs.
1.26,500/- to late Shri V.K.Bhargava the recovery of which was hopelessly time
barred as the said transaction took place in year 1977 whereas the Company
petition was only filed in the year 1984. Hence, the present petition has been
filed as a device, as an alternative, to claim to be the member of the
respondent-Company as owner of the shares to the extent of Rs. 1,26,500/-. In
fact, no such amount was ever paid to the respondent-Company and at no point of
time the appellant-Company became entitled to be the share holder of the
respondent-Company. The shares of the respondent-Company could only be
transferred with the permission of Board of Directors. There was no such
permission. In fact in order to become the member or to purchase the shares of
the Company a procedure is prescribed under the Companies Act which has to be
followed before the shares could be transferred. There is neither any such plea
by the appellant-Company nor there is nay such proceeding undertaken for the
transfer of shares in favour of the respondent-Company as alleged. Actually,
the aforesaid Mittal Group offered to transfer shares to Shri V.K.Bhargava
which was duly transferred by the Board of Directors. Hence no question arises
of offering any share for sale to the appellant-Company of the shares belonging
to the Mittal Group. If there are any transaction of advancement of Rs.1,26,500/-
to Shri V.K.Bhargava, the said transaction is between Shri M.L.Bhargava or by
the appellant-Company with Shri V.K.Bhargava which could only be a private
transaction between them and the respondent-Company has nothing to do with the
same. In fact, shares purchased by Shri V.K.Bhargava from Mittal Group had
always been shown in the income tax return of Shri V.K.Bhargava as his personal
assets. The respondent-Company further pleaded that the appellant had forged
letter dated June 7,
1984 as much as the
said letter was never issued by the respondent-Company.
Further,
there is no entry in the books of accounts for the aforesaid amount. In fact
the various documents filed by the appellant-Company apart from the forged
letter including 25 other letters are also denied by the respondent-Company.
It is
also necessary to record certain facts as recorded in the proceedings before
the Company Judge. These facts are recorded in the impugned order of the High
Court.
On 30th April, 1985 the Court directed the parties to
file affidavits and minute books. This exercise started for considering the
plaint of the appellant-Company for the rectification as aforesaid. Liberty was given to each party to
cross-examine the witnesses. The case was listed for cross-examination of the
defendant on the 2nd
August, 1985 and 5th August, 1985. On the various dates the matter
was listed but was adjourned. On 22nd January, 1986 a direction was given that the Registrar of Companies
should produce the enquiry report, if any, pertaining to the complaint filed by
Shri M.L.Bhargava on 11th
February, 1986. On the
14th July 1986 learned counsel for the respondent-Company raised the objection
that since the proceedings under Section 155 of the Companies Act was summery
jurisdiction, the various points raised by the appellant-Company adjudication
to which requires detailed evidence to be led including the adjudication of the
various letters including forged one cannot be gone into in these proceeding
put only through civil suit. Hence, the case should be tried by a Civil court. Thus
raised the objection about the maintainability of the petition. It is
thereafter the learned Single Judge deferred recording further evidence. After
extensive arguments and considering various authorities the Company Judge
following the Full Bench decision of the Delhi High Court in the very case of
the appellant-Company reported in AIR 1994 Delhi. 51 (F.B.) held that it is not a fit case for exercising discretion of
the Court for invoking the summary jurisdiction under Section 155 of the
companies Act, on the facts and circumstances of this case and if advised, the
appellant-Company could seek his remedy by filing regular civil suit after
seeking permission of the court under Section 446 (2) of the Companies Act. The
petition of the appellant-Company was, therefore, dismissed. On appeal also the
Division Bench dismissed the appeal. Hence this special leave petition.
Within
the aforesaid matrix of facts the question raised is not something new but is
what is being raised time and again in the various High Courts including this
Court.
The
question is, whether the jurisdiction of the court under Section 155 of the
Companies Act is summary in nature or it is all encompassing to include all
types of disputes to be adjudicated exclusively by the court. Learned senior
counsel for the appellant contends that the aforesaid Full Bench of the Delhi
High Court holds it to be summary in nature based on the decision of this Court
in the case, (1966 Companies Act (Vol. 36) S.C. Page 1) about which he feebly
submitted to be in percuricum. In the alternative contention is both in the
full Bench decision of the Delhi High Court and decision of this Court in the
case Public Passenger Service Ltd. (Supra), notice was not drawn to the
definition of 'Court' as defined under Sec.2 (11) and Sec.10 of the Companies
Act. If that would have been considered a different interpretation would have
followed. If that definition is read into Section 155 the 'Court' would only be
a company judge and not Civil
Court. Further,
submission is even if it could be said the jurisdiction of the Court under
Section 155 is summary in nature, an applicant cannot be driven to file civil
suit only because one raises such dispute for dispute sake to harass an applicant
with an object to delay the proceedings. The Court has to examine its
sustainability at least prima facie. By merely saying complicated questions of
fact and law are involved and there being challenge of any document to be
forged, a party should not be driven to file civil suit. Even if such a plea is
taken the court should scrutinise the objections to reach to a prima facie
finding before drawing conclusion of jurisdiction. The argument is various
documents itself prima facie prove the appellant having become shareholder of
the respondent-Company and bare perusal of the document shows it not being
forged and if that be so, the order directing the appellant to seek permission
to file suit on the facts and circumstances of this case is not justified.
In
support that the court has exclusive jurisdiction Corporation of India Ltd. and
Others. (1985 (Vol. 58) Companies Cases Page 633) read with Section 2 (II) and
Section 10 of the Act. Learned counsel for the appellant contends, these
decisions in principle holds, the 'Court' exercising power under the Companies
Act have exclusive jurisdiction hence the 'Court' referred to in Section 155
could only be the company judge having exclusive jurisdiction. Hence, no matter
under it could be sent for adjudication to the civil court. The learned counsel
also State of Orissa and Another (1966 (Vol. 36)
Companies cases Page 592) to contend that this jurisdiction is to be liberally
exercised. He also referred to the case in Pvt. Ltd. (1972 (Vol. 42) Company
cases Page 125) that the exercise of discretion has to be within the
permissible parameters. Strong reliance is placed on the proviso of
Sub-Section(3) of Sec. 38 of the Indian Companies Act, 1913 (hereinafter
referred to as '1913 Act') under which the Court exercising power of
rectification may direct an issue to be tried by the civil court in which any
question of law is raised. This section deals with rectification as Sec.
155 of
the Indian Companies Act of 1956 (as amended in the year 1960) (hereinafter
referred to as '1960 Act') to which the present case is concerned. Since the
proviso to the said Sec. 38 was deleted, it is urged this inevitably indicates
that Court need not refer any issue now.
As we
have said above the interpretation of Sec.155, viz., the rectification of the
register of a company has come umpteen time before various courts and in view
of divergence of view full Bench of the Delhi High Court was constituted.
We may
also notice that by Companies (Amendment) Act, 1988 S. 155 of the Act has been
omitted from the Act.
With
effect from 31st May,
1991 and now under
Sec. 111 the power to rectify the register of members of a company has been
vested in the Company Law Board. However, we are not concerned with this
amendment.
The
remedy provided by S. 155 of the Act is summary in nature, has been the view of
various High Courts (See:Soma Vati Devi Chand V. Krishna Sugar Mills Ltd., AIR
1966 Punjab 44; There Dhelakhat Tea Co. Ltd., Air 1957 Calcutta 476; Punjab
Distilling Industries Ltd. V. Biermans Paper Coating Mills Ltd. 1973 (43)
Company Cases 189 (Delhi) (DB); Public Trustee V. Rajeshwar Tyagi, 1973 (43)
Company Cases 371: (AIR 1972 Delhi 302) (DB); Anil Gupta V. Delhi Cloth and
General Mills Co. Ltd. 1983 (54) Company Cases 301; Vishnu Dayal Jhunjhunwalla
V. union of India, 1989 (66) Company Cases 684 (Allahabad) (DB); Rao Saheb Manilal
Gangaram Sindore V. Messrs Western India Theatres Ltd. AIR 1963 Bombay 40.
On the
other hand a contrary view has been taken by Laxmidas Lallubhai Patel, (1978
(48) Company Cases 432) when it is held that Section 155 does not indicate the
jurisdiction conferred by the Section is one hedged in with a condition that it
can only be exercised when relief can be granted in summary manner, also by Kerala
High Court in Company Cases 88) and Madras High Court in Mrs. (1993 (76)
Company Cases 1). In order to resolve this conflict as aforesaid the Delhi High
Court in the case of petitioner company relying on Public Passengers Service
Ltd. (Supra) held that the jurisdiction of the Court under Section 155 is
summary in nature.
In
Public Passengers Service Ltd. (supra), this Court held by reasons of its
complexity or otherwise the matter can more conveniently be decided in a suit,
the Court may refuse relief under Section 155 and relegate the parties to a
suit.
Learned
Counsel for the appellant initially made feeble submission as aforesaid to hold
that the decision in Public Passenger Service Ltd. (supra) case is in per curiam.
We have no hesitation to reject such a submission.
This
issue was directly there and was considered with respect to the interpretation
of Section 155 and was a case not under 1913 Act but 1960 Act hence by no
stretch of imagination it could be said that the said decision is in per curiam.
Next submission is neither this case nor the Full Bench of Delhi High Court
considered Section 2 (II) and Section 10 of this Act, if it would have been
done different inference would have been drawn. The submission is the
expression "the Court" used under Section 155 by virtue of definition
of the Court as defined under Section 2(II) only means Company court and not
Civil court. Similarly Section 10 defines jurisdiction of the Court under this
Act to be the High Court having jurisdiction for the company concern except to
the extent the jurisdiction has been conferred in District court subordinate
with the High Court and where jurisdiction has been conferred on District court
the court would mean the District Court Hence the only Court which would have
exclusive jurisdiction under Section 155 would be either High Court or the
District court, as the case may be, by virtue of Section 2(II) and Section 10.
For ready reference Section 2(II) and Section 10 are quoted hereunder :- ...
Section
2(II) : "The Court means - ------------- (a)With respect to any matter
relating to a company (other than any offence against this Act), the Court
having jurisdiction under this Act with respect to that matter relating to that
company, as provided in section 10;
(b)With
respect to any offence against this Act, the Court of a Magistrate of the First
Class or, as the case may be, a Presidency Magistrate, having jurisdiction to
try such offence;" S.10. "Jurisdiction of Courts. - ----
(1)The
Court having jurisdiction under this Act shall be-
(a)the
High Court having jurisdiction in relation to the place at which the registered
office of the Company concerned is situate, except to the extent to which
jurisdiction has been conferred on any District Court or District Courts
subordinate to that High Court in
(b)pursuance
of sub-section (2); and
(c)where
jurisdiction has been so conferred, the District Court in regard to matters
falling within the scope of the jurisdiction conferred, in respect of companies
having their registered offices in the district." Indian Chemical Product
Ltd. (AIR 1957 Oeissa Page 203) dealing with rectification under old Section 38
of the Companies Act of 1930.
Now we
proceed to examine the submissions for the appellant in the light of various
aforesaid decisions referred to by the learned counsel keeping in mind the
interpretation of "Court" in the Act.
In the
case of Canara Bank (supra) the question of jurisdiction was tested inter set
between the Court under the Special Court
(Trial of Offences Relating to Transactions in Securities) Act, 1992 and the
Court under the Indian Companies Act:
"Having
regard to the enormity of the securities scam and its ramifications, Parliament
thought it was necessary that all matters in respect of claims arising out of
transactions in securities entered into between the stated dates in which a
person notified was involved, should be brought before and tried by the same
forum. That forum had been invested with the jurisdiction to try persons
accused of offences relating to transactions in securities entered into between
the stated dates. It was also required to give directions to the custodian in
regard to property belonging to persons notified which stood attached under the
provisions of the Special Court Act. The object of amending the Special Court
Act. The object of amending the Special Court Act is to invest the Special Court with the power and authority to
decide civil claims arising out of transactions in securities entered into
between the stated dates in which a person notified was involved. In these circumstances,
it is proper to attribute to the word "Court" in section 9A (1) of
the Special Court Act, not the narrower meaning of a court of civil judicature
which is part of the ordinary hierarchy of courts, but the broader meaning of a
curial body, a body acting judicially to deal with matters and claims arising
out of transactions in securities entered into between the stated dates in
which a person notified is involved. An interpretation that suppresses the
mischief and advances the remedy must plainly be given,".
"The
word "court" must be read in the context in which it is used in a
statute. It is permissible, given the context, to read it as comprehending the
courts of civil judicature and courts or tribunals exercising curial or
judicial, powers. In the context in which the word "court" is used in
section 9A of the Special Court (Trial of Offences Relating to Transactions in
Securities) Act, 1992, it is intended to encompass all curial or judicial
bodies which have jurisdiction to decide matters or claims, inter alia arising
out of transactions in securities entered into between the stated dates, in
which a person notified is involved." The Court held that Company Law
Board would not have jurisdiction to decide a petition under Section 111 of the
Companies Act, 1956 (as amended in the year 1988) where persons notified under
the Special Court Act, 1992 are involved. In other words, all matters pertain
to security scam even in respect of matter covered by Section 111, the Special
Court would have jurisdiction. This case has no relevance for deciding the
controversy in the present case.
This
decision holds "the word 'court'must be read in the context in which it is
used in a statute".
Next
reliance was on the case in Sudarsan Chits (I) Ltd. (Supra). This was a case
where on a petition by certain creditors, the appellant company was ordered to
be wound-up by the Company Judge and an official liquidator was appointed.
Pending appeals against this order the Division Bench approved a scheme of
arrangement and kept in abeyance the winding up order. During implementation of
this scheme an application was filed before the Division Bench for a direction
to the provisional liquidator to file claim petition under Section 446 (2) of
the Companies Act, 1956.
This
was rejected on the ground that it had no jurisdiction to entertain such a
petition as there was no Winding up proceedings either before the Company Judge
or the Division Bench. This Court held:
"That
the winding up order made by the company judge had not been quashed, set aside
cancelled revoked or recalled. On the contrary, after directing that the
winding up order shall be held in abeyance, the Division Bench directed that
the official liquidator shall continue to act as provisional liquidator as
provided by s. 450 and that itself was a stage in the winding up proceedings.
When winding up order was kept in abeyance, it was in a state of suspended
animation. The fact that the Division Bench directed that, pending the
implementation of the scheme as sanctioned by the High Court, the winding up
order will be kept in abeyance itself without anything more showed that the
order was neither cancelled nor recalled not revoked not set aside. It
continued to exist but was inoperative.... Therefore, the winding up order was
effectively subsisting but inoperative for the time being.... If the winding up
order was merely held in abeyance, i.e., it was not operative for the time
being, but it had not ceased to exist, the winding up proceedings were in fact
pending and the court which made the winding up order would be the court which
was winding up the company. It was well-settled that a winding up order once
made could be revoked or recalled but till it was revoked or recalled, it
continued to subsist. That was the situation in this case. If the winding up
order was subsisting. the court which made that order to the court which kept
it in abeyance would have jurisdiction to five necessary directions to the
provisional liquidator to take recourse to Section 446 (2)." The question
was whether the Division Bench, which was monitoring the scheme after winding
up order would have jurisdiction to pass an order for a direction to the
official liquidator when the winding-up order was kept in abeyance? The High
Court held that it has no jurisdiction. This Court rejected this and held when
winding-up order was not set aside, quashed, cancelled or revoked the court
which kept in abeyance the winding-up order would have jurisdiction to give
necessary directions. In the present case, as aforesaid, the question is the
scope and the width of the jurisdiction of 'Court' keeping abeyance the
winding-up order would have or not the jurisdiction to direct the applicant to
seek his remedy under Section 446 (2).
Before
we come back to Section 155, since appellant also submitted the Company Judge
should himself decide the relief under Section 446 (2) having exclusive
jurisdiction instead of sending it to the civil court. For this it is necessary
to refer to the short background of Section 446.
Earlier
under section 171 of the Indian Companies Act, 1913 there was no similar
provision as Section 446 (2). It only provided no suits or proceedings pending
could proceed nor fresh suit could be filed without leave of the Court. This
provision was re-enacted with little modifications in section 446 (1). After
winding up order a company may have many subsisting claims and in order to
recover it, he may have to file suits. It is to avoid this eventuality for a
long arduous procedure before the civil Court the jurisdiction of the Company
Judge was enlarged even to entertain such petition for recovering the claims of
the Company. The purpose of various amendments brought in the Companies Act is
to centralise as far as possible all proceedings to the Court created under
this act for adjudication of various claims.
It is
in this background Section 446(2) was brought in, based on the recommendation
of Company Law Committee Report through an amendment of the Companies(Amendment)
Act, 1969. In this background the Sudarshan Chit (I)Ltd. (supra) holds:
"Sub-section
(2) of S. 446 confers jurisdiction on the court which is winding up the company
to entertain and dispose of proceedings set out in cls. (a) to (d). The
expression "court which is winding up the company" will comprehend
the court before which a winding up petition is pending or which has made an
order for winding up of the company and further winding up proceedings are
continued under its directions. Undoubtedly, a look at the language of s. 446
(1) and (2) and its setting in Part VII, which deals with winding up
proceedings, would clearly show that the jurisdiction of the court to entertain
and dispose of proceedings set out in sub-cls. (a) to (d) of sub-s. (2) can be
invoked in the court which is winding up the company." The appellate Bench
in this case held since winding-up proceeding in respect of the
appellant-Company is no more pending and there is no Court which could be said
to be the Court of winding up of the company thus the claim petition on behalf
of the company which is not being wound-up is not contemplated under Section
44l (2). This decision and decision in Canara Bank (supra) rejected the
restricted meaning given by the High Court of the expression "court which
is winding up the company". Hence to this extent there could be no doubt,
a Company under liquidation falling under Sec. 446 (2), the Company judge alone
would have exclusive jurisdiction to decide matter covered by it.
Now
reverting to the submission to read definition of 'Court' as defined under
Section 2 (11) read with Section 10 with the word 'Court' used under Section
155, whether it would result into any different interpretation to lend support
to the submission of learned counsel for the appellant? Submission of learned
counsel for the appellant? Submission is the word 'court' under section 155
would only mean Company Judge and he alone would have exclusive jurisdiction
while exercising powers under this section, hence any direction to seek leave
of the court under Section 446 (2) for filling suit cannot be sustained.
First
the scope of Section 155 and Section 446 to be understood to be entirely in
different fields. Section 155 deals with power of the Court to rectify register
of members maintained by a Company. Section 441 deals with commencement of
winding-up by the Court. Section 442 deals with the power of the Court to stay
or restrain proceedings against the company, at any stage after the petition
for winding up is filed but before a winding-up order is made. A creditor or a
company may apply to the Court having jurisdiction to wind-up the company to
restrain all further proceedings in any suits or proceedings against the
Company. Section 143 deals with powers of Court to hear such petition, Section
444 entrusts the Court after the winding up order to communicate the same to
the official Liquidator. Section 445 directs that a copy of the winding up
order to be filed with the Registrar. Then comes Section 446. Sub-section (1)
is after winding up order has been passed or the official liquidator has been
appointed, it puts an embargo on any suit to be instituted or if pending
against the company on that date to be proceeded with except with the leave of
the Court. Use of the words, no suit...' shall be commenced '.... proceeded
with.......' except by leave of the court......." spells out that the
jurisdiction of the civil court is not ousted to adjudicate matter between the
parties but embargo is to be controlled at the discretion of the Company Judge,
depending on the facts of each case. Then comes Section 446 (2) under which the
Court is invested with the jurisdiction to entertain or dispose of any suit or
proceeding by or against the company.
So
Section 446 deals with cases of the company under winding up while Section 155
deals with both classes of companies one under winding up and other not under
winding-up.
Now we
proceed to examine the power of the Court to rectify the register of members of
a company under Section 155. The question raised for the appellant is that the
Court under this Act cannot direct an applicant to seek his remedy by was of
suit but the Court under the Act having exclusive jurisdiction should decide
itself. In support, strong reliance is placed on the deletion of proviso to
Section 38 of the 1913 Act. Section 38 of the old Act is quoted hereunder:
"38.
Power of Court to rectify register. –
(1)
If- (a) the name of any person is fraudulently or without sufficient cause
entered in or omitted from their Register of members of a company; or in the
manner directed by the code of Civil Procedure, 1908 (V of (b) default is made
or unnecessary delay takes place in entering on the register the fact of any
person having ceased to be a member, the person aggrieved, or any member of the
company, or the company, may apply to the Court for rectification of the
register.
(2)
The Court may either refuse the application, or may order rectification of the
register and payment by the company of any damages sustained by any party
aggrieved, and may be make such order as to costs as it in its discretion
thinks fit.
1908),
on the grounds mentioned in section 100 of that Code." The proviso gave
discretion to the Court to direct an issue of law to be tried, if raised. By
this deletion, submission is that the Company Court now itself has to decide any
question relating to the rectification of the register including the law and
not to send one to the civil court.
There
could be no doubt any question raised within the peripheral field of
rectification, it is the Court under Section 155 alone which would have
exclusive jurisdiction.
However,
the question raised does not rest here. In case any claim is based on some
seriously disputed civil rights or title, denial of any transaction or any
other basic facts which may be the foundation to claim a right to be a member
and if the Court feels such claim does not constitute to be a rectification but
instead seeking adjudication of basic pillar some such facts falling outside
the rectification, its discretion to send a party to seek his relief before
civil court first for the adjudication of such facts, it cannot be said such
right of the court to have been taken away merely on account of the deletion of
the aforesaid proviso.
Otherwise
under the garb of rectification one may lay claim of many such contentious issues
for adjudication not falling under it. Thus in other words, the court under it
has discretion to find whether the dispute raised are really for rectification
or is of such a nature, unless decided first it would not came within the
purview of rectification. The word rectification' itself connotes some error
which has crept in requiring correction. Error would only means everything as
required under the law has been done yet by some mistake the name is either
committed or wrongly recorded in the register of the Company. In T.P. Mukherjee's
Law Lexicon, fifth revised edn;
"The
expression rectification of the register used in Sec. 155 is significant and
purposeful.
'Rectification'
implies the correctness of an error or removal of defects or imperfections. It
implies prior existence of error, mistake or defect ......... the register kept
by the Company has to be shown to be wrong or defective". Strounds
judicial Dictionary;
-----------------------------
"Rectify - Altering the register of a company so as to make it conformable
with a lawful transfer" In Venkataramaiya's Law Lexicon, 2nd Edn;
"The
act to be done under the powers of that Section is the 'rectification of the
register, a term which itself implies that the register, either in what is or
what is not upon it, is wrong; but the register cannot be wrong unless there
has been a failure on the part of the company to comply with the directions in
the Act as to the kind of register to be kept: for if the Act has been complied
with, the register must be right and not wrong." In other words, in order
to qualify for rectification, every procedure as prescribed under the Companies
Act before recording the name in the register of the company has to be stated
to have been complied with by the applicant at least that part as required by
the Act and assertion of what not complied with under the Act and rule by the
person or authority of the respondent company before applicant to claim for the
rectification of such register. The Court has to examine on the facts of each
case, whether an application is for rectification or something else. So field
or peripheral jurisdiction of the Court under it would be what comes under
rectification not projected claims under the garb of rectification. So far
exercising of power for rectification within its field there could be no doubt
the Court as referred under Section 155 read with Section 2(11) and Section 10,
it is the Company Court alone which has exclusive jurisdiction.
Similarly,
under Section 446 the 'Court' refers to the Company judge which has exclusive
jurisdiction to decide matters what is covered under it by itself. But this
does not mean by interpreting such 'court' having exclusive jurisdiction to
include within it what is not covered under it, merely because it is cloaked
under the nomenclature rectification does not mean court cannot see the
substance after removing the cloak.
Question
for scrutiny before us is the peripheral field within which court could
exercise its jurisdiction for rectification. As aforesaid the very word
"rectification" connotes something what ought to have been done but
by error not done and what ought not to have been done was done requiring
correction. Rectification in other words, is the failure on the part of the
company to comply with the directions under the Act. To show this error the
burden is on the applicant, and to this extent any matter or dispute between
persons raised in such Court it may generally decide any matter which is
necessary or expedient to decide in connection with the rectification.
Both
under the 1913 Act and 1960 Act a procedure is prescribed for admitting a
person as member by purchase or transfer of shares of that company. With
reference to 1913 Act under Section 29, a certificate of shares or stock shall
be prima facie evidence of the title of the number of the shares or stock
therein. Section 30 defines "member" to be one who agrees to become a
member of a company and whose name is entered in its register. Section 31 is to
keep register of its members. Section 34 deals with transfer of shares and
application for the registration of the transfer of shares is to be made either
by the transferor or the transferee. Where such application is made by the
transferor for registration of his share a registered notice is to be sent to
the transferee.
Section
34 (3) restricts to register a transfer share until the instrument of transfer
duly stamped and executed by the transferor and transferee has been delivered
to the company.
Thus
before the name of any transferee is registered these procedure has to be shown
to have been followed, which is an obligation of any such applicant under the
Act. This shows an application is to be made either by the transferor or
transferee for registering the name of the transferee as members or share
holders of the company by placing before the company duly stamped and signed
document both by the transferor and transferee. Similarly is the position under
Section 155 of Indian Companies Act, 1960 before power is exercised for
rectification essential ingredients are to exist. Section 100 gives mandate to
a company not to register transfer of shares, unless proper instrument of
transfer duly stamped and executed by or on behalf of the transferee has been
delivered to the company along with certificates relating to the shares.
All
the above indicates the limitation and the peripheral jurisdiction with which
court has to act. In spite of its exclusiveness it cannot take within its lap
outside this scope of rectification. This is indicated even by Sec.155 itself:
"Section
155 : Power of Court to rectify register of members 1)If - a)the name of any
person - i)is without sufficient cause, entered in the register of members of a
company, or ii)after having been entered in the register, is without sufficient
cause, omitted therefrom; or b)default is made, or unnecessary delay takes
place, in entering on the register the fact of any person having become, or
ceased to be a member;
the
person aggrieved, or any member of the company, or the company, may apply to
the Court for rectification of the register.
Sub-section
(1) (a) of Section 155 refers to a case where the name of any person without
sufficient cause entered or omitted in the register of members of a company.
The work 'sufficient cause' is to be tested in relation to the Act and the
Rules. Without sufficient cause entered or omitted to be entered means done or
omitted to do in contradiction of the Act and the Rules or what ought to have
been done under the Act and the Rules but not done. Reading of this sub-clause
spells out the limitation under which the court has to exercise its
jurisdiction. It cannot be doubted in spite of exclusiveness to decide all
matter pertaining to the rectification it has to act within the said four
corners and adjudication of such matter cannot be doubted to be summary in
nature. So, whenever a question is raised court has to adjudicate on the facts
and circumstance of each case. If it truly is rectification all matter raised
in that connection should be decided by the court under Sec. 155 and if it
finds adjudication of any matter not falling under it, it may direct a party to
get his right adjudicated by civil court. Unless jurisdiction is expressly or
implicitly barred under a statute, for violation or redress of any such right civil
court would have jurisdiction. There is nothing under the Companies Act
expressly barring the jurisdiction of the civil court, but the jurisdiction of
the 'court' as defined under the Act exercising its powers under various
sections where it has been invested. with exclusive jurisdiction, the
jurisdiction of the civil court is impliedly barred. We have already held above
the jurisdiction of the 'court' under Sec.155, to the extent it has exclusive,
the jurisdiction of civil court is impliedly barred. For what is not covered as
aforesaid the civil court would have jurisdiction. Similarly we find even under
Sec. 446(1) its words itself indicate jurisdiction of civil court is not
excluded. This sub section states, '........... no suit or legal proceedings shall
be commenced ......... or proceeded with ....... except by leave of the court'.
The words 'except by leave of the court' itself indicate on leave being given
the civil court would have jurisdiction to adjudicate one's right. Of course
discretion to exercise such power is with the 'court'.
Similarly
under Sec. 446(2) 'court' is vested with powers to entertain or dispose of any
suit or proceedings by or against the company. Once this discretion is
exercised to have it decided by it, it by virtue of language therein excludes
the jurisdiction of the civil court. So we conclude the principle of law as
decided by the High Court that jurisdiction of Court under Section 155 is
summary in nature cannot be faulted.
Reverting
to the second limb of submission by learned counsel for the appellant that
court should bot have directed for seeking permission to file suit only because
a party for dispute sake states that the dispute raised is complicated question
of facts including fraud to be adjudicated. The Court should have examined
itself to see whether even prima facie what is said is complicated question or
not. Even dispute of fraud, if by bare perusal of the document or what is
apparent on the face of it on comparison of any disputed signature with that of
the admitted signature the Court is able to conclude no fraud, then it should
proceed to decide the matter and not reject it only because fraud is stated.
Further
on the other hand learned counsel for the respondent totally denies any share
having been purchased by the appellant-company or any amount paid to it. No
transfer of any such share was ever approved by the Board of Director. It is
urged the money even if advanced to Sri V.K.Bhargava by the appellant-company
if at all was a private transaction between the two to which respondent-company
has no concern. So we find there is total denial by the respondent.
We
have gone through the judgment of the High Court.
It has
rightly held the law pertaining to the jurisdiction of 'court' under Sec. 155
and even referred to some of the documents of the appellant but concluded since
they are disputed and said to be forged hence directed for seeding leave if
advised for suit. We feel it would have been appropriate if the court would
have seen for itself whether these documents are disputed and any document is
alleged to be forged whether it said to be so jurisdiction of the civil court.
So we conclude the principle of law as decided by the High Court that
jurisdiction of Court under Section 155 is summary in nature cannot be faulted.
reverting to the second limb of submission by learned counsel for the appellant
that court should not have directed for seeking permission to file suit only
because a party for dispute sake states that the dispute raised is complicated
question of facts including fraud to be adjudicated. The court should have
examined itself to see whether even prime facie what is said is complicated
question or not. Even dispute of fraud, if by bare perusal of the document or
what is apparent on the face of it on comparison of any disputed signature with
that of the admitted signature the Court is able to conclude no fraud, then it
should proceed to decide the matter and not reject it only because fraud is
stated. Further on the other hand learned counsel for the respondent totally
denies any share having been purchased by the appellant-company or any amount
paid to it. No transfer of any such share was ever approved by the Board of
Director. It is urged the money even if advanced to Sri V.K.Bhargava by the
appellant-company, if at all was a private transaction between the two to which
respondent-company has no concern. So we find there is total denial by the
respondent.
We
have gone through the judgment of the High Court.
It has
rightly held the law pertaining to the jurisdiction of 'court' under Sec. 155
and even referred to some of the documents of the appellant but concluded since
they are disputed and said to be forged hence directed for seeking leave if
advised for suit. We feel it would have been appropriate if the court would
have seen for itself whether these documents are disputed and any document is
alleged to be forged whether it said to be so only to exclude the jurisdiction
of the court or it is genuinely so. Similarly we feel appropriate while deciding
this the court should take into consideration the submissions for the
respondents, whether it would come within the scope of rectification or not in
the light of what we have said above.
Since
the High Court has not examined this case in the aforesaid light, we feel it
appropriate to direct the High Court to decide this question in the light of
what we have said afresh, without prejudice to any party of any observation
made by us above. In case High Court comes to the conclusion that any issue
raised does not come within Sec. 155 then we feel it appropriate on the facts
and circumstances of this case, as it is pending since 1984, that High Court
exercises its discretion under Sec.446(2) to get it adjudicated by the court
(Company Judge) itself instead of sending back to the civil to which we order.
With
the aforesaid findings the appeal is partly allowed. Costs on the parties.
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