1983 (9) TMI 218 - SC - Companies Law

Whether in view of the provision contained in section 41(b) of the Specific Relief Act 1963 the court will have jurisdiction to grant an injunction restraining any person from instituting any proceeding in a court not subordinate to that from which the injunction is sought? Held that - Appeal allowed. Taking the most favourable view of the decision of the Appellate Bench and assuming that the Bench had in its mind the inherent power of the court to grant injunction despite statutory inhibition and consistent with the view taken by the courts in England it had then in order to do justice between the parties first reach an affirmative finding that the winding up petition as and when presented by the Corporation the creditor would be frivolous and would constitute an abuse of the process of the court or a device to pressurise the Bank to submit to an unjust and dishonest claim. It must also reach an affirmative conclusion that the debtor-Bank is sufficiently solvent to satisfy the claim as and when established. It has also to record an affirmative finding that the Corporation the creditor is not seeking bona fide to present a petition for winding up but is actuated by an ulterior motive in presenting the petition. The decision of the Appellate Bench is conspicuously silent on these relevant points and for this additional reason also the appeal must succeed.

Issues Involved:
1. Jurisdiction to grant an injunction restraining a person from instituting proceedings in a court not subordinate to that from which the injunction is sought.
2. Applicability of Section 41(b) of the Specific Relief Act, 1963.
3. Inherent powers of the court to grant injunctions.
4. Consequences of presenting a winding-up petition.

Detailed Analysis:

1. Jurisdiction to Grant Injunction:

The primary issue examined was whether the court has the jurisdiction to grant an injunction restraining any person from instituting proceedings in a court not subordinate to that from which the injunction is sought. The court held that under Section 41(b) of the Specific Relief Act, 1963, an injunction cannot be granted to restrain any person from instituting or prosecuting any proceeding in a court not subordinate to that from which the injunction is sought.

2. Applicability of Section 41(b) of the Specific Relief Act, 1963:

Section 41(b) states that an injunction cannot be granted to restrain any person from instituting or prosecuting any proceeding in a court not subordinate to that from which the injunction is sought. This provision was compared to its predecessor, Section 56(b) of the Specific Relief Act of 1877, which only precluded the court from staying proceedings in a court not subordinate to that from which the injunction was sought. The legislative change in Section 41(b) was intended to nullify the judicial interpretation that allowed injunctions in personam to restrain parties from instituting proceedings in superior courts. The court emphasized that the change in language must be given full effect, thus denying jurisdiction to grant such injunctions.

3. Inherent Powers of the Court to Grant Injunctions:

The court acknowledged that while it has inherent powers to grant injunctions in cases not covered by Order 39 of the CPC, this inherent power cannot be invoked to nullify or stultify a statutory provision. Section 41(b) of the Specific Relief Act explicitly denies the court the jurisdiction to grant an injunction restraining any person from instituting or prosecuting any proceeding in a court not subordinate to that from which the injunction is sought. The court noted that the appellate judgment did not reference the invocation of inherent powers in granting the injunction and did not find the Corporation's claim to be frivolous or untenable.

4. Consequences of Presenting a Winding-Up Petition:

The court considered the serious consequences of presenting a winding-up petition, including its impact on the company's status, financial viability, and operational efficiency. However, it noted that the Companies Act and the Rules framed thereunder provide sufficient safeguards against the admission, advertising, and publication of winding-up petitions. Rule 96 of the Companies (Court) Rules, 1959, allows the judge to issue a pre-admission notice to the company, providing an opportunity for the company to demonstrate that the debt is bona fide disputed or that the petition is mala fide. The court concluded that these safeguards are sufficient to protect the company from any adverse consequences and that the power to grant an injunction to restrain the presentation of a winding-up petition should not be inferred.

Conclusion:

The appeal was allowed, and the order of the Appellate Bench was set aside. The court restored the order made by the learned single judge, emphasizing that the statutory provision in Section 41(b) of the Specific Relief Act, 1963, precludes the court from granting an injunction restraining a person from instituting or prosecuting proceedings in a court not subordinate to that from which the injunction is sought. The court also highlighted the sufficient safeguards provided in the Companies Act and the Rules to protect the company from any adverse consequences of a winding-up petition.

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