1983 (6) TMI 159 - HC - Companies Law

Reduction of share capital Application to Tribunal for confirming order objections by creditors and settlement of list of objecting creditors

Summary

Issues Involved:
1. Application under Section 151 of the Code of Civil Procedure read with Rule 9 of the Companies (Court) Rules, 1959.
2. Expunging remarks made in the judgment dated November 19, 1981.
3. Locus standi of equity shareholders.
4. Allegations of fraud and misrepresentation.
5. Maintainability of the present application.
6. Inherent powers of the court.
7. Relationship between the company and its managing directors.
8. Principles of natural justice.

Detailed Analysis:

1. Application under Section 151 of the Code of Civil Procedure read with Rule 9 of the Companies (Court) Rules, 1959:
The application was filed to invoke the inherent powers of the court to expunge certain remarks made in the judgment dated November 19, 1981, in Company Petition No. 49 of 1978. The court noted that Rule 9 of the Companies (Court) Rules is in pari materia with Section 151 of the Code of Civil Procedure, which provides inherent powers to the court but only for procedural purposes and not for substantive changes.

2. Expunging remarks made in the judgment dated November 19, 1981:
The applicants sought to expunge remarks made against them, arguing they had no opportunity to address the charges. The court analyzed whether these remarks were integral to the judgment and found that they were based on evidence and formed a vital link in the chain of reasoning. Consequently, the court concluded that it could not grant the prayer to delete the remarks under Section 151.

3. Locus standi of equity shareholders:
The court addressed the preliminary objection regarding the locus standi of equity shareholders to oppose the petition. It was determined that the shareholders had sufficient locus standi to object to the petition and present their case before the court.

4. Allegations of fraud and misrepresentation:
The objecting shareholders and creditors argued that the scheme for reducing share capital was a camouflage and a fraud on the statute, intended to effect a family arrangement among the managing directors. The court found that the managing directors had misled the board and the general body by withholding relevant facts and representing false facts.

5. Maintainability of the present application:
The court examined whether the application was maintainable under Section 151, Civil Procedure Code, read with Rule 9 of the Companies (Court) Rules. It concluded that the inherent power of the court is procedural and cannot be exercised to alter the judgment substantively. The court also noted that the applicants had an alternative remedy by appealing to the appellate court.

6. Inherent powers of the court:
The court discussed the scope of its inherent powers under Section 151, Civil Procedure Code, and concluded that these powers are limited to procedural matters and cannot be used to conflict with express provisions of the Code. The court cited various judgments to support this view, including Padam Sen v. State of U.P. and Manohar Lal Chopra v. Rai Bahadur Rao Raja Seth Hiralal.

7. Relationship between the company and its managing directors:
The court analyzed the relationship between the company and its managing directors, noting that while the company has a separate legal personality, the managing directors are its officers and act on its behalf. The court concluded that the managing directors were not total strangers to the proceedings and were, in fact, the real parties interested in the outcome.

8. Principles of natural justice:
The applicants argued that the remarks were made without giving them an opportunity to defend themselves, violating the principles of natural justice. The court found that the managing directors had ample opportunity to present their case but chose not to file affidavits or participate actively. The court cited Roshan Lal Mehra v. Ishwar Dass to support the view that a party cannot claim a breach of natural justice if it had the opportunity to participate but chose not to.

Conclusion:
The court held that the application was not maintainable on merits and dismissed it. The remarks made in the judgment were based on evidence and were integral to the court's reasoning. The managing directors had the opportunity to defend themselves but chose not to, and thus could not claim a breach of natural justice. The court discharged the rule issued in the application without any order as to costs.