1988 (11) TMI 323 - HC - Companies Law

Oppression and Mismanagement, Oppression and Mismanagement Right to apply under section 397 and 398, Applicability of Code of Civil Procedure

Summary

Issues Involved:
1. Whether the provisions of Order 14, Rule 2 of the Code of Civil Procedure apply to a company petition under sections 397 and 398 of the Companies Act.
2. Whether the suggested issues can be tried as preliminary issues.
3. Determination of the final order.

Detailed Analysis:

Issue 1: Applicability of Order 14, Rule 2 of the Code of Civil Procedure to Company Petitions under Sections 397 and 398 of the Companies Act
The court examined the statutory provisions, including Section 10 of the Companies Act, Sections 397 and 398, and Section 399, which deals with the right to apply under Sections 397 and 398. The court also reviewed the Companies (Court) Rules, 1959, particularly Rule 6, which states that the practice and procedure of the court and the provisions of the Code of Civil Procedure (CPC) shall apply to all proceedings under the Act and these Rules, as far as applicable.

The court considered the Supreme Court's interpretation of "as far as applicable" in Babubhai Muljibhai Patel v. Nandlal Khodidas Barot, AIR 1974 SC 2105, which means that the provisions may be made applicable to the given proceedings, keeping in view the nature of the proceedings and the relief claimed therein.

The court found that the provisions of Order 14, Rule 2 of the CPC, which discourage piecemeal trials and mandate that suits must be tried on all issues save for certain exceptions, do not frustrate the proceedings under Sections 397 and 398 of the Companies Act. Instead, they streamline the procedure and make it more effective. The court concluded that the provisions of Order 14, Rule 2 of the CPC apply in their entirety to proceedings under Sections 397 and 398 of the Companies Act.

Issue 2: Whether the Suggested Issues Can Be Tried as Preliminary Issues
The court noted that the preliminary objections raised by the applicants, such as the petitioners not holding 10% of the issued share capital and the validity of the consent given by the shareholders, require evidence to be led and are therefore mixed questions of law and fact. According to Order 14, Rule 2 of the CPC, only pure issues of law that touch upon the jurisdiction of the court or raise questions about the proceedings being barred by any provision of law can be tried as preliminary issues.

The court held that the preliminary objections raised by the applicants do not touch upon the jurisdiction of the court nor do they raise any question regarding the main proceedings being barred by any express provision of law. As such, these issues cannot be tried as preliminary issues.

Final Order:
The court rejected the prayers made in Company Application No. 90 of 1987. The objection regarding the maintainability of the main Company Petition No. 62 of 1986 cannot be tried as a preliminary issue but will have to be decided along with other issues on the merits of the petition. The court clarified that the question of maintainability will be decided ultimately on merits while considering the main petition. Consequently, the company application failed and was rejected. There was no order as to costs, and the notice was discharged.