1988 (11) TMI 355 - HC - Companies Law

Issues Involved:

1. Whether the provisions of Order 14, Rule 2 of the Code of Civil Procedure (CPC) apply to a company petition under Sections 397 and 398 of the Companies Act, 1956.
2. Whether the suggested issues can be tried as preliminary issues.
3. What order should be passed.

Issue-wise Detailed Analysis:

1. Applicability of Order 14, Rule 2 of the CPC to Company Petitions under Sections 397 and 398:

The court examined whether the provisions of Order 14, Rule 2 of the CPC apply to proceedings under Sections 397 and 398 of the Companies Act, 1956. The court noted that Section 141 of the CPC and Rule 6 of the Companies (Court) Rules, 1959, indicate that the procedural provisions of the CPC apply to company proceedings as far as they can be made applicable. The Supreme Court's interpretation in Babubhai Muljibhai Patel v. Nandlal Khodidas Barot was cited, which emphasized that procedural provisions should be applied considering the nature of the proceedings and the relief claimed.

The court observed that Order 14, Rule 2 aims to prevent piecemeal trials and delays by mandating that all issues in a suit be tried together, except in cases where a pure issue of law related to the jurisdiction of the court or a bar to the suit created by any law is involved. The court found that applying Order 14, Rule 2 to company petitions would streamline the proceedings and avoid unnecessary delays.

The court also referred to the Bombay High Court's decision in Kelly and Henderson P. Ltd. In re, where the applicability of Order 23, Rule 3 of the CPC to proceedings under Sections 397 and 398 was ruled out. However, the court distinguished this case by noting that Order 14, Rule 2 does not have the same detrimental effect on the proceedings under Sections 397 and 398.

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, 1956.

2. Whether the Suggested Issues Can Be Tried as Preliminary Issues:

Given the applicability of Order 14, Rule 2, the court examined whether the preliminary objections raised by the applicants could be tried as preliminary issues. The court noted that the suggested issues involved mixed questions of law and fact, requiring affidavit evidence. The court emphasized that Order 14, Rule 2 mandates that only pure issues of law related to the jurisdiction of the court or a bar to the suit can be tried as preliminary issues.

The court found that the preliminary objections regarding the maintainability of the petition under Section 399 of the Companies Act, based on the petitioner's shareholding and the validity of consents, could not be decided without delving into factual controversies. Therefore, these issues could not be tried as preliminary issues.

3. What Order Should Be Passed:

The court concluded that prayer (b) in Company Application No. 90 of 1987, which sought to try the preliminary objections as preliminary issues, could not be granted. The objections would have to be tried along with other issues on the merits of the petition. Consequently, the company application was rejected, and there was no order as to costs.

Conclusion:

The court held that the provisions of Order 14, Rule 2 of the CPC apply to proceedings under Sections 397 and 398 of the Companies Act, 1956. The suggested preliminary issues could not be tried as preliminary issues due to the need for affidavit evidence and the mixed nature of the questions involved. The company application was rejected, and the objections would be considered during the trial of the main petition on merits.

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