1963 (7) TMI 93 - HC - Companies Law

Issues Involved:
1. Whether the petition should be dismissed if the prayers under sections 397 and 398 do not survive.
2. Whether the Court is required to record a finding in a petition under Section 397 or Section 398 that a prima facie case for examination of the person concerned or for restoration of assets or for payment of compensation against him exists.
3. Whether an order for examination and payment of compensation can be made in the petition under Section 397 or 398 of the Act or whether a fresh application is required to be filed for institution of a proceeding under Section 543 (Schedule XI).
4. If so, whether the application required to be filed under Section 543 (Schedule XI) should be an independent petition or whether the application can be made in the main petition under Section 397 or Section 398 of the Act.

Detailed Analysis:

1. Dismissal of Petition if Prayers under Sections 397 and 398 Do Not Survive:
The Court considered whether the petition should be dismissed outright if the prayers under sections 397 and 398 are not pressed. It was determined that the petition should not be dismissed immediately. The Court acknowledged that while the object of the petition under sections 397 and 398 was exhausted due to changes in the management, the petition could still be retained to allow for evidence to be presented regarding the allegations of misfeasance against respondents Nos. 2 to 4. The Court held that it is within its discretion to decide when the proceeding should terminate.

2. Recording of Prima Facie Case Finding in Petition under Section 397 or 398:
The Court agreed with the submission that it is not required to record a finding in a petition under Section 397 or 398 about whether a prima facie case for examination of the person concerned or for restoration of assets or for payment of compensation exists. The Court noted that the legislative intent did not necessitate the Court to undertake the responsibility of finding out whether any prima facie case of misfeasance has come to light in a proceeding under Section 397 or Section 398. The determination of a prima facie case is not obligatory on the Court in the context of these sections.

3. Necessity of Fresh Application for Proceedings under Section 543 (Schedule XI):
The Court concluded that a fresh application is necessary for starting proceedings under Section 543 (Schedule XI). This follows from the clear language used in Section 543, which contemplates an application to be made for the purpose of obtaining an order for examination and compensation. The Court emphasized that the application under Section 543 (Schedule XI) must be made after a prima facie case has come to light in the course of proceedings under Section 397 or Section 398.

4. Whether Application under Section 543 (Schedule XI) Should Be Independent or Sub-application:
The Court held that an application under Section 543 (Schedule XI) should be an independent petition and not a sub-application within the main petition under Section 397 or Section 398. The rules framed under the Act distinguish between substantive applications by petition and subsidiary applications by Judge's summons. An application under Section 543 (Schedule XI) must be made by a petition, entered in the Company Petition Register, and given a separate number. The Court rejected the contention that an application under Section 543 (Schedule XI) could be made by Judge's summons within the main petition under Section 397 or Section 398.

Conclusion:
The Court ordered that the present petition be adjourned for three months to allow the petitioner Company or any other interested person to take steps regarding the acts of misfeasance alleged against respondents Nos. 2 to 4 or any other person. The petition will be posted for final orders after three months, and the costs incurred so far will be costs in the cause.

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