2017 (5) TMI 1689 - HC - Companies Law

Dismissal of a company petition applying the principles of Order 7 Rule 11 of the Code - concept of demurrer interchangeably with an application for rejection of plaint under Order 7 Rule 11 of the Code - HELD THAT - The expression demurrer, when used in connection with an application seeking dismissal of a petition on a preliminary or maintainability point shall not imply automatic admission of facts contained in the plaint or petition whose dismissal is sought for by opposing party. The principles of Order 7 Rule 11 would apply in relation to such petitions, and if it is found that adjudication of such motion involves mixed questions of fact and law, then adjudication of that question would stand deferred, and those points would be left to be determined on trial. Though there does not appear to be a clear Indian authority on this point as yet, from the decisions to which I have referred to earlier, it is apparent that the practise followed in England and the US had never been accepted as a part of Indian jurisprudence. The term demurrer in the Indian context has been construed to have connotation wider than the dictionary meaning, and motions for dismissal of a proceeding on a preliminary point has been commonly referred to as applications in demurrer . Otherwise, no statutory reference to this term has been brought to my notice. The U.S. and English principle on demurrer does not apply in the Indian context. Law in India proceeds on a different trajectory on this point, and I do not find any reason to adopt a different course though such a course would be compatible with the US and the English principles. It is not possible for me to conclude at this stage that the consent decree was obtained by playing fraud upon Court. BCCL must have opportunity to meet HIT's challenge to the decree on such allegations through a proper adjudicatory process. A recall petition, which is usually decided following summary procedure for such purpose is inadequate instrument - For the same reason, initiation of contempt action or a proceeding under Section 340 of the 1973 would not be proper course in the facts of this case at this stage.

Issues Involved:
1. Validity of the consent order-cum-decree dated 27th April 1983.
2. Locus standi of applicants (ABL and HIT) to challenge the consent decree.
3. Applicability of limitation in challenging the consent decree.
4. Authority of the Official Liquidator versus the Directors of a company in liquidation.
5. Right of a third party (HIT) to challenge a consent decree obtained by fraud.

Detailed Analysis of the Judgment:

1. Validity of the Consent Order-Cum-Decree Dated 27th April 1983:
The consent order dated 27th April 1983 was challenged primarily on the grounds of fraud. The applicants alleged that the order was obtained through fraudulent means, including the use of an antedated promissory note and collusive actions by the parties involved. The court noted that the applicants claimed the decree was void ab initio due to fraud, which would render it non-est and not subject to limitation. However, the court emphasized that determining whether fraud was committed required a proper adjudicatory process, including the examination of evidence, which could not be sufficiently addressed through a summary procedure.

2. Locus Standi of Applicants (ABL and HIT) to Challenge the Consent Decree:
The court addressed the locus standi of the applicants, ABL and HIT, to challenge the consent decree. It was argued that ABL, being a company in liquidation, could not be represented by anyone other than the Official Liquidator. The court upheld this argument, stating that the Directors of a company in liquidation are divested of their powers to act on behalf of the company, except for limited purposes. Consequently, ABL's application, not being presented by the Official Liquidator, was deemed legally unsustainable. Regarding HIT, the court acknowledged its claim as a contributory but noted that its locus to challenge the consent decree needed to be adjudicated in a proper forum.

3. Applicability of Limitation in Challenging the Consent Decree:
The court examined the applicability of the limitation period in challenging the consent decree. It referred to Article 59 of the Limitation Act, which prescribes a three-year limitation period for setting aside a decree on the grounds of fraud. The court highlighted that the applicants did not specify the date on which they acquired knowledge of the decree, which was crucial for determining the limitation period. The court also noted that if the decree was obtained by fraud on the court, it would be considered a nullity, and the limitation period would not apply. However, the determination of whether fraud was committed required a detailed examination of evidence.

4. Authority of the Official Liquidator Versus the Directors of a Company in Liquidation:
The court reiterated the exclusive authority of the Official Liquidator to represent a company in liquidation, as provided under the Companies Act, 1956. It emphasized that the Directors of a company in liquidation are divested of their powers to act on behalf of the company, except for limited purposes. The court held that any action to invalidate something that occurred before the company went into liquidation should be brought by the Official Liquidator with the sanction of the court.

5. Right of a Third Party (HIT) to Challenge a Consent Decree Obtained by Fraud:
The court addressed the right of a third party, HIT, to challenge the consent decree obtained by fraud. It acknowledged that in appropriate cases, a third party with sufficient interest in the subject matter could apply for invalidation of a decree obtained by fraud, invoking Section 151 of the Code of Civil Procedure. However, the court emphasized that fraud on the court must be ex facie and outrageous for such a challenge to be entertained. The court concluded that the allegations of fraud made by the applicants required proper adjudication through a detailed examination of evidence, which could not be adequately addressed through the summary procedure of a recall petition.

Conclusion:
The applications (C.A. 715 of 2015, C.A. 97 of 2016, and C.A. 131 of 2016) were dismissed as against ABL due to the lack of representation by the Official Liquidator. HIT's applications were disposed of with liberty to apply before the appropriate forum for similar reliefs. The court emphasized the need for a proper adjudicatory process to determine the allegations of fraud and the applicability of the limitation period.

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