1938 (3) TMI 13 - HC - Companies Law

Winding up - Appeals from orders and Power of court to assess damages against delinquent directors, etc.

Issues Involved:
1. Is the petition under section 235, Companies Act in the nature of a plaint and must it be in accordance with the provisions of the Code of Civil Procedure?
2. Do the petitions which have been filed, collectively or individually, constitute a valid plaint or statement of claim?
3. Is one joint trial of the claims against all the respondents joined in the petition permissible in law, the allegations against each of them being distinct and based on separate acts of misfeasance?

Issue-wise Detailed Analysis:

Issue 1: Nature of Petition under Section 235, Companies Act
Section 235(1) of the Companies Act requires that it should appear that the respondent, being a past or present director or officer of the company, has misapplied or retained money of the company or been guilty of any misfeasance or breach of trust in relation to the company. The application by the liquidator or any creditor or contributory is then examined by the Court. Relief is provided by an order to restore or repay the money or property, or to contribute such sum to the assets of the company by way of compensation as the Court thinks fit. Sub-section (3) of Section 235 states that "The Indian Limitation Act, 1908, shall apply to an application under this section as if such application was a suit." This indicates that the application is in the nature of a suit, though it follows a summary procedure.

The Civil Procedure Code applies to proceedings under the Companies Act by virtue of section 141, which states: "The procedure provided in this Code in regard to suits shall be followed, as far as it can be made applicable, in all proceedings in any Court of civil jurisdiction." This includes proceedings under the Companies Act. Therefore, an application under section 235 is considered a judicial proceeding and is subject to the general practice of the Court as determined by the Civil Procedure Code.

The judgment concludes that an application under section 235, Companies Act is in the nature of a plaint but the provisions of the Civil Procedure Code are inapplicable to it because express provision for its contents and the formalities connected with it are provided by the Companies Act and the rules made thereunder.

Issue 2: Validity of Petitions as a Statement of Claim
The validity of the application must be considered separately for the respondents named in the original application and those added later. The original application of 1st July 1935 complied with the rules and is considered a valid application against the named respondents. However, for the respondents added on 16th July 1936, the application was defective as it did not make any charges against them. The charges were only mentioned in the documents filed on 22nd April 1937, making this the effective date of the application against these added defendants.

The judgment emphasizes that general allegations are insufficient and specific material facts must be averred. The application must contain definite charges against the defendants, and the amount of compensation is to be assessed by the Court. The original application was found to be valid against the named defendants, but the application against the added defendants was only valid from 22nd April 1937.

Issue 3: Permissibility of Joint Trial
The contention was that separate and distinct charges against individual directors or groups of directors should not be tried together. The practice of the Court, as found in the Civil Procedure Code, indicates that there should not be a trial against several defendants unless relief is claimed in respect of or arising out of the same transaction or series of transactions. The judgment found that no good ground of objection was shown against the joinder of the defendants named in the original application of 1st July 1935. However, for the cases of Sham Mohan Seth, B.L. Mehra, and the group of Chairman, Directors, and Manager of the branch at Cawnpore, there was no common connection with the acts of the directors, and it would be oppressive to deal with these claims in one trial. The petitioner must elect which of the separate cases to proceed with, as per Order 2, Rule 8.

Appeal Analysis:
The appeals by Lala Mulk Raj Bhalla, Pt. Shiv Kishen Kaul, and Lala Raghu Nath Sahai against the order dated 17th February 1938 were considered. The judgment on Issue 1 was accepted, but on Issue 2, it was found that the petitions did not constitute a valid statement of claim against Lala Raghu Nath Sahai. The petitions contained adequate particulars against Lala Mulk Raj Bhalla and Pt. Shiv Kishen Kaul regarding the release and removal of stocks from the Lucknow Sugar Mills but not regarding the advances aggregating Rs. 14,000. On Issue 3, it was held that the allegations against Lala Mulk Raj Bhalla and Pt. Shiv Kishen Kaul should be tried separately from those against the other defendants.

The appeal of Lala Raghu Nath Sahai was accepted, and the proceedings against him were dismissed. The appeals of Lala Mulk Raj Bhalla and Pt. Shiv Kishen Kaul were accepted to the extent indicated. The parties were directed to bear their own costs. The decision did not address the limitation period for the petition under section 235, which remained to be decided by the learned Judges.

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