1961 (3) TMI 29 - HC - Companies Law

Summary

Issues Involved:
1. Validity of Rules 301 to 304 of the Companies (Court) Rules, 1959.
2. Calculation of audit fees under Rule 304.
3. Authority of the Supreme Court under Section 643 of the Companies Act, 1956, to make rules regarding the audit of liquidator's accounts.

Issue-Wise Detailed Analysis:

1. Validity of Rules 301 to 304 of the Companies (Court) Rules, 1959:
The judgment scrutinizes the validity of Rules 301 to 304 of the Companies (Court) Rules, 1959, in light of Section 643 of the Companies Act, 1956. It was contended that these rules are ultra vires the Companies Act, 1956. The court noted that Section 462 of the Companies Act mandates that the court having jurisdiction should cause the liquidator's accounts to be audited "in such manner as it thinks fit." However, Rules 301 to 304 prescribe a detailed procedure for the audit, which includes the Registrar forwarding the accounts to the auditor and the auditor providing a certificate of audit. The court concluded that these rules interfere with the court's discretion as provided under Section 462 and are, therefore, beyond the powers conferred on the Supreme Court by Section 643. The court held that the rules are of no effect as they contradict express provisions in the Companies Act, 1956.

2. Calculation of Audit Fees under Rule 304:
The official liquidator suggested remuneration for the auditor not in accordance with Rule 304, which led to a dispute. Rule 304 states that audit fees should be calculated on the gross amount brought to credit, deducting amounts spent on carrying on the business and amounts paid to secured creditors. The official liquidator argued that the rule should not apply until secured creditors are paid off. However, the court clarified that the fees should be calculated based on actual payments made to secured creditors, not amounts payable. The court also noted that the audit fees calculated as per Rule 304 were significantly higher than previous practices, leading to a substantial portion of the assets being consumed by audit fees. Despite these concerns, the court did not delve deeply into this issue, as it found the rules themselves to be ultra vires.

3. Authority of the Supreme Court under Section 643 of the Companies Act, 1956:
The court examined whether the Supreme Court had the authority under Section 643 to frame Rules 301 to 304. Section 643 mandates the Supreme Court to make rules for matters related to the winding up of companies, but the manner of auditing liquidator's accounts is left to the court having jurisdiction. The court observed that Section 462(3) specifically grants the court the discretion to determine the manner of audit, which cannot be overridden by rules made by the Supreme Court. The judgment emphasized that while the Supreme Court can prescribe the form and frequency of accounts, it cannot dictate the manner of auditing, thus rendering Rules 301 to 304 invalid.

Conclusion:
The judgment concludes that Rules 301 to 304 of the Companies (Court) Rules, 1959, are ultra vires the Companies Act, 1956, as they infringe upon the court's discretion provided under Section 462. Consequently, the court directed the Assistant Registrar (Company) to submit a report on the procedure to be adopted for auditing the liquidator's accounts, indicating that new administrative directions would be issued.

Appeal:
An appeal (No. 129 of 1961) against this judgment was dismissed on the ground of non-maintainability.