1966 (1) TMI 46 - HC - Companies Law

Summary

Issues Involved:
1. Requirement of notice to the Central Government under Section 394A of the Companies Act, 1956.
2. Interpretation of Section 394A in relation to applications under Section 391 of the Companies Act, 1956.
3. Harmonious construction of the Companies Act, 1956, and the rules framed thereunder.

Detailed Analysis:

1. Requirement of Notice to the Central Government under Section 394A of the Companies Act, 1956:
The primary issue is whether notice of an application under Section 391 of the Companies Act, 1956, must be given to the Central Government before any order is made. Section 394A, introduced by the Companies (Amendment) Act, 1965, mandates that "the court shall give notice of every application made to it under section 391 or 394 to the Central Government, and shall take into consideration the representations, if any, made to it by that Government before passing any order under any of these sections."

2. Interpretation of Section 394A in Relation to Applications under Section 391 of the Companies Act, 1956:
The court examined whether notice to the Central Government is required for both the initial application for convening a meeting (under Section 391(1)) and the subsequent application for sanctioning the compromise or arrangement (under Section 391(2)). The procedure under Section 391 involves an initial application to the court for convening a meeting of creditors or members to consider a proposed compromise or arrangement. If the proposal is accepted by the requisite majority, a second application is made for the court's approval.

3. Harmonious Construction of the Companies Act, 1956, and the Rules Framed Thereunder:
The court considered the rules framed by the Supreme Court under Section 643 of the Companies Act, which include:
- Rule 67: An application under Section 391(1) shall be moved ex parte.
- Rule 68: Notice is required if the company is not the applicant or is being wound up.
- Rule 71: An application under Section 391(6) for stay of proceedings may be moved ex parte unless a winding-up petition is pending.

The court noted that if notice of every application under Section 391(1) or 391(6) must be given to the Central Government, the right to move the court ex parte would be entirely negated. The court emphasized the need to avoid conflict between Section 391 and the rules framed thereunder and Section 394A by adopting a harmonious construction.

The court concluded that notice to the Central Government is necessary only before the court sanctions a compromise or arrangement on an application under Section 391(2). This interpretation aligns with the purpose of Section 394A, which is to allow the Central Government to make representations before any final order is passed. The court found that the new section does not explicitly take away the right to move an ex parte application under Section 391(1) or 391(6), indicating that "any order" in Section 394A should be interpreted as "any final order."

Conclusion:
The court held that at the initial stage of the proceedings under Section 391(1), no notice to the Central Government is necessary. Notice is required only when the final proposal is brought before the court for sanction under Section 391(2) or Section 394. This interpretation ensures that the Central Government has the opportunity to study and raise objections to the proposal before the court passes any final order, thereby protecting the interests of the investing public.