1967 (9) TMI 94 - HC - Companies Law

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

Summary

Issues:
- Appeal under section 202 of the Indian Companies Act, 1913 against the order of the company judge in a proceeding under section 235 of that Act.
- Determination of prima facie case against directors for misfeasance, malfeasance, breach of trust, etc.
- Preliminary objection to the maintainability of the appeal based on the nature of the order affecting rights and liabilities of the parties.
- Interpretation of section 235(1) of the Indian Companies Act, 1913 regarding the jurisdiction of the company judge.

Analysis:
The judgment pertains to an appeal under section 202 of the Indian Companies Act, 1913 against the order of the company judge in a proceeding under section 235 of that Act. The official liquidator initiated the proceeding against several directors of a company under liquidation for alleged misfeasance, malfeasance, breach of trust, etc. The company judge, after a preliminary stage, decided not to proceed against two directors unless a prima facie case was established. The judge's order released the two directors from the enquiry at that stage, while continuing the proceeding against other directors mentioned in the original application. The issue raised was the maintainability of the appeal, contending that the order did not finally affect the rights and liabilities of the parties as per the Supreme Court's interpretation in a previous case. The argument was that procedural orders not impacting rights and liabilities are not appealable under section 202.

The judgment delves into the interpretation of section 235(1) of the Indian Companies Act, 1913, which outlines the court's jurisdiction in cases of misapplication of company funds by directors. The section mandates that the court may examine the conduct of directors if a prima facie case is established. The judgment emphasizes that an order affecting rights and liabilities, such as directing directors to repay or restore company funds, would be final and appealable. However, in cases where the company judge decides at the initial stage that there is no prima facie case against certain directors and drops the proceeding against them while continuing against others, the order does not conclusively determine rights and liabilities. The judge's discretion to decide preliminary matters, as acknowledged by both parties' counsels, does not render such orders appealable unless they definitively impact the parties' rights.

Ultimately, the court held that the appeal was incompetent as the order in question did not conclusively affect the rights and liabilities of the parties. The judgment underscores that the company judge's decision to drop the proceeding against two directors at a preliminary stage does not preclude a future reconsideration based on additional evidence. Therefore, the appeal was dismissed, and no costs were awarded.