1968 (12) TMI 72 - HC - Companies Law

Summary

Issues Involved:
1. Locus standi of shareholders to apply under Order 21, Rule 90, CPC.
2. Interpretation of "interest" under Order 21, Rule 90, CPC.
3. Legal status of shareholders in relation to company assets.
4. Applicability of sections 457 and 475 of the Companies Act, 1956.
5. Relevance of case precedents on shareholder rights and interests.

Issue-wise Detailed Analysis:

1. Locus Standi of Shareholders to Apply under Order 21, Rule 90, CPC:
The primary issue in this case was whether shareholders of a company in liquidation have the locus standi to apply under Order 21, Rule 90 of the Code of Civil Procedure (CPC) to set aside the sale of the company's property. The court held that the shareholders do not have the locus standi to make such an application. The court emphasized that the company is a separate legal entity from its shareholders, and it is the company that owns its assets, not the shareholders.

2. Interpretation of "Interest" under Order 21, Rule 90, CPC:
Order 21, Rule 90 of the CPC allows any person "whose interests are affected by the sale" to apply to set aside the sale on the grounds of material irregularity or fraud. The court interpreted "interest" to mean a direct and immediate interest in the property sold. The court concluded that shareholders only have a contingent interest in the surplus assets of the company after the payment of debts and liabilities, which is too remote to qualify under Order 21, Rule 90.

3. Legal Status of Shareholders in Relation to Company Assets:
The court reiterated the legal principle that a company is a distinct legal entity from its shareholders. Shareholders do not have a legal or equitable interest in the company's assets. Their rights are limited to participating in the profits and, upon winding up, in the surplus assets after the payment of debts and liabilities. This principle was supported by several case precedents, including the House of Lords decision in Macaura v. Northern Assurance Co. Ltd. and the Supreme Court decision in Mrs. Bacha F. Guzdar v. Commissioner of Income-tax.

4. Applicability of Sections 457 and 475 of the Companies Act, 1956:
Section 457 of the Companies Act, 1956, outlines the powers of the liquidator in a winding-up by the court, including the power to do all things necessary for winding up the affairs of the company and distributing its assets, subject to the control of the court. Section 475 mandates the court to adjust the rights of contributories and distribute any surplus among the persons entitled thereto. The court held that these sections do not confer any direct or immediate interest in the company's assets to the shareholders, reinforcing that their interest is contingent and not sufficient to apply under Order 21, Rule 90.

5. Relevance of Case Precedents on Shareholder Rights and Interests:
The court referred to several case precedents to support its decision. In Basanta Kumar Roy v. Cham Chandra Pal, it was held that a shareholder does not have an interest in the company's property that would be affected by a sale. The court also cited the Supreme Court decisions in the Sholapur Mills case and Mrs. Bacha F. Guzdar v. Commissioner of Income-tax, which clarified that shareholders do not have a legal or equitable interest in the company's assets. These precedents were instrumental in the court's decision to dismiss the appeal.

Conclusion:
The court concluded that the shareholders did not have the locus standi to apply under Order 21, Rule 90, CPC, to set aside the sale of the company's property. The appeal was dismissed, and it was held that the shareholders' interest in the company's assets was too remote to qualify under the said provision. The judgment emphasized the distinct legal status of the company and its shareholders and reinforced the interpretation of "interest" under Order 21, Rule 90, CPC.