1969 (6) TMI 32 - HC - Companies Law

Winding up - Powers of liquidator and Summons for directions to be taken out by official liquidator

Issues Involved:

1. Validity of the orders dated 5th March 1968 and 25th April 1968 passed by Divan J.
2. Applicability and mandatory nature of Rule 139 of the Companies (Court) Rules, 1959.
3. Jurisdiction of the court in the absence of compliance with Rule 139.
4. Effect of breach of audi alteram partem (principle of natural justice).
5. Waiver of breach of Rule 139 by the appellant.
6. Confirmation of the sale of the textile mill to the second respondent.

Issue-Wise Detailed Analysis:

1. Validity of the Orders Dated 5th March 1968 and 25th April 1968 Passed by Divan J.:

The orders dated 5th March 1968 and 25th April 1968 were passed by Divan J. without issuing notice to the appellant and giving him an opportunity to be heard. The appellant contended that these orders were null and void due to non-compliance with Rule 139 and breach of the principles of natural justice. The court held that these orders were judicial orders made by a single judge of the High Court and could not be disregarded unless set aside by adopting appropriate proceedings such as appeal or review. Since no proper proceedings had been adopted by the appellant to annul or set aside these orders, they stood valid and could not be ignored by the court as a nullity in subsequent proceedings.

2. Applicability and Mandatory Nature of Rule 139 of the Companies (Court) Rules, 1959:

Rule 139 requires that if the official liquidator wants to exercise his power to sell any property of the company under section 457(1)(c), he must take out a summons for directions with notice to the petitioning creditor. The court held that Rule 139 was applicable and mandatory. The Division Bench in Anant Mills' case had already concluded that Rule 139 was mandatory and essential, and its breach would invalidate the proceedings. The court rejected the contention that Rule 139 was directory and not mandatory.

3. Jurisdiction of the Court in the Absence of Compliance with Rule 139:

The court held that compliance with the requirements of Rule 139 is a condition for the exercise of the power to give directions in regard to the sale of the property of the company by the official liquidator. If the condition is not satisfied, the court cannot exercise the power, and the purported exercise of the power would be void and of no effect. The orders passed by Divan J. in disregard of the mandatory requirement of Rule 139 were held to be a nullity and void.

4. Effect of Breach of Audi Alteram Partem (Principle of Natural Justice):

The court emphasized that the principle of audi alteram partem is a rule of fundamental importance and basic to the system of administration of justice. A decision given in breach of this principle is null and void and not voidable. The court cited several decisions to support this view, including Ridge v. Baldwin and State of U.P. v. Mohammad Nooh. The court held that the orders passed by Divan J. in breach of audi alteram partem were null and void.

5. Waiver of Breach of Rule 139 by the Appellant:

The court found no factual foundation for the contention that the appellant had waived the breach of Rule 139. The appellant did not know about the orders until some time in May or June 1968 and took out a summons for directions for setting aside the orders of Divan J. without unreasonable delay. The appellant did not adopt fresh proceedings for quashing the orders after the first summons was withdrawn but appeared in answer to the first summons for directions and contended that the orders were a nullity. The court held that the appellant had not waived the breach of Rule 139.

6. Confirmation of the Sale of the Textile Mill to the Second Respondent:

The court held that if the orders dated 5th March 1968 and 25th April 1968 were valid, the sale in favour of the second respondent should have been confirmed. The appellant contended that the price at which the textile mill was proposed to be sold was unduly low, but the court found no material to support this contention. The court noted that the estimated value given in the statement of affairs was exaggerated, and the offers received by the official liquidator were in the range of Rs. 10,00,000 to Rs. 12,50,001. The court concluded that the offer of Rs. 12,50,001 made by the second respondent was not unduly low and should have been confirmed if the orders were valid.

Conclusion:

The court allowed the appeals, rejected the second summons for directions, and remanded the first summons for directions to the learned company judge for giving directions in accordance with law. The court granted leave to appeal to the Supreme Court under Article 133(1)(c) of the Constitution.

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