1971 (2) TMI 60 - HC - Companies Law

Summary

Issues Involved:
1. Whether the petition is maintainable in view of the provisions of section 543 of the Companies Act.
2. Whether the petition is barred by limitation.
3. If the alleged acts of malfeasance, misfeasance, and non-feasance were committed prior to the coming into operation of the Companies Act, 1956, whether the petition is maintainable.
4. Whether the petition is premature inasmuch as the liquidator of the Colaba Land and Mills Co. Ltd. has yet not declared a final dividend on the shares of that company.
5. Whether the petition is premature inasmuch as the sale proceeds of 1,922 shares of the Colaba Land and Mills Co. Ltd. and 10,045 shares of Vasant Investment Corporation Ltd. are not realized.
6. Whether the petition having been filed without the permission of this court is maintainable at law.
7. Whether the petition is mala fide and without due regard to the interests of the shareholders.
8. Whether the petition is bad for misjoinder of causes of action and parties. If so, whether it is maintainable.
9. Whether the petition is maintainable in view of the alleged delay and laches.

Issue-wise Detailed Analysis:

Issue No. 1: Maintainability of the Petition under Section 543
The court examined whether the petition under section 543, Schedule XI, is maintainable given that the alleged acts occurred between 1948 and 1954. The court clarified that the nature, scope, and ambit of section 543, Schedule XI, are such that it applies prospectively to all cases where misfeasance has come to light during proceedings under sections 397 or 398. The court emphasized that the section is not retrospective but rather broad in scope, covering past conduct revealed in the course of such proceedings. Therefore, the petition is maintainable even if the cause of action arose before the 1956 Act.

Issue No. 2: Limitation
The court noted that the old links with the Limitation Act were disrupted in 1936, and the specific limitation provision in section 543(1) was omitted deliberately in the modified section 543, Schedule XI. Consequently, there is no bar of limitation applicable to this petition. The court also rejected the application of articles 181 or 120 of the old Limitation Act, 1908, as this proceeding is not under the Civil Procedure Code but a statutory application under the Companies Act.

Issue No. 3: Acts Committed Prior to the Companies Act, 1956
The court reiterated that the new statutory remedy under section 543, Schedule XI, applies prospectively, covering past conduct revealed in proceedings under sections 397 or 398. The court held that this provision is not retrospective but rather broad in scope, intended to address past misconduct that comes to light during such proceedings. Therefore, the petition is maintainable even if the alleged acts occurred before the 1956 Act.

Issue No. 4: Prematurity Regarding Final Dividend
The court found that the petition is not premature merely because the liquidator has not declared a final dividend. The petitioner company, holding 22,000 fully paid-up shares, has the standing to file the petition as a member. The court held that the objection of prematurity does not justify dismissing the petition in limine.

Issue No. 5: Prematurity Regarding Sale Proceeds
Similar to Issue No. 4, the court held that the petition is not premature due to the non-realization of the sale proceeds of certain shares. The objection does not justify dismissing the petition in limine, as the petitioner's standing as a member is sufficient to maintain the petition.

Issue No. 6: Permission of the Court
The court noted that none of the respondents could point out any provision requiring the court's permission to institute this petition. The Bombay High Court had sanctioned the institution of the petition by the liquidator. Therefore, the petition is maintainable without further permission.

Issue No. 7: Mala Fide
The court found no basis for the allegation that the petition is mala fide. The court noted that prima facie material had come to light, and the petitioner company was advised to file a consolidated petition against all relevant parties. Therefore, the petition is not mala fide.

Issue No. 8: Misjoinder of Causes of Action and Parties
The court rejected the objection of misjoinder, noting that the consolidated application was advised by Miabhoy J. to include all relevant parties against whom prima facie material was disclosed. The court emphasized that in an inquiry of this character, the objection of misjoinder could not justify dismissing the petition in limine.

Issue No. 9: Delay and Laches
The court held that the plea of delay and laches could not be advanced as a bar in limine to the petition. The minority shareholders were not in management, and the petition was filed promptly after the report of Mr. Deshpande was made public and the main petition was filed. The court noted that any potential prejudice to the respondents could be addressed during the exercise of its equitable jurisdiction.

Conclusion:
The court decided all preliminary issues against the respondents, holding the petition to be maintainable.