1973 (5) TMI 65 - HC - Companies Law

Winding up - Powers of liquidator, Summons for directions to be taken out by official liquidator, Power of Supreme Court to make rules

Summary

Issues Involved:
1. Whether proper sanction under section 457 of the Companies Act was accorded by the court to the official liquidator to file the petition.
2. Whether rule 139 of the Companies (Court) Rules, 1959, is mandatory or directory and the effect of non-compliance.
3. The validity of the sanction obtained by the official liquidator and its implications on the maintainability of the petition.

Detailed Analysis:

Issue 1: Proper Sanction under Section 457
The official liquidator filed a petition under section 446(2) read with section 468 of the Companies Act for the recovery of Rs. 20,318.67 against the respondents. The respondents raised a preliminary objection that the petition is not maintainable due to the lack of proper sanction under section 457 of the Companies Act. The official liquidator examined Shri H. R. Khanna, who confirmed that the application for sanction was sent to the court and was sanctioned by Sandhawalia J. on June 7, 1971. The letter conveying the sanction to the official liquidator was marked as exhibit P-2. The respondents did not present any evidence to counter this.

Issue 2: Rule 139 of the Companies (Court) Rules, 1959
The court examined whether rule 139 of the Companies (Court) Rules, 1959, is mandatory or merely directory. The Rules were framed under sections 643(1) and (2) of the Companies Act, 1956. Section 643(1) is divided into two parts: clause (a) uses "shall," indicating mandatory rules, while clause (b) uses "may," indicating directory rules. The court concluded that rules framed under clause (b) are directory. Rule 139, which falls under clause (b), is therefore directory and not mandatory. Non-compliance with rule 139 does not invalidate the proceedings initiated by the official liquidator.

Issue 3: Validity of the Sanction and Implications
The court found that the sanction of the High Court was indeed obtained by the official liquidator. The sanction was granted by Sandhawalia J., and the official liquidator filed the petition based on this sanction. The respondents argued that non-compliance with rule 139 rendered the sanction void, citing the Gujarat High Court's decision in East India Co. v. Official Liquidator and the Supreme Court's decision in Smt. Jatan Kanwar Golcha v. Golcha Properties P. Ltd. However, the court distinguished these cases on the grounds that the respondents in the current case were not the petitioning creditors but debtors of the company in liquidation. The court observed that even if there was a violation in not issuing a notice to the petitioning creditor, the order by Sandhawalia J. would still be valid against the respondents.

The court held that the essence of section 457(1) is to obtain the court's sanction before exercising certain powers. This sanction was obtained, and the respondents, being debtors, could not challenge the validity of the sanction on the grounds of non-compliance with rule 139. Consequently, the preliminary issue was decided in favor of the official liquidator, affirming that the petition is maintainable.

Conclusion
The court concluded that the sanction under section 457 was properly accorded, rule 139 of the Companies (Court) Rules, 1959, is directory, and the respondents cannot challenge the validity of the sanction. The preliminary issue was resolved in favor of the official liquidator, allowing the petition to proceed.