1979 (4) TMI 108 - HC - Companies Law

Summary

Issues:
1. Rejection of application under section 372(4) of the Companies Act, 1956.
2. Proceedings initiated under section 374 of the Companies Act, 1956.

Analysis:
The judgment delivered by Justice Samarendra Chandra Deb of the High Court of Calcutta pertains to a case where the petitioners, who are directors of a company, challenged the rejection of their application under section 372(4) of the Companies Act, 1956, and the subsequent proceedings initiated against them under section 374 of the same Act. The company in question had made investments in another company, and the petitioners were authorized to purchase shares from that company. The petitioners bought the shares without prior approval, leading to the rejection of their application and the initiation of legal proceedings against them.

The court analyzed the provisions of the Companies Act, specifically section 372(4), which did not explicitly require previous approval for such transactions. The court noted that unlike other sections of the Act that use the term "previous approval," section 372(4) does not contain such a requirement. Therefore, the court held that the petitioners did not default in complying with the Act by not obtaining prior approval for the share purchase, as it was not mandated by law.

Furthermore, the court scrutinized the notification issued by the Ministry of Finance, Department of Company Affairs and Insurance, which directed the disposal of investments without prior approval. The court deemed this notification as contrary to the provisions of section 372(4) and held that the rejection of the petitioners' application based on this notification was erroneous.

Additionally, the court clarified that the power to direct a company to sell its investments lies under section 373 of the Companies Act, which was not applicable in the present case. As a result, the authority that rejected the application did not have the jurisdiction to order the sale of investments made by the company.

Conclusively, the court ruled in favor of the petitioners, quashing the impugned order rejecting their application and setting aside the legal proceedings initiated against them under section 374 of the Companies Act, 1956. The court also stated that no costs were to be awarded in this matter.