2013 (1) TMI 280 - HC - Companies Law

Ratification of the action taken by the Official Liquidator - Power of Official Liquidator to appoint Special Arguing Counsel - Held that - Referring to Rule 307 of the Companies (Court) Rules, 1959 the official liquidator is required to apply to the Company Court for sanction to employ an advocate, or advocates, to assist him. Nowhere in the rule is it mentioned that the sanction has to be granted after the appointment of an advocate by the official liquidator. The rule envisages prior sanction of the Court and not ex-post facto sanction, as is conveniently being misread and mis-construed by the official liquidator. It is an admitted fact on the part of the official liquidator that prior permission and approval of the court for engagement of the concerned advocate has not been taken, and that the concerned advocate is not on the panel approved by the Court. In such circumstances, the action of the official liquidator in entrusting the briefs to the concerned advocate as special arguing counsel without prior permission of the Court cannot be ratified. Where Official Liquidator appointed a special arguing counsel whose name was not on panel of advocates without taking prior permission of Company Court, said action of Official Liquidator could not be subsequently ratified by Company Court

Issues Involved:
1. Ratification of the Official Liquidator's action in appointing a Special Arguing Counsel without prior court approval.
2. Interpretation of the clause regarding "Special Arguing Counsel" in the Scheme approved by the court.
3. Compliance with Rule 307 of the Companies (Court) Rules, 1959.
4. The Official Liquidator's defiance of court orders and the implications thereof.

Issue-wise Detailed Analysis:

1. Ratification of the Official Liquidator's Action in Appointing a Special Arguing Counsel Without Prior Court Approval:
The Official Liquidator sought ratification from the court for appointing a Special Arguing Counsel without obtaining prior approval. The court found that the Official Liquidator had engaged an advocate not on the sanctioned panel in several cases without court sanction, contrary to the applicable rules and the Scheme. The court emphasized that the Official Liquidator must seek prior approval for such appointments and cannot act unilaterally. The court noted that the Official Liquidator's actions amounted to defiance and undermined the court's authority.

2. Interpretation of the Clause Regarding "Special Arguing Counsel" in the Scheme Approved by the Court:
The Official Liquidator interpreted the clause in the Scheme as allowing him to appoint a Special Arguing Counsel without court approval. The court clarified that the clause requires prior sanction, approval, and permission of the court for engaging a Special Arguing Counsel, unless the advocate's name is on the approved panel. The court added specific language to the clause to prevent future misinterpretations, stating that the Official Liquidator must always seek court approval before engaging any advocate outside the sanctioned panel.

3. Compliance with Rule 307 of the Companies (Court) Rules, 1959:
Rule 307 requires the Official Liquidator to apply for court sanction to employ advocates. The court noted that the Official Liquidator had not complied with this rule, as he had not sought prior court approval before appointing the Special Arguing Counsel. The court emphasized that the rule envisages prior sanction, not ex-post-facto approval, and the Official Liquidator's interpretation was incorrect.

4. The Official Liquidator's Defiance of Court Orders and the Implications Thereof:
The court found that the Official Liquidator had repeatedly failed to comply with court orders, including providing necessary details and explanations for his actions. The court noted that the Official Liquidator's stance was contrary to the court's orders and amounted to defiance. The court expressed concern over the Official Liquidator's conduct, stating that it seriously hampered the smooth functioning of the court. The court rejected the Official Liquidator's prayers for ratification and directed that a copy of the order be communicated to the Secretary, Ministry of Corporate Affairs, for further necessary action.

Conclusion:
The court rejected the Official Liquidator's request for ratification of his actions in appointing a Special Arguing Counsel without prior court approval. The court clarified the requirement for prior court sanction under the Scheme and Rule 307 of the Companies (Court) Rules, 1959. The court expressed concern over the Official Liquidator's defiance of court orders and directed that the matter be communicated to the Ministry of Corporate Affairs for further action.

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