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TMI Blog1971 (2) TMI 60X X X X Extracts X X X X X X X X Extracts X X X X ..... 922 shares of the Colaba Land and Mills Co. Ltd. and 10,045 shares of Vasant Investment Corporation Ltd. are not realised ? (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 ?" The short facts, which are necessary for the disposal of these issues, are as under. The petitioners, Colaba Land and Mills Co. Ltd., who have filed this petition through their liquidator, are holding 22,000 fully paid up shares in the 16th respondent-company, which is a going concern, newly Vasant Investment Corporation Ltd. (hereinafter referred to as "the company"). One Mr. Deshpande had been appointed under section 235C of the Companies Act of 1913 on October 17, 1956, as inspector to investigate into the affairs of respondent No. 16 company. He made a report on June 19, 1957, which was made public on July 19, 1957, holding the twelve charges, whic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on 398 of the Act and, although the objects of sections 397 and 398 are different from the object of section 543, there was a vital connection between the two in the sense that a proceeding under the latter section emanated from a proceeding under either of the two sections 397 and 398 of the Act when prima facie evidence came to light in the course of such a proceeding under section 397 or section 398 of the Act on the basis of which proceeding under section 543 (Schedule XI) could be founded. The learned judge pointed out that under the general law of the land, a right to resort to such summary procedure was not given to any creditor or shareholder in the case of a going concern. Under the old law, such a right arose only after the company was taken into liquidation; which is now preserved by section 543 in the Act. The legislature intended to extend this right further by conferring a similar right upon the creditors and members of the company even during the subsistence of the company by imposing a fetter or limitation which is now enacted in the opening words of section 543, Schedule XI. Further proceeding, the learned judge observed, at page 920, that in order to make an appli ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e other respondents against whom it is alleged that prima facie material has come to light in the course of that proceeding under section 397 or section 398 which could be seen from the record of that petition. Instead of the eight acts, which were specified in the main petition No. 7 of 1960, the allegations could be classified into twelve heads for founding the case of misfeasance or breach of trust against these respondents. It is true that all the respondents are not interested in each and every one of these allegations and that is why these acts could be grouped under twelve heads. It is the case of the petitioner that the total amount which is involved is about Rs. 14,39,000, as per the summary of the relevant allegations which has been given by Mr. Nariman from the allegations in the petition. It may be also mentioned, at this stage, that even the main petition No. 7 of 1960 has not, as yet, been disposed of but, by the order dated February 3, 1964, of our brother, Divan J., it has been stayed. In the light of these facts, we will have to consider the preliminary objections which have been raised. It would be proper at the outset to consider section 543 in the Act and as mod ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntable for any money or property of the company ; or ( b )has been guilty of any misfeasance or breach of trust in relation to the company; the court may, on the application of any creditor or member, examine into the conduct of such person, director, managing agent, secretaries and treasurers, manager or officer aforesaid, and compel him to repay or restore the money or property or any part thereof respectively, with interest at such rate as the court thinks just or to contribute such sum to the assets of the company by way of compensation in respect of the misapplication, retainer, misfeasance or breach of trust as the court thinks just. (2) This section shall apply notwithstanding that the matter is one for which the person concerned may be criminally liable". If, therefore, section 543 in the Act and section 543, Schedule XI, are compared, it is obvious that the legislature has deliberately deleted the provisions about limitation in section 543(2) of the Act when it applied section 543(1), Schedule XI, in the modified form in the context of an application under section 397 or section 398 when the jurisdiction of the court was invoked under section 406, read with section ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... v. Hukam Chand AIR 1923 Lah. 58, the Division Bench consisting of Shadi Lal C.J. and Abdul Qadir J. took the view that section 10 of the Limitation Act did not apply to directors of companies, as there was no express trust. An application under section 235 was in the same position as a suit for the purpose of the Limitation Act and that is why it was held that section 235 was not intended to revive any rights that have become already barred by time and, therefore, it was only reasonable that the powers of a liquidator under section 235 should extend to these actions only regarding which it could be shown that there was a subsisting right or liability. This view was taken on the footing that section 235 gave no new rights, but simply provided a summary mode of enforcing rights, which might otherwise have been enforced by suit. Thereafter, the legislature intervened to remedy the situation by the amending Act of 1936 by. deleting its link with the old Limitation Act and by creating limitation in the very body of section 235 itself. The position in the amendment was interpreted by the Division Bench of the Allahabad High Court by their Lordships, Braund and Walli Ullah JJ., in Off ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that it would be unjust in that particular case to hold a director or officer liable for some act of misfeasance which took place long ago. Therefore, if equity demanded the persons being accused in the wider interest of justice, the court was not helpless because of the discretion specifically vested in the court and conversely the public interest could be manifestly benefited by the amendment. Therefore, the Division Bench, in terms, held that, after this amendment in 1936, even under the old section 235, the liquidators were entitled to have the conduct of any promoter, director, manager or officer of the bank examined under that section and to claim compensation for the wrongful act of any such person discovered and proved as a result of such inquiry, notwithstanding that a cause of action on the act would, in a suit by the company itself, have been barred by the law of limitation in force prior to the coming into operation of the amendment, provided nevertheless that the express provisions as to limitation of the amended section 235(1) of the Indian Companies Act, 1913, were themselves observed. After greater experience, the legislature became still wiser. When the new Act ca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vious that the legislature has deliberately done away with a limitation period when this new remedy was created. The minority shareholders could not file a suit in a court of law for making these delinquent directors or officers to pay the amounts which they have misappropriated or mis-applied. The company could file a suit but the company being majority-managed, the minority shareholders were not in a position to know the acts of fraud committed by them and they were helpless in filing a suit in the name of the company, unless they were specifically permitted, on bringing evidence, which would enable them to use the name of the company in such a litigation. Therefore, the legislature advisedly enacted section 543 in a modified form by merely providing that section 543 misfeasance summons should emanate from a proceeding because the materials have now come to light for this purpose and such a statutory action would have no bar of limitation. In this context, we may add that the strongest point was the very discretionary nature of this jurisdiction. Even though no limitation is provided, the court, while acting under section 543, Schedule XI, is exercising discretionary jurisdiction ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e as from which the new law, as enacted by the Act, is to be taken to have been the law". Their Lordships pointed out that this distinction must always be borne in mind between an existing right and a vested right. Where a statute operated in future, it could not be said to be retrospective merely because within the sweep of its operation all existing rights were included. Their Lordships agreed with Buckley L.J., by pointing out that, as held by that learned judge, the provisions of the relevant section applied to all leases whether executed before or after the commencement of the Act and this construction did not make the Act retrospective in operation; it merely affected in future existing rights under all leases whether executed before or after the date of the Act. In Sree Bank Ltd. v. Sarkar Dult Roy and Co. [1965] 35 Comp. Cas. 881; [1965] 3 SCR 705; AIR 1966 SC 1953, 1957, their Lordships approved the observations of Lord Denman C.J. in R. v. St. Mary, White chapel ( Inhabitants ) [1848] 12 QB 120, 127 that "a statute is not properly called a retrospective statute because a part of the requisites for its action is drawn from time antecedent to its passing". Their ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... any was formed and registered under the 1956 Act. The legislature could never have enacted this fiction unless it intended to bring to book the delinquents, even from distant past, for their liabilities, even in distant past. In any event, what is material for section 543, Schedule XI, is that it provides no limitation period and contemplates the investigation into the conduct of past directors and even of the promoters of all existing companies as well. Therefore, such a cause of action may arise in the past but if this new statutory remedy, which is indicated in section 543, Schedule XI, is availed of after it was enacted, the section would only have prospective operation. Therefore, on that ground, this petition could never be said to be not maintainable, because in the future application of this section, it contemplates investigation of remote past or causes of action which had taken place before this new Act came into force. Issue No. ( 3 ) . It would be proper, in this very context, to complete the discussion on issue No. (3) as well, as it is a connected issue. The new Act of 1956 has repealed in Schedule XII the earlier Companies Act of 1913 by section 644. The saving ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... could hardly apply. While explaining the scheme of section 6, their Lordships pointed out in Mani Gopal Mitra v. State of Bihar AIR 1970 SC 1636, 1639 , that the amended law relating to procedure operates retrospectively. Their Lordships approved Lord Blackburn's observations in James Gardner v. Edward A. Lucas [1878] 3 App. Cas. 582, 603 (HL) , where the learned judge had observed that it was perfectly settled that if the legislature intended to frame a new procedure, that instead of proceeding in this form or that, you should proceed in another and a different way; clearly there bygone transactions were to be sued and enforced according to the new form of procedure. Alterations in the form of procedure were always retrospective, unless there was some good reason or other why they should not be. Their Lordships also approved the decision in King v. Chandra Dharma [1905] 2 KB 335 , where alterations in procedure were held to be retrospective. It was in terms stated in that decision that a statute shortening the time within which proceedings could be taken was retrospective, and, therefore, it was impossible to give any good reason why a statute extending the time with ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... committed acts of misfeasance or breach of trust, even if the company might not have filed the suit, because the persons, managing the company, were not interested to file the suit, the said cause of action had never been wiped off for want of an effective remedy. Injustice had been done and fraud had been perpetrated and a new effective remedy to reach this evil had to be found out. That is why the legislature intervened to set right these matters by enacting sections 397 and 398 and conferring this ancillary jurisdiction on this highest court in the State. It should be noted that section 10, which provides for delegation of the powers of this court by a notification to the district court, would not apply in the case of such a misfeasance proceeding under section 543. Therefore, the legislature has invested the highest court of the State with this equitable jurisdiction to exercise its wide powers in a just manner, on the consideration of the facts and circumstances of the case, even by giving relief in proper cases. Therefore, when such a jurisdiction is conferred, the petition under section 543, Schedule XI, could never be held to be non-maintainable, because previous causes of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ries of judicial decisions, the words "under the Code" were added in the first column of that article. The same view was taken in Bombay Gas Co. Ltd. v. Gopal Bhiva AIR 1964 SC 752, 758. Therefore, article 181 has always to be read with the words "under the Code" added in the first column of that article. Even regarding article 137, their Lordships had made the following observations: "even the further alteration made in the articles contained in the third division of the Schedule to the new Limitation Act containing references to applications under the Code of Criminal Procedure cannot be held to have materially altered the scope of the residuary article 137 which deals with other applications. It is not possible to hold that the intention of the legislature was to drastically alter the scope of this article so as to include within it all applications, irrespective of the fact whether they had any reference to the Code of Civil Procedure". In view of this settled legal position, even the residuary article 181 could only apply if these misfeasance proceedings could be considered as a suit or an application under the Civil Procedure Code. It was argued that "under the Code" ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uestion which arises is whether this is a suit at all. In In re National Funds Assurance Company [1878] 10 Ch. D. 118 Jessel M.R. has pithily held as under, at page 1 24 : "I read the section literally ; that is, as I understand it, the liquidator, or a creditor, or a contributory, may apply : it is for the court to put the section in force if it thinks proper ; and if it is proper to put it in force, I take it that the order may be made on the application of any one of those persons". Therefore, the court may be moved on the motion of the member, creditor or a person mentioned in section 543 or section 543, Schedule XI, It is for the court ultimately to put the section in force, if it thinks proper. The money decree may be the consequential relief but what the section envisages is an inquiry into the conduct of the applicants. It is entirely an equitable jurisdiction and that is why it is a discretionary jurisdiction. The entire carriage of the proceedings must remain in the hands of the court because it is the court which puts this section in force. That is why section 633 enables the court to relieve a person, if proper grounds for excusing him are made out. Even while j ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... whole argument that this proceeding was barred by limitation is thoroughly misconceived. Therefore, issue No. (2) also must be decided against the respondents. Issue No. ( 8 ) . It would be proper to finish the discussion about issue No. (8) as well. It is alleged that there is a misjoinder. In fact, in the earlier decision, Miabhoy J. had, in terms, observed that a consolidated application should be filed by the petitioners not only against those directors, who were parties to the main petition, but against others against whom prima facie material is disclosed and misfeasance has come to light on the record of that petition. Once the true character of the misfeasance is appreciated, even though the court may be moved by the persons mentioned, it is the court which puts the section into force. This objection could hardly be advanced in an inquiry of this character, where the court is exercising equitable jurisdiction, and all proper precautions would be taken, so that there is no prejudice to any person and the proper hearing, in accordance with the rules and principles of natural justice, is afforded to the respondents. They, however, could not have the petition dismissed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ver be advanced as a bar in limine to this petition. These minority shareholders were not persons in the management. The report of Mr. Deshpande was made public on July 19, 1957. In 1958, the main petition was filed where this relief was sought, of course, against some of the directors. As proper petition had to be filed, in view of the observations of Miabhoy J., the present petition was filed. Therefore, prima facie, there is no such delay which would substantiate the plea of laches being advanced against the petitioners. Nothing is shown at this stage as to how the respondents had prejudiced themselves. In any event, while exercising equitable jurisdiction, if proper grounds are made out so as to attract section 633, the court would give relief. Some of the respondents tried to urge that, after so many years, the evidence might not be preserved by them. If any such prejudice, which is now sought to be imagined, is made out, the court ultimately would not be helpless when it would exercise its discretionary jurisdiction so that justice would properly be done in the matter. In any event, this would not be aground to be urged in the present case as a bar in limine for disposal of t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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