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TMI Blog1982 (8) TMI 189X X X X Extracts X X X X X X X X Extracts X X X X ..... tors to refund to the company the amounts received by them in violation of the provisions of the Companies Act, 1956, a direction upon the special officer to calculate the amounts taken by H. C. Mitra, P. C. Mitra, A. Mitra and Tarun K. Mukherjee either individually or jointly by different methods without proper accounting or supporting documents including cash shortages detected in the cash book, direction upon the special officer to calculate the rent received from the company by Sri H. C. Mitra, and also for a declaration that H. C. Mitra, P. C. Mitra, A. Mitra, Tarun K. Mukherjee have conducted either individually or jointly the affairs of the company with the intent to defraud and/ or deceive the other members, creditors and public at large and have falsified books and have altered records to avoid liabilities and /or punishments, enquiry as to non-maintenance of the statutory books, enquiry as to the damages suffered by the company on account of various acts of misfeasance committed by H. C. Mitra, P. C. Mitra and Tarun K. Mukherjee and for other consequential reliefs. This application has been taken out in the matter of Company Petition No. 323 of 1975. Mr. S. B. Mukherjee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ut some of the parties allowed themselves to be held as the candidates for such election and after having lost at such meeting held by the special ofiicer pursuant to the order of the appeal court, by an overwhelming majority, they have frantically come before this court for getting reliefs on an application which is not maintainable in law. Under the Companies (Court) Rules, 1959, rule 11( a ), sub-rules (18) and (19), all such petitions could be made in the course of the proceedings taken under sections 397 and 398 of the Companies Act. Mr. Somnath Chatterjee opposed this application with Mr. P. C. Sen and Mr. Dipak Basu. He submitted that, on merits, the reliefs that have been prayed for are declaratory in nature and also in effect the applicants are seeking that this court should delegate its powers of investigation to a special officer. Moreover, by granting the reliefs, this court would take punitive actions against the respondents in a summary manner without affording them an opportunity of meeting the charges levelled against them Moreover, all the reliefs that have been prayed for in this petition are based on the report prepared by the special officer, Sri Bhimalesh Roy ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tarted under section 397 and section 398 in the year 1975 before Salil K. Roy Chowdhury J. had terminated with the order passed by the learned appeal court as indicated earlier. No reservation has been made in the said order for any future action as it is done in most of the cases whereunder the matter is kept pending for some time to enable the parties to exhaust their remedies in respect of the said section 397 and section 398 proceedings. In the instant case, no such reservation was made. On the contrary, the aggrieved persons participated in the election held by the special officer pursuant to the order of the court and being defeated at such election, they have come up again to agitate on some points which were before the learned appeal court, but no order was passed in their favour. As for instance, there was a prayer before the learned appeal court for preparation of a fresh list of shareholders by the special officer and there were similar allegations before the learned appeal court and the learned appeal court chose not to grant any order in their favour. Hence, the respondents have termed this proceeding as a "second round of fight" over the same cause of action. It is th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... evidence on record of a petition under section 397 or section 398, and in the course of the proceedings therein. It is necessary that at least some materials, therefore, must appear in the course of proceedings under sections 397 and 398. According to this decision, proceedings under section 543 should be by independent and fresh application (headnote): " Prima facie , the enquiry under section 398 has no connection with the enquiry under section 543 (Sch. XI) at least in so far as the enquiry under the latter section is to be directed against the promoters and past officers of the company. But, at the same time, it cannot be said that there is a complete divorce between the objects of section 397 and/or section 398 on the one hand and those of section 543 (Sch. XI) on the other. Section 543 has been designed with a view to provide a summary remedy to the creditors and shareholders of a company which enables them to obtain an order for compelling the delinquent officers of the company to contribute towards the funds and assets of the company which they have illegally obtained during the course of their management or which have been lost as a result of such management. Under th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ns 389 and 399, it is open to the court to order a director to pay compensation under section 543 read with (Sch. XI) although there is no separate application under section 543. When the said judgment was given by the Gujarat High Court in Colaba Land Mill Co. Ltd. v. Vasant Investment Corpn. Ltd., AIR 1964 Guj. 107, the rules framed by the Supreme Court under the Companies Act did not come into existence. Rule 11 mentions applications which are to be made by petition and amongst these applications is included in clause 19 an application under section 543 (Sch. XI) in the course of proceedings under sections 397 and 398 of the Act. It was observed in the said judgment that the application before the learned judge was not in accordance with the present rules framed under the Companies Act as these rules were not in existence, circumscribing the procedure that was to be adopted by the applicant. The learned judge observed that an application under section 543 (Sch. XI) must be made after the petition under section 397 or section 398 was filed cannot be supported in view of the rules that have been framed thereunder. Moreover, from the said case, it would not appear whether the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er Sch. XI. Even the Companies (Court) Rules, 1959, rule 11( a ), sub-rules (18) and (19), provide for an application for a declaration under section 542 (Sch. XI) in the course of proceedings under section 397 or section 398. Similarly, under sub-rule (19) application by a creditor or member under section 543 (Sch. XI) shall be made in the course of proceedings under section 397 or section 398. To take advantage of Sch. XI, the rules framed under the Companies Act will have to be adhered to. Under the circumstances, the procedures laid down under the Companies Act and the Companies (Court) Rules, 1959, must be followed and the petitioner cannot adopt a procedure which is not yet known to law. The expression "emanate from "is not the language used under the statute and/or the rules framed thereunder. Hence, it is not in consonance with the language used in the statute and the rules framed thereunder which provides that the applications could be taken out in the course of section 397 or section 398 proceedings or in relation to or in respect of such proceedings. Under these circumstances, it appears that the present application is not maintainable as proceedings under sections 397 a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ce and the delinquent officer has an opportunity not only to meet the same by adducing proper evidence both oral and documentary but also get a chance of cross-examining the witness. Under the circumstances, the misfeasance proceedings are more or less in the nature of a suit. Applying the same principle, in the instant case, it appears that the petitioners are trying to get reliefs which they are not entitled to under the law summarily in an application. Although Mr. Mukherjee submitted that in order to invoke the jurisdiction of the court under sections 397, 398, certain minimum share qualifications are required as provided in section 399, such limitation is not there under Sch. XI as Sch. XI (section 543), as amended, provides that any creditor or member of a company may apply. According to Mr. Mukherjee, the only limitation in invoking the court's jurisdiction under sections 539 to 543, as amended, in Sch. XI, seems to be that proceeding under sections included in Sch. XI must "emanate" from a proceeding under section 397 or section 398. But such expression "emanate from" has been borrowed by Mr. Mukherjee from the single Bench decision of the Gujarat High Court in the case o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as. 312 ; AIR 1978 SC 375, and submitted that the scheme of sections 397 and 406 constitutes a court by itself by granting relief to the oppressed minority shareholders and for granting appropriate relief, a power of widest amplitude, inter alia , lifting the ban on company purchasing its shares under the court's direction is conferred on the court. It is true that the powers of the court is of the widest amplitude in a proceeding under section 397 for providing relief to the oppressed minority. Here, in the instant case, in the application under section 397, necessary orders were passed by the judge in charge of company matters which were ultimately disposed of by the learned appeal court. There is no case pending under section 397 or section 398. The present application does not lie as it is not in relation to or in the course of proceedings under section 397 or section 398. Under the circumstances, I am of the view that this application is not maintainable. In the case of Bennet Coleman and Co. v. UOI [1977] 47 Comp. Cas. 92 (Bom.) it has been held that (headnote at p. 96): "That Chapter II of the Act, which includes section 255, deals with corporate management of a com ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he course of such proceedings under section 397 or section 398. As discussed earlier, I am of the view that such an independent proceeding after termination of section 397 or section 398 proceedings and over the same points agitated before the appeal court, no such proceeding under section 397 or section 398 is not maintainable. However, this would not prevent the rights of the petitioners to file a suit for proper redress. In the case Sheth Mohanlal Ganpatram v. Shri Sayaji Jubilee Cotton and Jute Mills Co. Ltd. [1964] 34 Comp. Cas. 777 ; AIR 1965 Guj. 96, Justice P. N. Bhagwati, as he then was, dealt with the powers given to court under sections 397 and 398 and held that these sections should receive a liberal interpretation and the court should give such construction as will advance the remedy, that is to suppress an acknowledged mischief and applying the principles of interpretation, the learned judge held, the widest power may be inferred for the court to interfere in the internal management of the company with a view to put an end to oppression or mismanagement on the part of the controlling shareholders so as to advance the remedy and suppress the mischief. The main co ..... X X X X Extracts X X X X X X X X Extracts X X X X
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