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TMI Blog1983 (6) TMI 159X X X X Extracts X X X X X X X X Extracts X X X X ..... e to be disposed of by me by the aforesaid judgment. Relevant facts, undisputed and/or well-established facts on record.--The present three applicants are the managing directors of Shri Ambica Mills Ltd., a public limited company earlier registered under the Indian Companies, Act, 1913, and then governed by the provisions of the Companies Act, 1956. In order to facilitate easy reference to the concerned parties, I will mention Ambica Mills Ltd. as petitioning company which had filed Company Petition No. 49 1978 before this court; while the three applicants will be referred to as the managing directors of the company or managing directors for short. By way of Company Petition No. 49 of 1978, the petitioning company moved this court under section 101 of the Companies Act, 1956, for getting an order of confirmation regarding reduction of its equity share capital. The grounds sought to be made out in the said company petition were to the effect that the paid-up share capital of the company was in excess of its wants and that the company had decided to reduce its equity share capital. That with that end in view, the company had passed a special resolution dated June 1, 1978, to return ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hey had misled not only the board of directors but also the general body by keeping back relevant facts and by representing false facts to achieve their private purpose and, consequently, the company petition could not be granted. There were various other contentions raised on merits regarding the viability of the scheme with which I am not concerned at present. After the aforesaid preliminary judgment was given by me, the company petition lingered on on the file of this court for a couple of months. Thereafter, as in the meanwhile, Mr. I. M. Nanavati, learned advocate appearing for the petitioner company, unfortunately expired. Ultimately, the company petition reached final hearing before me in the later half of the year 1981 and the final hearing of the petition lasted before me for about three months. It was started by the end of July and it was completed in the final week of October, 1981. It is thereafter that I disposed of the company petition by my C. A. V. judgment which was delivered on November 19, 1981. In view of various findings arrived at by me on diverse issues, I came to the conclusion that the petitioning company was not entitled to succeed and, consequently, I di ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of Civil Procedure. It is now well settled that the inherent power of the court is not a substantive power but is merely a procedural power and it cannot be exercised if it conflicts with what is expressly provided by the Code (vide Padam Sen v. State of U.P., AIR 1961 SC218). In Manohar Lal Chopra v. Rai Bahadur Rao Raja Seth Hiralal, AIR 1962 SC 527, the majority of the Supreme Court, placing reliance on the aforesaid decision reported in AIR 1961 SC 218, made the following pertinent observations on the powers of the court under section 151, Civil Procedure Code (at p 533): "These observations clearly mean that the inherent powers are not in any way controlled by the provisions of the Code as has been specifically stated in section 151 itself. But those powers are not to be exercised when their exercise may be in conflict with what had been expressly provided in the Code or against the intentions of the Legislature. This restriction, for practical purposes, on the exercise of those powers is not because those powers are controlled by the provisions of the Code, but because it should be presumed that the procedure specifically provided by the Legislature for orders in certain cir ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat the remarks were made without giving any real opportunity to the concerned managing directors to have their say in the matter though I must hasten to add that this assumption, as I will later on show, is totally uncalled for and on the contrary, the applicants had ample opportunity to have their say in the matter and they deliberately avoided to avail of that opportunity. But, for the time being, I proceed on the assumption that they got no real opportunity to controvert the charge of fraud against them. Even then, the question is whether on such an allegation itself without anything more, the alleged offending remarks in the 9 paras of my judgment as mentioned in annexure 'A' and which comprise of 75 lines approximately can be deleted from my judgment at this stage. Now, it is well settled that alteration in the judgment cannot be done by the same court, save and except by way of review or within permissible limits of section 152 of the Code of Civil Procedure. A little later, I will refer to a judgment of the Supreme Court rendered under section 561 of the Criminal Procedure Code, which also represents a scheme parallel to the one under section 151 of the Code of Civil Proced ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... committed by it. Here the previous order of Khosla J. affected the interests of persons who were not made parties to the proceeding before him. It was at their instance and for giving them a hearing that Khosla J. entertained the second petition. In doing so, he merely did what the principles of natural justice required him to do. It is said that the respondents before us had no right to apply for review because they were not parties to the previous proceedings. As we have already pointed out, it is precisely because they were not made parties to the previous proceedings, though their interests were sought to be affected by the decision of the High Court, that the second application was entertained by Khosla J." (p. 1911) The aforesaid decision, therefore, clearly lay down that it is not as if the party against whom an ex parte order is passed is without remedy. It can file substantive petition under article 226 as in the case before the Supreme Court which would in its turn be an exercise of inherent review jurisdiction of the concerned court and in exercise of that power, the same court can correct its own error and can put the record straight and do justice to the really aggri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e company has already filed an appeal before the Division Bench. If that is so, Mr. Thakkar's case would fall only under Order 47, rule 1(a), wherein, any person considering himself aggrieved by a decree or order from which an appeal is allowed but from which no appeal has been preferred has a right to file a review application. It is interesting to note that the Legislature has advisedly made a difference between "any person aggrieved" for the purpose of application for review under Order 47, rule 1(a) and the enabling provision of clause (2) of Order 47, rule 1, wherein non-appealing party is permitted to come by way of review to the same court even though appeal by some other party is pending before the higher court. In the present case, the three applicants can certainly be said to be persons who feel aggrieved by certain observations made by me against them. Still, however, they are precluded from coming in review on account of the fact that an appeal is already pending against my judgment in the company petition. If that is so, no review can be filed by the applicants and hence they have rightly not filed any review application. However, that does not mean that they have no r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e concerned managing directors are totally extraneous or irrelevant or that they are based on no evidence whatsoever. In my view, these remarks logically flow from the voluminous evidence on record and are a logical corollary to the various findings reached by me on the main points in controversy between the parties. I cannot sit in appeal over my own findings and reverse the same, notwithstanding the nature of the grievance that the applicants might harbour on the alleged grounds of breach of principles of natural justice. If they have any such grievance, this is not the forum where they can vindicate the same and they may divert their attention and action to a different and more appropriate forum, that is, the appellate court, which is already seized of the main appeal against this judgment. I accordingly hold that this application is not maintainable on merits in the backdrop of the peculiar facts of this case and has to be rejected. I may now briefly refer to the decided cases on which strong reliance was placed by Mr. Thakkar in support of the present application. In L. Janakirama Iyer v. P. M. Nilakanta Iyer, AIR 1962 SC 633, the Supreme Court had an occasion to consider the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... with a question regarding correction of an accidental slip in the judgment of the court, even after the judgment was pronounced and signed by the court. In para 11 of the report, it has been observed by Shelat J. for the Supreme Court as under; "Now, it is well settled that there is an inherent power in the court which passed the judgment to correct a clerical mistake or an error arising from an accidental slip or omission and to vary its judgment so as to give effect to its meaning and intention." (at p. 1443) Considering Order 20, rule 3, Civil Procedure Code, Shelat J. made the following observations: "The rule does not also affect the court's inherent power under section 151. Under section 152, clerical or arithmetical mistakes in judgments, decrees or orders, or errors arising therein from any accidental slip or omission may at any time be corrected by the court either on its own motion or on an application by any of the parties." (at p. 1443) It is difficult to appreciate how this judgment can advance the case of Mr. Thakkar. It is not the case of the applicants that the observations made by me are accidentally made or inadvertently made. Their case is that these observat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... appellate power. The present application seeks precisely to do what is held legally impermissible by the aforesaid decisions of the Supreme Court. By way of this application, the applicants in effect are attempting to circumvent the provision of Order 47, rule 1, Civil Procedure Code, and are trying to circuitously achieve that which is expressly prohibited by Order 47, rule 1, Civil Procedure Code. Mr. Thakkar then placed reliance on Bachan v. Raghunath, AIR 1926 All 304. A learned single Judge of the Allahabad High Court had occasion to consider the question whether a trial court had jurisdiction to carry out an amendment in the judgment during the pendency of the appeal. In that connection, it was observed that merely because an appeal is pending, it cannot be said that the decree of the trial court had not remained in force and it can be rectified or amended by the court which passed it. It is only when the appeal has been decided and a decree has been passed in appeal confirming, amending or reversing it, that the appellate decree operates to supersede the decree of the trial court. In the aforesaid Allahabad case, it was found that there was an apparent accidental error in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for consideration before the Supreme Court in the aforesaid decision. Raghubar Dayal J., speaking for the majority of the Supreme Court, made the following pertinent observations in this connection (headnote): "Every High Court as the highest court exercising criminal jurisdiction in a State has inherent power to make any order for the purpose of securing the ends of justice. This power extends to expunction or ordering expunction of irrelevant remarks made against a person who is neither a party nor a witness to the proceeding, from a judgment or order of a subordinate court, although the matter has not been brought before it in regular appeal or revision, and would be exercised by it in appropriate cases for securing the ends of justice. Being an extraordinary power, it will, however, not be pressed in aid except for remedying a flagrant abuse by a subordinate court of its powers such as by passing comment upon a matter not relevant to the controversy before it and which is unwarranted or is likely to harm or prejudice another." In para 29 (at p. 11) of the report, it has been observed as under: "When the question arises before the High Court in any specific case whether to r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ese adverse findings against the applicants. Their remedy obviously lies elsewhere. Mr. Thakkar then invited my attention to another judgment in the same volume in the case of State of U.P. v. Mohammad Naim, AIR 1964 SC 703, wherein the Supreme Court was concerned with expunging of certain remarks in the judgment of the Allahabad High Court on the criminal side wherein Mr. Justice Mulla while considering the question whether a complaint for an offence under section 196, Indian Penal Code, should be launched against a police officer, viz., one Mr. Mohammad Nairn, made certain observations not only against him but against the entire police force of Uttar Pradesh and on the application by the State of Uttar Pradesh under section 561 A, Criminal Procedure Code, the learned judge refused to exercise his inherent powers for expunging the said remarks. In the special leave petition against the said order of the learned judge, the Supreme Court, speaking through S. K. Das J., made the following observations (p. 706): "The second point for consideration is this, has the High Court inherent power to expunge remarks made by itself or by a lower court or otherwise to secure the ends of justi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the case. He has submitted that the real purpose of the appeal is to remove the stigma which has been put on the police force of the entire State by those remarks the truth of which it had no opportunity to challenge. The last question is, is the present case a case of an exceptional nature in which the learned judge should have exercised his inherent jurisdiction under section 561 A, Criminal Procedure Code, in respect of the observations complained of by the State Government ? If there is one principle of cardinal importance in the administration of justice, it is this: the proper freedom and independence of Judges and Magistrates must be maintained and they must be allowed to perform their functions freely and fearlessly and without undue interference by anybody, even by this court. At the same time it is equally necessary that in expressing their opinions, Judges and Magistrates must be guided by considerations of justice, fair-play and restraint. It is not infrequent that sweeping generalisations defeat the very purpose for which they are made. It has been judicially recognised that in the matter of making disparaging remarks against persons or authorities whose conduct come ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ct of the applicants justifying these remarks and they are very much necessary for the decision of the case and they are an integral part of the final judgment thereof. Consequently, even, according to the aforesaid decision, the present application cannot be granted. Mr. Thakkar then invited my attention to a Full Bench decision of the Punjab and Haryana High Court in Guru Nanak University v. Dr. Mrs. Iqbal Kaur Sandhu, AIR 1976 P&H 69. In this case, certain adverse remarks against the Vice-Chancellor of Guru Nanak University were made without giving any opportunity to him to have his say. In that case, certain remarks were made against the Vice-Chancellor in a writ petition filed by an employee of the University against the University. In the said proceedings, the Vice-Chancellor was earlier joined as a party against whom allegations of mala fide were made. But the petitioner later on deleted the allegations and thereafter the name of the Vice-Chancellor was struck off from the array of the respondents. The learned single judge disallowed the civil miscellaneous application of the petitioner for reagitating the allegations of mala fide against the Vice-Chancellor a second time. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nts delivered by itself or by a subordinate court but this jurisdiction is of an extraordinary nature and has to be exercised with great care and caution. On the one hand, it has to be borne in mind that in weighing evidence and arriving at conclusions on questions of fact, lower courts have to review the conduct of witnesses with reference to particular incidents and at times have to adjudge generally on the veracity or otherwise of such persons and in doing so they have often to make remarks which reflect adversely on their character. It is of the utmost importance to the administration of justice that courts should be allowed to perform their functions freely and fearlessly and without undue interference by the High Court. At the same time, it is equally necessary that the right of Magistrates to make disparaging remarks on persons who appear, or are named, in the course of a trial, is one that should be exercised with great reserve and moderation, especially where the person disparaged has had little or no opportunity of explaining or defending himself. If the conduct of the witness appears to the judge to be suspicious or otherwise not above board, he has the right and the dut ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se is made out. That another judge in Mr. Justice Dutta's place would not have made those comments is not the right criterion. The question is whether Mr. Justice Dutta can be said to have acted with impropriety. Although we think that Mr. Justice Dutta need not have made the remarks, we cannot say that in making them he acted with such impropriety that the extraordinary powers should be exercised in this case." The aforesaid decision clearly lays down that unless the remarks can be said to be made with impropriety, they cannot be expunged. Mr. Thakkar then submitted that these observations of the Supreme Court are confined to the powers of the appellate court to expunge remarks of the lower court. But so far as I am concerned, I have to decide whether I would like to expunge my own remarks in exercise of my inherent powers, being the author thereof. Nevertheless, it must be observed that the Supreme Court has treated the inherent power to expunge remarks from a judgment to be an extraordinary power which can be exercised only when a clear case is made out. In my view, no such clear case has been made out by the applicants nor can I say that the remarks made were in any way improp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... whose directions or instructions the board of directors or any one or more of the directors is or are accustomed to act and also includes….." Consequently, the managing directors, being directors, are officers of the company. Section 51 of the Act lays down the mode of service of documents on a company and states that a document may be served on a company or an officer thereof by sending it to the company or officer at the registered office of the company by post under a certificate of posting or by registered post, or by leaving it at its registered office. Thus, an officer of the company is a duly authorised agent for receiving service of any document on behalf of the company. Section 100 read with section 101 of the Act lays down the contingencies in which the company may apply for sanction of the court for reduction of its share capital. As per section 105, penalties are provided for concealing name of any creditor and it has been laid down that if any officer of the company knowingly conceals the name of any creditor entitled to object to the reduction or knowingly misrepresents the nature or amount of the debt or claim of any creditor or abets or is privy to any such ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n rules 52 and 53, respectively, and verifying a list containing the names and addresses of the persons, if any, who shall have sent in the particulars of their debts, etc. If we turn to Form No. 21 which prescribes the statutory form of list under rule 49, it is found that the said list can be signed by the director, secretary or other competent officer of the company. Statutory form of affidavit as per rule 55 is provided by Form No. 26. If we look at the same, it is found that an affidavit as to the result of the notice issued as required by rule 55 has to be made by an advocate of the company and has to be supported by an affidavit of the managing director of the company. Form No. 29, as per rule 59 of the Companies (Court) Rules deals with hearing of petition. Rule 59 provides that after the expiry of not less than fourteen days from the filing of the certificate mentioned in the preceding rule, the petition shall be set down for hearing. Notice of the date fixed for the hearing of the petition shall be advertised within such time and in such newspapers as the judge may direct and shall be in Form No. 29. Form No. 29 is the form of advertisement of hearing of petition. It is f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... managing directors being officers of the company are total strangers to the company petition under section 101. In fact, section 105 indicates that any officer who intentionally commits a wrong during the proceedings under section 101 as contemplated by that section will be liable to be criminally dealt with. That presupposes that the company being an inanimate personality has to act through its limbs, that is, its officers. The scheme of the Companies (Court) Rules also points in the same direction. Therefore, without drawing any exact equation between the company and the managing directors and without treating them as one and the same personality, it can still be legitimately said that in proceedings under section 101, managing directors being officers of the company are required to act in support of the petition and in the progress of the petition as envisaged by the scheme of the Act and the rules themselves and they cannot plead total ignorance of these proceedings or nor can they with any justification, say that they are total strangers to the proceedings. To that limited extent, the corporate veil of the company stands statutorily pierced and lifted. In this connection, it ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h of them. Transformed into legal language, they were his agents to do as he commanded. He was the principal behind them. I am of the opinion that the court should pull aside the corporate veil and treat these concerns as being his creatures-- for whose doings he should be, and is, responsible." Thus, corporate veil can be pierced in proper cases either by statutory provisions or by the judicial decision of the court. I may now refer to one decision of the Supreme Court on the point. In Tata Engineering and Locomotive Co. Ltd. v. State of Bihar [1964] 34 Comp. Cas. 458 (SC), the Supreme Court quoted with approval, the aforesaid passage of Gower, at p. 470 of the report and explained the principle of lifting of corporate veil in cases where the court is concerned with finding out the fraud of the concerned officers of the company. The said passage reads (at p. 470): "Gower has similarly summarised this position with the observation that in a number of important respects, the Legislature has rent the veil woven by the Salomon's case [1897] AC 22 (HL). Particularly is this so, says Gower, in the sphere of taxation and in the steps which have been taken towards the recognition of ent ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng the judgment of the House, said: 'My Lords, a Corporation is an abstraction. It has no mind of its own any more than it has a body of its own; its active and directing will must consequently be sought in the person of somebody who for some purposes may be called an agent, but who is really the directing mind and will of the corporation, the very ego and centre of the personality of the corporation...……. If Mr. Lennard was the directing mind of the company, then his action must, unless a corporation is not to be liable at all, have been an action which was the action of the company itself within the meaning of section 502………. It must be upon the true construction of that section in such a case as the present one that the fault or privity is the fault or privity of somebody who is not merely a servant or agent for whom the company is liable upon the footing respondent superior, but somebody for whom the company is liable because his action is the very action of the company itself.'" The aforesaid legal position on the point leaves no room for doubt that when the company acts as a corporate body, it acts through its officers who are its real org ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... main proceedings if I borrow the phrase employed by Lord Denning M.R. in Wallersteiner's case [1974] 1 WLR 991. It is in the background of the peculiar facts of this case that I have already found on evidence that but for the family arrangement, the main company petition would not have seen the light of the day. Thus, in the name of the company, the managing directors were the real parties who were interested in getting their family arrangement scheme fructified by getting the scheme sanctioned under section 101 of the Companies Act. Therefore, on the special facts of the case, the managing directors must be held to be the real parties' while the company was only the apparent party as the managing directors by themselves could not have applied under section 101 which requires the company to move the court through its officers. In fact, the meat of the matter is that the applicants-three managing directors were masquerading in the name of the company in the petition proceedings and were interested in seeing that the company petition succeeds so that their private purpose of effecting the family arrangement gets clearance at least at the first main stage. Consequently, the main submi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e charges levelled against them and had full opportunity to refute the same if they would have been so minded by filing affidavit-in-reply. As I have already observed, these proceedings had to be advertised in local newspapers. It was practically an open debate on relevant points and any one who had anything relevant to say, was welcome. The managing directors being as good as applicants did not think it proper to venture into the arena and they sat on the fence. In doing so, they took a calculated risk and avoided an unpalatable situation for themselves. If such calculated risk was willingly and knowingly taken by them, they must be prepared to meet the consequences and cannot make a grievance on the score that ultimately the court passed certain strictures against them on the basis of the evidence on record. It is also to be kept in view that the observations made by me against the conduct of the managing directors in their official capacity and their role as such vis-a-vis other members of the board of directors as well as the general body. The observations are borne out from the evidence and they have logically flowed from the scheme of the chronological events that have emerge ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ce, they were the real parties to the proceedings against whom charges were levelled by the objectors. The charges were reflected in the points for determination as framed by me at least six months prior to the taking up of the company petition for final hearing. The points were framed in the preliminary judgment and were made known to all the concerned parties. Being conscious of these charges, issues were joined by the learned advocates of the respective parties. My findings were invited. Rival versions were submitted for consideration in the light of the evidence on record and on that basis, I gave my findings and while doing so, I made the impugned remarks which clearly flow from the earlier findings and evidence on record and which form the main fabric of the ultimate findings on the relevant points. The managing directors, therefore, had ample opportunity to put forward their case in defence and, in fact, an attempt was made on behalf of the company's advocate to justify their action in the light of the evidence on record and ultimately findings were arrived at by me on merits. If these findings are not justified, the grievance of the managing director, as earlier observed, l ..... X X X X Extracts X X X X X X X X Extracts X X X X
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