9911796707
TMI Blog1989 (8) TMI 273X X X X Extracts X X X X X X X X Extracts X X X X ..... tracts of exhibition of movie films in Apsara Cinema are sought. In these judge's summonses taken out under section 402 of the Companies Act, hereinafter referred to as "the Act", the applicants seek an order that the agreements dated March 20, 1987, and February 12, 1987, with VIP Enterprises and REK Exhibitors be set aside and an administrator for the company be appointed. The facts out of which these applications arise are, briefly, these : On July 22, 1972, the company, by a general power of attorney, authorised petitioner No. 2 and respondent No. 5 to conduct and supervise jointly the business of the company. The authority extended, inter alia, to : , ( a )appointment and dismissal of the staff ; ( b )negotiation and the execution of the contracts of exhibition of movie films at Apsara Cinema ; ( c )opening and operating bank accounts ; ( d )performance of the contracts entered into by the company ; and ( e )disposal of the property of the company. By a resolution passed at the meeting of the board of directors held on June 3, 1983, the power of attorney was cancelled. On July 16, 1983, the applicants filed Company Petition No. 393 of 1983 under sections 397, 3 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he consent order. Gala died in 1985 and Anthony Lewis stood substituted in his place by operation of the consent order. Disputes started once again in December, 1986. On December 20, 1986, petitioner No. declined to sign five cheques sent to him by respondent No. 5. The cheques were in favour of VIP Enterprises. Petitioner No. 2 declined to sign them on the score that VIP Enterprises were indebted to the company in the sum of Rs. 1,33,750.58 and no payment should be made to VIP Enterprises until this debt of the cdmpany was repaid. Respondent No. 5, on the other hand, alleged that petitioner No. 2 was adopting an obstructive attitude in regard to the management of the company. Since a dispute about the liability of the company to pay money to VIP Enterprises had arisen, the petitioner suggested a reference to Anthony Lewis under the consent order. Respondent No. 16 convened a meeting of the board of directors on January 17, 1987. At this meeting, the power of attorney in favour of petitioner No. 2 was cancelled and the power of attorney was granted in favour of respondent No. 16. The petitioners were out of Bombay from January 14, 1987, when the notice of the meeting was po ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... os. 2 and 5 was restored and that in favour of respondent No. 16 cancelled. Against this order, the respondents preferred an appeal, being Appeal No. 1136 of 1987, and by Notice of Motion No. 2667 of 1987 sought certain interim reliefs. The notice of motion was dismissed on November 16, 1987, by the Division Bench with the observation that the parties are at loggerheads, and do not have the interest of the company at heart. Meanwhile, respondent No. 5 sent 43 cheques for the signature of petitioner No. 2. These 43 cheques were for payments to VIP Enterprises. Petitioner No. 2 did not sign the cheques, but inspected the records of the company and discovered that respondent No. 5 had, under his signature, entered into playing time agreements with VIP Enterprises and REK Exhibitors and extended them from time to time. They also found that respondent No. 5 had entered into such agreements on March 20, 1987 (104 weeks), and on February 12, 1987 (100 weeks), with VIP Enterprises and REK Exhibitors respectively. According to the petitioners, the agreements dated March 20, 1987, and February 12, 1987, are ante-dated documents, actually entered into after the order dated March 24, 198 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... liquidator as the ad interim administrator of the company. This was done without notice to the respondents. In Appeal No. 523 of 1988 from the order of Variava J., the appointment of the official liquidator as the ad interim administrator of the company was set aside and the appeal was allowed only on the ground that the respondents were not given reasonable opportunity of being heard before the order dated April 11, 1988, was made. Once again, Company Applications Nos. 136 of 1988 and 137 of 1988 came up before Variava J. for ad interim reliefs. In a reasoned order dated April 28, 1988, he held that, prima facie, the respondents acted contrary to this court's order and in a manner prejudicial to the interests of the company. He, therefore, restrained the respondents from operating any bank accounts without the written consent of petitioner No. 2 and respondent No. 5 who held the power of attorney. In other words, the consent order made in Company Petition No. 393 of 1983 was reaffirmed. Against this order, the respondents preferred the appeal (Lodging No. 711 of 1988). No order except its adjournment has so far been made in this appeal. Learned counsel for the petitioners urged ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . 2 to 16 and the directors belonging to their group are in the majority. They have, by unilateral acts and in breach of the court's orders, denied to the petitioners who represent the minority shareholders the right to participate in the affairs of the company. In the suit filed in the Bombay City Civil Court, respondent No. 16, who appeared without authority, did not defend the claim of VIP Enterprises and by collusion allowed the appointment of a receiver. They committed contempt of this court once and repeated it thereafter. In my opinion, the affairs of the company are being conducted in a manner detrimental to the company's interest. The parties do not see eye to eye. The rival groups, with their daggers drawn, are unable to manage the affairs of the company without causing loss to the company. The facts setout in the foregoing paragraphs demand court's interference by appointing an administrator of the company. I will now consider the second point. Section 397 of the Act empowers the court to "make such order as it thinks fit". But, before making the order, the court has to form an opinion, inter alia, "that the company's affairs are being conducted in a manner prejudici ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... This is how the court, by the consent order, brought to an end the matters that were complained of. Section 398 of the Act enables the court to make similar orders with a view to bringing to an end the matters complained of. Significantly, in Company Petition No. 393 of 1988, the petitioners sought reliefs under section 402 of the Act also. Therefore, it is reasonable to hold that the order, in accordance with the consent terms, was an order under section 402 of the Act. That part of the consent order which provided for the reference of the disputes to the determination of Gala and in his absence, to Anthony Lewis, was an order under section 402 of the Act. It provided for "the regulation of the conduct of the company's affairs in future" through reference of the dispute to the determination of Gala and in his absence, to Anthony Lewis. Against this background of the nature of the enactment and the facts of this case, I am to consider whether section 402 of the Act permits these two applications. While keeping the generality of the court's powers under sections 397 and 398 intact, section 402 of the Act lays down that "any order under either section" meaning thereby the orde ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ich might arise in future ? What was the nature and extent of the seisin? The word "seisin" is generally used in the context of property. It means possession, control or seizure 3 . The court, by the consent order, enabled a reference to the determination of Gala/Anthony Lewis of differences in relation to ( a )disposal of lease licence or encumbrance or parting with pos session of property ; ( b )grant of play time rights ; ( c )borrowing or lending money ; ( d )appointment of directors ; or ( e )any matter of substance and/or significance to the company. 4 As the consent order records that the board of directors managed the affairs of the company, only a narrow area of specified disputes was left to the decision of Gala/Lewis. Thus, the court which made the consent order limited its control over the matter to the reference to Gala/Anthony Lewis. This is the limit of the seisin the court retained after the termination of Company Petition No. 393 of 1988. In the exercise of such seisin, this court can issue instructions to Gala/Anthony Lewis as was done by the Delhi High Court in the case of Lord Krishna Sugar Mills Ltd. [1974] 44 Comp Cas 210 or as in the case ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e an advisory board. The special officer was already appointed during the pendency of the petition. The Calcutta High Court proceeded to hold that the powers of the court under section 402 of the Act are so wide that the court may make any order for regulation of the conduct of the company's affairs. The Calcutta High Court did not hold that an order under section 402 of the Act can be made irrespective of whether the court is seized of the matter or not. The facts of that case reveal that when the court made the order under section 402, not only was the main petition pending but the court was merely called upon to effectuate its initial order appointing a special officer by widening his authority of management by appointing an advisory board. The order was within the scope of the earlier order. In Lord Krishna Sugar Mills Ltd. v. Smt. Abnash Kaur [1974] 44 Comp Cas 210 (Delhi), the winding-up petition filed by Abnash Kaur under section 433( f ) of the Companies Act was disposed of on May 27, 1971. Instead of making the order of winding up, the court granted the reliefs under sections 397, 398 and 402 against which an appeal was preferred and was pending on the date on which ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he petitioners' contentions. In my opinion, the words "any order under either section" clearly suggest only one construction, viz. , that if the petitioners want to make an application under section 402 of the Companies Act, they can do so only if the order made under sections 397 and 398 leaves the doors open for such an application. My conclusions are these : The future conduct of a company's affairs can be regulated by the order made under section 397 or 398 of the Act and not by independent prpceedings. This does not, however, mean that such an order under section 402 cannot be made subsequent to the termination of the petition under section 397 or 398 of the Act. An order regulating the conduct of the company's affairs in future may be made under section 402 after the disposal of the petition under section 397 or 398 of the Act, provided the circumstances of the case show that, by its order under section 397 or 398, the court had retained seisin over the matter. Whether the court has retained seisin depends upon the facts and circumstances of each case. The cases of Richardson and Cruddas Ltd. [1959] 29 Comp Cas 549 (Cal), Lord Krishna Sugar Mills Ltd. [1974] 44 Comp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on, fraud or coercion. Had the exhibitors been put to notice of the disputes in the company petition or the subsequent proceedings, the matter would have been different. In my opinion, the contracts cannot be declared void or illegal. For these reasons, I dismiss the judges summons being Company Application No. 136 of 1988 and the judges summons being Company Application No. 137 of 1988. The petitioners shall pay the costs of the company and the costs of VIP Enterprises, as also REK Exhibitors. All the ad interim orders made by this court on these applications shall continue for a period of four weeks from today. ------------------------- (1) "397(2). If, on any application under sub-section (1), the court is of opinion ( a ) that the company's affairs (are being conducted in a manner prejudicial to public interest or) in a manner oppressive to any member or members, and (2) 397(2). ( b ) that to wind up the company would unfairly prejudice such member or members, but that otherwise the facts would justify the making of a winding up order on the ground that it was just and equitable that the company should be wound up ;the court may, with a view to bringing to an en ..... 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