9911796707
TMI Blog1988 (11) TMI 355X X X X Extracts X X X X X X X X Extracts X X X X ..... airs of the company in a manner oppressive to its shareholders and also in manner prejudicial to the interest of the company. At the admission stage, this was opposed vehemently by the present applicants. Ultimately, after hearing both the parties, this court(G. T. Nanavati J. ) was pleased to admit the company petition to final hearing on November 14, 1986. So far as interim relief is concerned, Company Applicant No. 57 of 1986 was moved by the respondents (original petitioners). The learned judge did not grant interim relief as prayed for therein. 3. Against admission of the company petition, the original applicants preferred O.J. Appeal No. 13 of 1987 in this court. They also challenged the order passed by G. T. Nanavati J. in Company Application No. 57 of 1986 on November 14, 1986, refusing to grant interim relief. They first moved the Supreme Court by ways of a petition for Special Leave to Appeal (Civil) No. 15518 of 1986. That petition was allowed to be withdrawn with liberty to the respondents to prefer an appeal before a Division Beach of this court. Accordingly, O.J. Appeal No. 20 of 1986 was moved before the Division Bench of this court against the order of the learne ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 9; 5. In the affidavit, it has been contended that the petition as field by the respondents is not maintainable on the following grounds: (1) On the date of presentation of the petition, i.e., April 19, 1986, the petitioner did not hold 10% of the issued share capital of the first respondent-company. That the issued share capital was raised to ₹ 7.15 crores. Pursuant to the decision of the extraordinary general meeting of the shareholders held on January 15, 1986, the board of directors at the meeting held on February 28,1986, resolved to raise the issued share capital and application forms were sent to the shareholders inviting them to subscribe to the issued higher share capital. In these circumstances, since the issued share capital was increased to ₹ 7.15 crores and application forms for subscribing to the shares so issued were posted to the shareholders, the decision for increasing the issued share capital has been acted upon and made irreversible. Under the circumstances, since the petitioner and those who have consented to the petition claimed to hold shares worth approximately ₹ 40 lakhs, they are holders of less than 10% of the issued share capita ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... p order but also because it does not make out a case that the passing of an order of winding up would unfairly prejudice the petitioners. This objection is also raised in para 41G of the affidavit-in-reply to the company petition. On the basis of the aforesaid preliminary objections, the following preliminary issues are sought to b raised by the applicants with a request to try them as such : (1) Whether, in view of section 399 of the Companies Act, the petitioners can maintain and prosecute the petition under sections 397 and 398 against No. 1 company? (2) Whether the petitioners held 10% of the issued share capital of the company on the date of the presentation of the petition? (3) Whether the petitioner and those who support the petition had given valid consent on the date of the presentation of the petition so as to ensure that persons holding at least 10% of the issued share capital of the company have validly consented on the date of filing of the petition? 6. This application has been opposed by the respondents by filing the affidavit-in-reply of Mr. Premjibhai K. Ruparel, a director of the respondent-company. It is submitted that the proposed prelim ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt proceedings. It was submitted that the provision of Order, 14 rules 1 and 2 of the Code apply in their full vigour to suits before the civil court and that they do not automatically apply to proceedings of the present nature before the company court and that this court has ample jurisdiction to raise and try and issue as a preliminary issue if it goes to the root of the maintainability of the petition even if such issue involves decision on of law and fact, its trial as a preliminary issue is not precluded so far as the present proceedings are concerned. Mr. Diwan submitted that, if this court, in its discretion holds that these issues need not be tried as preliminary issues it would be a different matter. But the provision of Order 14, rule 2 of the Code cannot be made applicable to the present proceedings. He, therefor, submitted that these issues may be raised may be raised and tried as preliminary issues. 9. Mr. Jethmalani, learned counsel for the respondents, on the other hand, submitted that though personally speaking, he will have no objection if these preliminary issues are tried as such and decided as, in his view, there is no substance in these preliminary issues, a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... provided as under. As per section 397(1), any member of a company who complains that the affairs of the company are being conducted in a manner oppressive to any member or members including any one or more of them-selves may apply to the court for an order under the section, provided such members have a right so to apply in virtue of section 399. Sub- section (2) thereof provides that 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 (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 end the matters complained of, make such order as it thinks fit. Section 398 provides for application to the court for relief in cases of mismanagement. It lays down that Any members of a company who complain : (a) that the affairs of the company are being conducted in a manner pre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ned the consent in writing of the rest, may make the application on behalf and for the benefit of all of them. (4) The Central Government may, if in its opinion circumstances exist which make it just and equitable so to do, authorise any member or members of the company to apply to the court under section 397 and 398, notwithstanding that the requirements of clause (a) or clause (b), as the case may be, of sub-section (1) are not fulfilled. (5) The Central Government may, before authorising any member or members to give security for such amount as the Central Government may deem reasonable for the payment of any costs which the court dealing with the application may order such member or members to pay to any other person or persons who are parties to the application. 11. Section 400 deals with the procedure of issuing notice to be given to the Central Government of applications under sections 397 and 398. Section 401 lays down the right of the Central Government to apply under sections 397 and 398 ; while section 402 deals with powers of the court on an application under section 397 or 398. 12. The Supreme Court, in exercise of its powers conferred upon it by sub- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n proceedings keeping in view the nature of the proceedings and the relief claimed therein. It has, therefore, to be found out whether the applicability of Order 14, rule 2 is in any way ruled out by the settings in which petitions under sections 397 and 398 are entertainer. The moot questions are whether there is anything in these provisions which, by necessary implication, contraindicates the applicability of these provisions, whether the applicability of Order, 14 rule 2 would whittle down or stultify the effective operation of these provisions ? If they are found to so stultify these proceedings then, can it legitimately be held that Order 14, rule 2 in its vigour cannot apply to these proceedings. But if on the other hand, it is found that they do not whittle down the play and efficacy of these provisions and they can harmoniously coexist with these provision, would they squarely get attracted and get superimposed on these proceedings by the combined thrust of section 141 of the Code and rule 6 of the Companies (Court) Rules. 14. Placing reliance on a decision of the Bombay High Court in the case of Kelly and Henderson P. Ltd. In re [1980] 50 Comp Cas 646, 650, it was submi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e 3 of the Code were applied to a liquidator's misfeasance summons. 16. In my view, therefore, before applying any provision of the Code to the proceedings under the Act, it would be necessary to find out the nature of the proceedings and the relief claimed therein and the effect of the applicability of the concerned procedural provisions of the Code to these proceedings, meaning thereby, whether the applicability of procedural provisions would in any way thwart or stultify these proceedings and the reliefs claimed therein ? If the concerned procedural provisions are found to have such obnoxious effect, their applicability will have to be suitably modified, so that the procedural provisions may not over-reach the substantive provisions. But if, on the other hand, the concerned procedural provision is not found to have such obnoxious effect and if it is found running parallel to it and also found to streamline the procedure and make it more effective, such procedural provisions, instead of being found to be deleterious, would be found to be fully commensurate with the substantive provisions of the Act and can fully and harmoniously co-exist in all their vigour and vigour with ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... w, a preliminary issue can be framed and tried only if it touches upon the question of jurisdiction of the court ; or (3) Such pure issue of law raises the question about proceedings being barred by any provision of law. 18. As for example, a suit being barred by any provision of law like section 85 of the Tenancy Act r a suit being barred on account of not giving a statutory notice like section 80 of the Code or similar such provision. In all other cases, even if preliminary objections are taken about maintainability of the proceeding, issue either of pure law or issues raising mixed questions of law and fact cannot be tried as preliminary issues. This is the clear mandate of Order 14, rule 2. Let us see whether the application of this mandate to proceedings under section 397 and 398 of the Act would, in any way, frustrate these proceedings under the ACt or would whittle them down in any manner. It is no doubt true that proceedings under section 397 and 398 of the Act are not, in the strict sense of the term, proceedings between private parties like a plaintiff and defendant in the suit and they have wider coverage and they touch upon the public interest of a large body o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed before the Division Bench of this court by way of O.J. appeals as was done in the present case itself. It is also pertinent to note that as per section 483 of the Act, appeals lie from any order made or decision given in matters of winding up of companies by the court. Thus, O.J. appeals are available in plenty against the orders or decisions of the court, dealing with various company petitions under the Act. Even L.P. As. are also permitted under clause 15 of the Letters Patent against any orders or decisions which are judgments within the meaning of the clause, when such judgment are given by the court exercising original jurisdiction under the Act. Consequently, if Order 14, rule 2 of the Code is made applicable to these proceedings, it cannot be said that the nature of the remedy and the relief claimed in these proceedings would get whittled down by the applicability of these procedural provisions. On the other hand, the applicability of these provisions would really streamline these provisions and would make them more effective. It is obvious that if a petition under section 397 and 398 is decided on a preliminary issue de hors the provision of Order 14, rule 2 and if it is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y Mr. Diwan for the applicants, nor can it be said that applicability of these procedural provisions is, in any way, contraindicated by some of these provisions. On the same reasoning on which applicability of Order 23, rule 3 of the Code strikeout sense was ruled out by the learned single judge of the Bombay High Court in Kelly and Henderson P. Ltd. In re [1980] 50 Comp Cas 646, the applicability of Order 14, rule 2 strikeout sense to these very proceedings would remain fully justified so that public interest underlying these proceedings may get buttressed rather than battered. 19. I entirely agree with the submission of Mr. Jethmalani for the respondents that, by applying Order 14, rule 2 in all its vigour to the present proceedings, public interest underlying these proceedings would get better sub served rather than by ruling out the applicability of these provisions to these proceeding. For all these reasons, therefore, it must be held that the provisions of Order 14, rule 2 of the Code apply in their entirety to proceedings under sections 397 and 398 of the Act. 20. Point No. 2 - Once it is held that the provisions of Order 14, rule 2 of the Code fully apply to these pro ..... X X X X Extracts X X X X X X X X Extracts X X X X
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