Companies Act Case Law M/S Ammonia Supplies Corporation(P)Ltd Vs M/S Modern Plastic Containers Pvt.Ltd.& Ors.

PETITIONER:
M/S AMMONIA SUPPLIES CORPORATION(P)LTD.

Vs.

RESPONDENT:
M/S MODERN PLASTIC CONTAINERS PVT.LTD.& ORS.

DATE OF JUDGMENT: 04/09/1998

BENCH:
G.B.PATTANAIK, A.P. MISRA

 
ACT:

 

HEADNOTE:

 

JUDGMENT:
JUDGMENT
MISRA, J.
The present appeal arises out of an order dated May
16, 1994 dismissing the appellant- Company appeal by the
High Court. The short question raised by the appellant is:
“Whether in the proceedings under Section 155 of the
Companies Act, the Court has exclusive jurisdiction in
respect of all the matters raised therein or have only
summary jurisdiction?” According to the appellant, there are
conflicting decisions of the various High Courts in India
which resulted into reference of Appellant’s case to the
Full Bench by the Delhi High Court. The Full Bench decided
that the jurisdiction is summary in nature, thus rejecting
the case of the appellant that the power of the Court under
this is exclusive in respect of all the matters raised
therein.
In order to appreciate the point it is necessary to
refer to certain facts.
M/s Ammonia Supplies Corporation (P) Ltd.
(hereinafter referred to as an appellant-Company) went in
liquidation and was directed to be wound-up by the Punjab
High Court Circuit Bench at Delhi. By Order dated 24th Dec.
1962 the said High Court was pleased to transfer all
proceedings to the Court of District Judge, Delhi. It is
said Shri Murarilal Bhargava is the sole beneficiary of the
said Company. He filed an application for absolute stay of
the liquidation proceedings which was granted on the 1st
February, 1978 till further orders. He was authorised to
carry on the business of the Company. The stay order was in
respect of all the affairs except with regard to the
assessment and of income tax payment thereof in respect of
which it was directed that the same shall be prosecuted by
the official liquidator.
On the 3rd January, 1977 the appellant-Company made
investment in the shares of M/s Modern Plastic Containers
(P) Ltd. (hereinafter referred to as the
respondent-Company) to the extent of 50% shares that is to
say 1,265 shares of Rs. 100 each amounting to Rs.
1,26,500/-. Shri O.P. Bhargava S/o Shri M.L.Bhargava
married the sister-in-law of one Shri V.K.Bhargaval, one of
the Managing Directors of the respondent-Company. On
account of this Shri M.L. Bhargava became closer to Shri
V.K. Bhargava. It is for this reason appellant-Company
invested into the aforesaid shares of the
respondent-Company. The dispute pertains about this
investment. According to respondent-Company there was no
such investment made by the appellant-Company nor any share
was transferred by the respondent-Company in favour of the
appellant-Company. On the other hand, the bone of
contention of the appellant-Company is inspite of payment of
the aforesaid amount for shares it was not invested in such
shares. The appellant-Company became 50% share holders of
the respondent-Company about which there is an
acknowledgment by the respondent-Company. Strong reliance
is placed on the basis of various documents mainly the
Balance Sheet of the appellant-Company dated 31st March,
1977 showing investment in the respondent-Company.Accounts
of the appellant-Company were audited which took notice of
this investment which was subjected to income tax assessment
orders dated 19th May, 1978 and 4th August, 1979. On 18th
January, 1983 Shri V.K.Bhargava dies in a car accident,
which according to the appellant is the reason of dispute
between the appellant-Company and the respondent-Company,
being raised by the brothers of the deceased Shri
V.K.Bhargava. It is because of this the appellant filed a
composite petition on 10th September, 1984 under Sections
397, 398 and 155 of the Companies Act for rectification of
the Register of Members and for oppression and mismanagement
of the respondent-Company which was admitted on 14th
September, 1984. However, it seems that the petition which
was filed by the appellant under Sections 397, 398, read
with 155, the Court by its order confined the relief under
Section 155, that is to say, rectification prayer made
therein. In this appeal we are only concerned with this
part viz., the jurisdiction of the Court under Section 155
while dealing with any application for the rectification.
Further case of the appellant-Company is that Shri
V.K.Bhargava informed the appellant that his group of
share-holders in the respondent-Company wanted to get rid of
Mittal Group of share-holders as the joint functioning was
not proceeding well. It is on account of this he desired
that the appellant-Company of whom the sole beneficiary is
Shri M.L.Bhargava and ultimately Shri O.P. Bhargava-son
should have 50% shares by purchasing the shares belonging to
Mittal group. On account of this the appellant-Company sent
the aforesaid amount to Shri V.K. Bhargava for purchasing
the shares in the name of the appellant-Company. Reliance
is placed on the basis of various letters, some of which
according to the appellant are admission for the
appellant-Company being entitled to the shares holding of
50%. According to the facts as recorded by the Company
Judge in its order dated 4th March, 1994 refers to the
averment in the petition before him, that 1265 shares
belonging to Mittal Group were to be transferred in the name
of the appellant-Company in the records of the
respondent-Company but due to fraudulent intentions the same
was not done. The alternative plea was taken that Shri
V.K.Bhargava has no fund acquire the said 1,265 shares in
January and February 1977 and it should be hold that said
Shri V.K.Bhargava held those shares benami in his name for
the benefit of the appellant-Company. In other words, the
money was given by the Appellant-Company though the shares
were purchased in the name of Shri V.K.Bhargava. It is from
the money which was advanced by the appellant-Company the
respondent-Company allotted 470 shares, that is to say, 265
and 205 shares to the Respondent Nos. 2 & 3 respectively
before the Company Judge to bring the distribution of shares
ratio of 50% each. A prayer was made that the Court should
declare that 470 shares allotted to the said respondents is
null and void and it should be held that the
appellant-Company is having share-holding of those 1265
shares. Accordingly, necessary rectification be made in the
Register of the members of the respondent-Company.
Contesting the case set up by the appellant-Company
before the learned Company Judge the respondents vehemently
disputed the claim. The contention is as the claim, if at
all of the appellant-Company of having advanced the
aforesaid amount of Rs. 1.26,500/- to late Shri V.K.Bhargava
the recovery of which was hopelessly time barred as the
said transaction took place in year 1977 whereas the Company
petition was only filed in the year 1984. Hence, the present
petition has been filed as a device, as an alternative, to
claim to be the member of the respondent-Company as owner of
the shares to the extent of Rs. 1,26,500/-. In fact, no such
amount was ever paid to the respondent-Company and at no
point of time the appellant-Company became entitled to be
the share holder of the respondent-Company. The shares of
the respondent-Company could only be transferred with the
permission of Board of Directors. There was no such
permission. In fact in order to become the member or to
purchase the shares of the Company a procedure is prescribed
under the Companies Act which has to be followed before the
shares could be transferred. There is neither any such plea
by the appellant-Company nor there is nay such proceeding
undertaken for the transfer of shares in favour of the
respondent-Company as alleged. Actually, the aforesaid
Mittal Group offered to transfer shares to Shri V.K.Bhargava
which was duly transferred by the Board of Directors. Hence
no question arises of offering any share for sale to the
appellant-Company of the shares belonging to the Mittal
Group. If there are any transaction of advancement of Rs.
1,26,500/- to Shri V.K.Bhargava, the said transaction is
between Shri M.L.Bhargava or by the appellant-Company with
Shri V.K.Bhargava which could only be a private transaction
between them and the respondent-Company has nothing to do
with the same. In fact, shares purchased by Shri
V.K.Bhargava from Mittal Group had always been shown in the
income tax return of Shri V.K.Bhargava as his personal
assets. The respondent-Company further pleaded that the
appellant had forged letter dated June 7, 1984 as much as
the said letter was never issued by the respondent-Company.
Further, there is no entry in the books of accounts for the
aforesaid amount. In fact the various documents filed by the
appellant-Company apart from the forged letter including 25
other letters are also denied by the respondent-Company.
It is also necessary to record certain facts as
recorded in the proceedings before the Company Judge. These
facts are recorded in the impugned order of the High Court.
On 30th April, 1985 the Court directed the parties to file
affidavits and minute books. This exercise started for
considering the plaint of the appellant-Company for the
rectification as aforesaid. Liberty was given to each party
to cross-examine the witnesses. The case was listed for
cross-examination of the defendant on the 2nd August, 1985
and 5th August, 1985. On the various dates the matter was
listed but was adjourned. On 22nd January, 1986 a direction
was given that the Registrar of Companies should produce the
enquiry report, if any, pertaining to the complaint filed by
Shri M.L.Bhargava on 11th February, 1986. On the 14th July
1986 learned counsel for the respondent-Company raised the
objection that since the proceedings under Section 155 of
the Companies Act was summery jurisdiction, the various
points raised by the appellant-Company adjudication to which
requires detailed evidence to be led including the
adjudication of the various letters including forged one
cannot be gone into in these proceeding put only through
civil suit. Hence, the case should be tried by a Civil
court. Thus raised the objection about the maintainability
of the petition. It is thereafter the learned Single Judge
deferred recording further evidence. After extensive
arguments and considering various authorities the Company
Judge following the Full Bench decision of the Delhi High
Court in the very case of the appellant-Company reported in
AIR 1994 Delhi. 51 (F.B.) held that it is not a fit case
for exercising discretion of the Court for invoking the
summary jurisdiction under Section 155 of the companies Act,
on the facts and circumstances of this case and if advised,
the appellant-Company could seek his remedy by filing
regular civil suit after seeking permission of the court
under Section 446 (2) of the Companies Act. The petition of
the appellant-Company was, therefore, dismissed. On appeal
also the Division Bench dismissed the appeal. Hence this
special leave petition.
Within the aforesaid matrix of facts the question
raised is not something new but is what is being raised time
and again in the various High Courts including this Court.
The question is, whether the jurisdiction of the court under
Section 155 of the Companies Act is summary in nature or it
is all encompassing to include all types of disputes to be
adjudicated exclusively by the court. Learned senior
counsel for the appellant contends that the aforesaid Full
Bench of the Delhi High Court holds it to be summary in
nature based on the decision of this Court in the case,
Public Passenger Service Ltd. Vs. M.A.Khadar and Another
(1966 Companies Act (Vol. 36) S.C. Page 1) about which he
feebly submitted to be in percuricum. In the alternative
contention is both in the full Bench decision of the Delhi
High Court and decision of this Court in the case Public
Passenger Service Ltd. (Supra), notice was not drawn to the
definition of ‘Court’ as defined under Sec.2 (11) and Sec.
10 of the Companies Act. If that would have been considered
a different interpretation would have followed. If that
definition is read into Section 155 the ‘Court’ would only
be a company judge and not Civil Court. Further, submission
is even if it could be said the jurisdiction of the Court
under Section 155 is summary in nature, an applicant cannot
be driven to file civil suit only because one raises such
dispute for dispute sake to harass an applicant with an
object to delay the proceedings. The Court has to examine
its sustainability at least prima facie. By merely saying
complicated questions of fact and law are involved and there
being challenge of any document to be forged, a party should
not be driven to file civil suit. Even if such a plea is
taken the court should scrutinise the objections to reach to
a prima facie finding before drawing conclusion of
jurisdiction. The argument is various documents itself
prima facie prove the appellant having become shareholder of
the respondent-Company and bare perusal of the document
shows it not being forged and if that be so, the order
directing the appellant to seek permission to file suit on
the facts and circumstances of this case is not justified.
In support that the court has exclusive jurisdiction
reliance is placed in Canara Bank Vs. Nuclear Power
Corporation of India Ltd. and Others. (1985 (Vol. 58)
Companies Cases Page 633) read with Section 2 (II) and
Section 10 of the Act. Learned counsel for the appellant
contends, these decisions in principle holds, the ‘Court’
exercising power under the Companies Act have exclusive
jurisdiction hence the ‘Court’ referred to in Section 155
could only be the company judge having exclusive
jurisdiction. Hence, no matter under it could be sent for
adjudication to the civil court. The learned counsel also
referred to the case in Indian Chemical Products Ltd. Vs.
State of Orissa and Another (1966 (Vol. 36) Companies cases
Page 592) to contend that this jurisdiction is to be
liberally exercised. He also referred to the case in
Madhusudan Gordhandas and Co. Vs. Madhu Woollen Industries
Pvt. Ltd. (1972 (Vol. 42) Company cases Page 125) that
the exercise of discretion has to be within the permissible
parameters. Strong reliance is placed on the proviso of
Sub-Section(3) of Sec. 38 of the Indian Companies Act, 1913
(hereinafter referred to as ‘1913 Act’) under which the
Court exercising power of rectification may direct an issue
to be tried by the civil court in which any question of law
is raised. This section deals with rectification as Sec.
155 of the Indian Companies Act of 1956 (as amended in the
year 1960) (hereinafter referred to as ‘1960 Act’) to which
the present case is concerned. Since the proviso to the
said Sec. 38 was deleted, it is urged this inevitably
indicates that Court need not refer any issue now.
As we have said above the interpretation of Sec.
155, viz., the rectification of the register of a company
has come umpteen time before various courts and in view of
divergence of view full Bench of the Delhi High Court was
constituted.
We may also notice that by Companies (Amendment)
Act, 1988 S. 155 of the Act has been omitted from the Act.
With effect from 31st May, 1991 and now under Sec. 111 the
power to rectify the register of members of a company has
been vested in the Company Law Board. However, we are not
concerned with this amendment.
The remedy provided by S. 155 of the Act is summary
in nature, has been the view of various High Courts (See:
Soma Vati Devi Chand V. Krishna Sugar Mills Ltd., AIR 1966
Punjab 44; There Dhelakhat Tea Co. Ltd., Air 1957 Calcutta
476; Punjab Distilling Industries Ltd. V. Biermans Paper
Coating Mills Ltd. 1973 (43) Company Cases 189 (Delhi)
(DB); Public Trustee V. Rajeshwar Tyagi, 1973 (43) Company
Cases 371: (AIR 1972 Delhi 302) (DB); Anil Gupta V. Delhi
Cloth and General Mills Co. Ltd. 1983 (54) Company Cases
301; Vishnu Dayal Jhunjhunwalla V. union of India, 1989
(66) Company Cases 684 (Allahabad) (DB); Rao Saheb Manilal
Gangaram Sindore V. Messrs Western India Theatres Ltd. AIR
1963 Bombay 40.
On the other hand a contrary view has been taken by
the Gujarat High Court in Gulabrai Kalidas Naik Vs.
Laxmidas Lallubhai Patel, (1978 (48) Company Cases 432) when
it is held that Section 155 does not indicate the
jurisdiction conferred by the Section is one hedged in with
a condition that it can only be exercised when relief can be
granted in summary manner, also by Kerala High Court in
Mathew Michael Vs. Teedoy Rubbers (Ubdual) Ltd., (1983 (54)
Company Cases 88) and Madras High Court in Mrs.
E.V.Swaminathan Vs. K.M.M.A. Industries and roadways Pvt.
(1993 (76) Company Cases 1). In order to resolve this
conflict as aforesaid the Delhi High Court in the case of
petitioner company relying on Public Passengers Service Ltd.
(Supra) held that the jurisdiction of the Court under
Section 155 is summary in nature.
In Public Passengers Service Ltd. (supra), this
Court held by reasons of its complexity or otherwise the
matter can more conveniently be decided in a suit, the Court
may refuse relief under Section 155 and relegate the parties
to a suit.
Learned Counsel for the appellant initially made
feeble submission as aforesaid to hold that the decision in
Public Passenger Service Ltd. (supra) case is in per
curiam. We have no hesitation to reject such a submission.
This issue was directly there and was considered with
respect to the interpretation of Section 155 and was a case
not under 1913 Act but 1960 Act hence by no stretch of
imagination it could be said that the said decision is in
per curiam. Next submission is neither this case nor the
Full Bench of Delhi High Court considered Section 2 (II) and
Section 10 of this Act, if it would have been done different
inference would have been drawn. The submission is the
expression “the Court” used under Section 155 by virtue of
definition of the Court as defined under Section 2(II) only
means Company court and not Civil court. Similarly Section
10 defines jurisdiction of the Court under this Act to be
the High Court having jurisdiction for the company concern
except to the extent the jurisdiction has been conferred in
District court subordinate with the High Court and where
jurisdiction has been conferred on District court the court
would mean the District Court Hence the only Court which
would have exclusive jurisdiction under Section 155 would be
either High Court or the District court, as the case may be,
by virtue of Section 2(II) and Section 10. For ready
reference Section 2(II) and Section 10 are quoted hereunder
:-

Section 2(II) : “The Court means –
————-
(a)With respect to any matter relating to a
company (other than any offence against this
Act), the Court having jurisdiction under this
Act with respect to that matter relating to that
company, as provided in section 10;
(b)With respect to any offence against this
Act, the Court of a Magistrate of the First Class
or, as the case may be, a Presidency Magistrate,
having jurisdiction to try such offence;”
S.10. “Jurisdiction of Courts. –
—-
(1)The Court having jurisdiction under this
Act shall be-
(a)the High Court having jurisdiction in
relation to the place at which the registered
office of the Company concerned is situate,
except to the extent to which jurisdiction has
been conferred on any District Court or District
Courts subordinate to that High Court in
(b)pursuance of sub-section (2);
and
(c)where jurisdiction has been so conferred,
the District Court in regard to matters falling
within the scope of the jurisdiction conferred,
in respect of companies having their registered
offices in the district.”
He also relied on the case of State of Orissa Vs.
Indian Chemical Product Ltd. (AIR 1957 Oeissa Page 203)
dealing with rectification under old Section 38 of the
Companies Act of 1930.
Now we proceed to examine the submissions for the
appellant in the light of various aforesaid decisions
referred to by the learned counsel keeping in mind the
interpretation of “Court” in the Act.
In the case of Canara Bank (supra) the question of
jurisdiction was tested inter set between the Court under
the Special Court (Trial of Offences Relating to
Transactions in Securities) Act, 1992 and the Court under
the Indian Companies Act:
“Having regard to the enormity of the securities
scam and its ramifications, Parliament thought it
was necessary that all matters in respect of
claims arising out of transactions in securities
entered into between the stated dates in which a
person notified was involved, should be brought
before and tried by the same forum. That forum
had been invested with the jurisdiction to try
persons accused of offences relating to
transactions in securities entered into between
the stated dates. It was also required to give
directions to the custodian in regard to property
belonging to persons notified which stood
attached under the provisions of the Special
Court Act. The object of amending the Special
Court Act. The object of amending the Special
Court Act is to invest the Special Court with the
power and authority to decide civil claims
arising out of thrnsactions in securities entered
into between the stated dates in which a person
notified was involved. In these circumstances,
it is proper to attribute to the word “Court” in
section 9A (1) of the Special Court Act, not the
narrower meaning of a court of civil judicature
which is part of the ordinary hierarchy of
courts, but the broader meaning of a curial body,
a body acting judicially to deal with matters and
claims arising out of transactions in securities
entered into between the stated dates in which a
person notified is involved. An interpretation
that suppresses the mischief and advances the
remedy must plainly be given,”.
“The word “court” must be read in the
context in which it is used in a statute. It is
permissible, given the context, to read it as
comprehending the courts of civil judicature and
courts or tribunals exercising curial or
judicial, powers. In the context in which the
word “court” is used in section 9A of the Special
Court (Trial of Offences Relating to Transactions
in Securities) Act, 1992 , it is intended to
encompass all curial or judicial bodies which
have jurisdiction to decide matters or claims,
inter alia arising out of transactions in
securities entered into between the stated dates,
in which a person notified is involved.”
The Court held that Company Law Board would not have
jurisdiction to decide a petition under Section 111 of the
Companies Act, 1956 (as amended in the year 1988) where
persons notified under the Special Court Act, 1992 are
involved. In other words, all matters pertain to security
scam even in respect of matter covered by Section 111, the
Special Court would have jurisdiction. This case has no
relevance for deciding the controversy in the present case.
This decision holds “the word ‘court’must be read in the
context in which it is used in a statute”.
Next reliance was on the case in Sudarsan Chits (I)
Ltd. (Supra). This was a case where on a petition by certain
creditors, the appellant company was ordered to be wound-up
by the Company Judge and an official liquidator was
appointed. Pending appeals against this order the Division
Bench approved a scheme of arrangement and kept in abeyance
the winding up order. During implementation of this scheme
an application was filed before the Division Bench for a
direction to the provisional liquidator to file claim
petition under Section 446 (2) of the Companies Act, 1956.
This was rejected on the ground that it had no jurisdiction
to entertain such a petition as there was no Winding up
proceedings either before the Company Judge or the Division
Bench. This Court held:
“That the winding up order made by the company
judge had not been quashed, set aside cancelled
revoked or recalled. On the contrary, after
directing that the winding up order shall be held
in abeyance, the Division Bench directed that the
official liquidator shall continue to act as
provisional liquidator as provided by s. 450 and
that itself was a stage in the winding up
proceedings. When winding up order was kept in
abeyance, it was in a state of suspended
animation. The fact that the Division Bench
directed that, pending the implementation of the
scheme as sanctioned by the High Court, the
winding up order will be kept in abeyance itself
without anything more showed that the order was
neither cancelled nor recalled not revoked not set
aside. It continued to exist but was
inoperative…. Therefore, the winding up order
was effectively subsisting but inoperative for the
time being…. If the winding up order was merely
held in abeyance, i.e., it was not operative for
the time being, but it had not ceased to exist,
the winding up proceedings were in fact pending
and the court which made the winding up order
would be the court which was winding up the
company. It was well-settled that a winding up
order once made could be revoked or recalled but
till it was revoked or recalled, it continued to
subsist. That was the situation in this case. If
the winding up order was subsisting. the court
which made that order to the court which kept it
in abeyance would have jurisdiction to five
necessary directions to the provisional liquidator
to take recourse to Section 446 (2).”
The question was whether the Division Bench, which
was monitoring the scheme after winding up order would have
jurisdiction to pass an order for a direction to the official
liquidator when the winding-up order was kept in abeyance?
The High Court held that it has no jurisdiction. This Court
rejected this and held when winding-up order was not set
aside, quashed, cancelled or revoked the court which kept in
abeyance the winding-up order would have jurisdiction to give
necessary directions. In the present case, as aforesaid, the
question is the scope and the width of the jurisdiction of
‘Court’ keeping abeyance the winding-up order would have or
not the jurisdiction to direct the applicant to seek his
remedy under Section 446 (2).
Before we come back to Section 155, since appellant
also submitted the Company Judge should himself decide the
relief under Section 446 (2) having exclusive jurisdiction
instead of sending it to the civil court. For this it is
necessary to refer to the short background of Section 446.
Earlier under section 171 of the Indian Companies Act, 1913
there was no similar provision as Section 446 (2). It only
provided no suits or proceedings pending could proceed nor
fresh suit could be filed without leave of the Court. This
provision was re-enacted with little modifications in section
446 (1). After winding up order a company may have many
subsisting claims and in order to recover it, he may have to
file suits. It is to avoid this eventuality for a long
arduous procedure before the civil Court the jurisdiction of
the Company Judge was enlarged even to entertain such
petition for recovering the claims of the Company. The
purpose of various amendments brought in the Companies Act is
to centralise as far as possible all proceedings to the Court
created under this act for adjudication of various claims.
It is in this background Section 446(2) was brought in, based
on the recommendation of Company Law Committee Report through
an amendment of the Companies(Amendment) Act, 1969. In this
background the Sudarshan Chit (I)Ltd. (supra) holds:
“Sub-section (2) of S. 446 confers jurisdiction on
the court which is winding up the company to
entertain and dispose of proceedings set out in
cls. (a) to (d). The expression “court which is
winding up the company” will comprehend the court
before which a winding up petition is pending or
which has made an order for winding up of the
company and further winding up proceedings are
continued under its directions. Undoubtedly, a
look at the language of s. 446 (1) and (2) and its
setting in Part VII, which deals with winding up
proceedings, would clearly show that the
jurisdiction of the court to entertain and dispose
of proceedings set out in sub-cls. (a) to (d) of
sub-s. (2) can be invoked in the court which is
winding up the company.”
The appellate Bench in this case held since
winding-up proceeding in respect of the appellant-Company is
no more pending and there is no Court which could be said to
be the Court of winding up of the company thus the claim
petition on behalf of the company which is not being wound-up
is not contemplated under Section 44l (2). This decision and
decision in Canara Bank (supra) rejected the restricted
meaning given by the High Court of the expression “court
which is winding up the company”. Hence to this extent there
could be no doubt, a Company under liquidation falling under
Sec. 446 (2), the Company judge alone would have exclusive
jurisdiction to decide matter covered by it.
Now reverting to the submission to read definition of
‘Court’ as defined under Section 2 (11) read with Section 10
with the word ‘Court’ used under Section 155, whether it
would result into any different interpretation to lend
support to the submission of learned counsel for the
appellant? Submission of learned counsel for the appellant?
Submission is the word ‘court’ under section 155 would only
mean Company Judge and he alone would have exclusive
jurisdiction while exercising powers under this section,
hence any direction to seek leave of the court under Section
446 (2) for filling suit cannot be sustained.
First the scope of Section 155 and Section 446 to be
understood to be entirely in different fields. Section 155
deals with power of the Court to rectify register of members
maintained by a Company. Section 441 deals with commencement
of winding-up by the Court. Section 442 deals with the power
of the Court to stay or restrain proceedings against the
company, at any stage after the petition for winding up is
filed but before a winding-up order is made. A creditor or a
company may apply to the Court having jurisdiction to wind-up
the company to restrain all further proceedings in any suits
or proceedings against the Company. Section 143 deals with
powers of Court to hear such petition, Section 444 entrusts
the Court after the winding up order to communicate the same
to the official Liquidator. Section 445 directs that a copy
of the winding up order to be filed with the Registrar. Then
comes Section 446. Sub-section (1) is after winding up order
has been passed or the official liquidator has been
appointed, it puts an embargo on any suit to be instituted or
if pending against the company on that date to be proceeded
with except with the leave of the Court. Use of the words,
no suit…’ shall be commenced ‘…. proceeded with…….’
except by leave of the court…….” spells out that the
jurisdiction of the civil court is not ousted to adjudicate
matter between the parties but embargo is to be controlled at
the discretion of the Company Judge, depending on the facts
of each case. Then comes Section 446 (2) under which the
Court is invested with the jurisdiction to entertain or
dispose of any suit or proceeding by or against the company.
So Section 446 deals with cases of the company under winding
up while Section 155 deals with both classes of companies one
under winding up and other not under winding-up.
Now we proceed to examine the power of the Court to
rectify the register of members of a company under Section
155. The question raised for the appellant is that the Court
under this Act cannot direct an applicant to seek his remedy
by was of suit but the Court under the Act having exclusive
jurisdiction should decide itself. In support, strong
reliance is placed on the deletion of proviso to Section 38
of the 1913 Act. Section 38 of the old Act is quoted
hereunder:
“38. Power of Court to rectify register. – (1) If-
(a) the name of any person is fraudulently or
without sufficient cause entered in or omitted
from their Register of members of a company; or in
the manner directed by the code of Civil
Procedure, 1908 (V of
(b) default is made or unnecessary delay takes
place in entering on the register the fact of any
person having ceased to be a member,
the person aggrieved, or any member of the
company, or the company, may apply to the Court
for rectification of the register.
(2) The Court may either refuse the application,
or may order rectification of the register and
payment by the company of any damages sustained by
any party aggrieved, and mayb make such order as
to costs as it in its discretion thinks fit.
1908), on the grounds mentioned in section 100 of
that Code.”
The proviso gave discretion to the Court to direct an
issue of law to be tried, if raised. By this deletion,
submission is that the Company Court now itself has to decide
any question relating to the rectification of the register
including the law and not to send one to the civil court.
There could be no doubt any question raised within the
peripheral field of rectification, it is the Court under
Section 155 alone which would have exclusive jurisdiction.
However, the question raised does not rest here. In case any
claim is based on some seriously disputed civil rights or
title, denial of any transaction or any other basic facts
which may be the foundation to claim a right to be a member
and if the Court feels such claim does not constitute to be a
rectification but instead seeking adjudication of basic
pillar some such facts falling outside the rectification, its
discretion to send a party to seek his relief before civil
court first for the adjudication of such facts, it cannot be
said such right of the court to have been taken away merely
on account of the deletion of the aforesaid proviso.
Otherwise under the garb of rectification one may lay claim
of many such contentious issues for adjudication not falling
under it. Thus in other words, the court under it has
discretion to find whether the dispute raised are really for
rectification or is of such a nature, unless decided first it
would not came within the purview of rectification. The word
rectification’ itself connotes some error which has crept in
requiring correction. Error would only means everything as
required under the law has been done yet by some mistake the
name is either committed or wrongly recorded in the register
of the Company. In T.P. Mukherjee’s Law Lexicon, fifth
revised edn;
ï”The expression rectification of the register used
in Sec. 155 is significant and purposeful.
‘Rectification’ implies the correctness of an error
or removal of defects or imperfections. It implies
prior existence of error, mistake or defect
……… the register kept by the Company has to
be shown to be wrong or defective”.
Strounds judicial Dictionary;
—————————–
“Rectify – Altering the register of a company so as
to make it conformable with a lawful transfer”
In Venkataramaiya’s Law Lexicon, 2nd Edn;
“The act to be done under the powers of that
Section is the ‘rectification of the register, a
term which itself implies that the register, either
in what is or what is not upon it, is wrong; but
the register cannot be wrong unless there has been
a failure on the part of the company to comply with
the directions in the Act as to the kind of
register to be kept: for if the Act has been
complied with, the register must be right and not
wrong.”
In other words, in order to qualify for rectification,
every procedure as prescribed under the Companies Act before
recording the name in the register of the company has to be
stated to have been complied with by the applicant at least
that part as required by the Act and assertion of what not
complied with under the Act and rule by the person or
authority of the respondent company before applicant to claim
for the rectification of such register. The Court has to
examine on the facts of each case, whether an application is
for rectification or something else. So field or peripheral
jurisdiction of the Court under it would be what comes under
rectification not projected claims under the garb of
rectification. So far exercising of power for rectification
within its field there could be no doubt the Court as referred
under Section 155 read with Section 2(11) and Section 10, it
is the Company Court alone which has exclusive jurisdiction.
Similarly, under Section 446 the ‘Court’ refers to the Company
judge which has exclusive jurisdiction to decide matters what
is covered under it by itself. But this does not mean by
interpreting such ‘court’ having exclusive jurisdiction to
include within it what is not covered under it, merely because
it is cloaked under the nomenclature rectification does not
mean court cannot see the substance after removing the cloak.
Question for scrutiny before us is the peripheral
field within which court could exercise its jurisdiction for
rectification. As aforesaid the very word “rectification”
connotes something what ought to have been done but by error
not done and what ought not to have been done was done
requiring correction. Rectification in other words, is the
failure on the part of the company to comply with the
directions under the Act. To show this error the burden is on
the applicant, and to this extent any matter or dispute
between persons raised in such Court it may generally decide
any matter which is necessary or expedient to decide in
connection with the rectification.
Both under the 1913 Act and 1960 Act a procedure is
prescribed for admitting a person as member by purchase or
transfer of shares of that company. With reference to 1913
Act under Section 29, a certificate of shares or stock shall
be prima facie evidence of the title of the number of the
shares or stock therein. Section 30 defines “member” to be
one who agrees to become a member of a company and whose name
is entered in its register. Section 31 is to keep register of
its members. Section 34 deals with transfer of shares and
application for the registration of the transfer of shares is
to be made either by the transferor or the transferee. Where
such application is made by the transferor for registration of
his share a registered notice is to be sent to the transferee.
Section 34 (3) restricts to register a transfer share until
the instrument of transfer duly stamped and executed by the
transferor and transferee has been delivered to the company.
Thus before the name of any transferee is registered these
procedure has to be shown to have been followed, which is an
obligation of any such applicant under the Act. This shows an
application is to be made either by the transferor or
transferee for registering the name of the transferee as
members or share holders of the company by placing before the
company duly stamped and signed document both by the
transferor and transferee. Similarly is the position under
Section 155 of Indian Companies Act, 1960 before power is
exercised for rectification essential ingredients are to
exist. Section 100 gives mandate to a company not to register
transfer of shares, unless proper instrument of transfer duly
stamped and executed by or on behalf of the transferee has
been delivered to the company along with certificates relating
to the shares.
All the above indicates the limitation and the
peripheral jurisdiction with which court has to act. In spite
of its exclusiveness it cannot take within its lap outside
this scope of rectification. This is indicated even by Sec.
155 itself:
“Section 155 : Power of Court to rectify register of
members
1)If –
a)the name of any person –
i)is without sufficient cause, entered in the register
of members of a company, or
ii)after having been entered in the register, is without
sufficient cause, omitted therefrom; or
b)default is made, or unnecessary delay takes place, in
entering on the register the fact of any person having become,
or ceased to be a member;
the person aggrieved, or any member of the company, or
the company, may apply to the Court for rectification of the
register.
Sub-section (1) (a) of Section 155 refers to a case
where the name of any person without sufficient cause entered
or omitted in the register of members of a company. The work
‘sufficient cause’ is to be tested in relation to the Act and
the Rules. Without sufficient cause entered or omitted to be
entered means done or omitted to do in contradiction of the
Act and the Rules or what ought to have been done under the
Act and the Rules but not done. Reading of this sub-clause
spells out the limitation under which the court has to
exercise its jurisdiction. It cannot be doubted in spite of
exclusiveness to decide all matter pertaining to the
rectification it has to act within the said four corners and
adjudication of such matter cannot be doubted to be summary in
nature. So, whenever a question is raised court has to
adjudicate on the facts and circumstance of each case. If it
truly is rectification all matter raised in that connection
should be decided by the court under Sec. 155 and if it finds
adjudication of any matter not falling under it, it may direct
a party to get his right adjudicated by civil court. Unless
jurisdiction is expressly or implicitly barred under a
statute, for violation or redress of any such right civil
court would have jurisdiction. There is nothing under the
Companies Act expressly barring the jurisdiction of the civil
court, but the jurisdiction of the ‘court’ as defined under
the Act exercising its powers under various sections where it
has been invested. with exclusive jurisdiction, the
jurisdiction of the civil court is impliedly barred. We have
already held above the jurisdiction of the ‘court’ under Sec.
155, to the extent it has exclusive, the jurisdiction of civil
court is impliedly barred. For what is not covered as
aforesaid the civil court would have jurisdiction. Similarly
we find even under Sec. 446(1) its words itself indicate
jurisdiction of civil court is not excluded. This sub section
states, ‘……….. no suit or legal proceedings shall be
commenced ……… or proceeded with ……. except by
leave of the court’. The words ‘except by leave of the court’
itself indicate on leave being given the civil court would
have jurisdiction to adjudicate one’s right. Of course
discretion to exercise such power is with the ‘court’.
Similarly under Sec. 446(2) ‘court’ is vested with powers to
entertain or dispose of any suit or proceedings by or against
the company. Once this discretion is exercised to have it
decided by it, it by virtue of language therein excludes the
jurisdiction of the civil court. So we conclude the principle
of law as decided by the High Court that jurisdiction of Court
under Section 155 is summary in nature cannot be faulted.
Reverting to the second limb of submission by learned counsel
for the appellant that court should bot have directed for
seeking permission to file suit only because a party for
dispute sake states that the dispute raised is complicated
question of facts including fraud to be adjudicated. The
Court should have examined itself to see whether even prima
facie what is said is complicated question or not. Even
dispute of fraud, if by bare perusal of the document or what
is apparent on the face of it on comparison of any disputed
signature with that of the admitted signature the Court is
able to conclude no fraud, then it should proceed to decide
the matter and not reject it only because fraud is stated.
Further on the other hand learned counsel for the respondent
totally denies any share having been purchased by the
appellant-company or any amount paid to it. No transfer of
any such share was ever approved by the Board of Director. It
is urged the money even if advanced to Sri V.K.Bhargava by the
appellant-company if at all was a private transaction between
the two to which respondent-company has no concern. So we
find there is total denial by the respondent.
We have gone through the judgment of the High Court.
It has rightly held the law pertaining to the jurisdiction of
‘court’ under Sec. 155 and even referred to some of the
documents of the appellant but concluded since they are
disputed and said to be forged hence directed for seeding
leave if advised for suit. We feel it would have been
appropriate if the court would have seen for itself whether
these documents are disputed and any document is alleged to be
forged whether it said to be so jurisdiction of the civil
court. So we conclude the principle of law as decided by the
High Court that jurisdiction of Court under Section 155 is
summary in nature cannot be faulted. reverting to the second
limb of submission by learned counsel for the appellant that
court should not have directed for seeking permission to file
suit only because a party for dispute sake states that the
dispute raised is complicated question of facts including
fraud to be adjudicated. The court should have examined
itself to see whether even prime facie what is said is
complicated question or not. Even dispute of fraud, if by
bare perusal of the document or what is apparent on the face
of it on comparison of any disputed signature with that of the
admitted signature the Court is able to conclude no fraud,
then it should proceed to decide the matter and not reject it
only because fraud is stated. Further on the other hand
learned counsel for the respondent totally denies any share
having been purchased by the appellant-company or any amount
paid to it. No transfer of any such share was ever approved
by the Board of Director. It is urged the money even if
advanced to Sri V.K.Bhargava by the appellant-company, if at
all was a private transaction between the two to which
respondent-company has no concern. So we find there is total
denial by the respondent.
We have gone through the judgment of the High Court.
It has rightly held the law pertaining to the jurisdiction of
‘court’ under Sec. 155 and even referred to some of the
documents of the appellant but concluded since they are
disputed and said to be forged hence directed for seeking
leave if advised for suit. We feel it would have been
appropriate if the court would have seen for itself whether
these documents are disputed and any document is alleged to be
forged whether it said to be so only to exclude the
jurisdiction of the court or it is genuinely so. Similarly we
feel appropriate while deciding this the court should take
into consideration the submissions for the respondents,
whether it would come within the scope of rectification or not
in the light of what we have said above.
Since the High Court has not examined this case in the
aforesaid light, we feel it appropriate to direct the High
Court to decide this question in the light of what we have
said afresh, without prejudice to any party of any observation
made by us above. In case High Court comes to the conclusion
that any issue raised does not come within Sec. 155 then we
feel it appropriate on the facts and circumstances of this
case, as it is pending since 1984, that High Court exercises
its discretion under Sec.446(2) to get it adjudicated by the
court (Company Judge) itself instead of sending back to the
civil to which we order.
With the aforesaid findings the appeal is partly
allowed. Costs on the parties.

 

 

Leave a Comment