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Bombay High Court
Bilasarai Joharmal vs Akola Electric Supply Co. Private … on 1 January, 1800
Equivalent citations: 1958 28 CompCas 549 Bom
Author: Chagla
Bench: Chala, Desai


JUDGMENT

Chagla, C.J.

1. This is an appeal against an order of Mr. Justice COYALJEE dismissing a petition under the Companies Act. The petition was presented for the winding up of respondent No.1, company and in the alternative a prayer was made for appropriate order under sections 397 398 and 402. At the hearing of the petition the prayer for winding up was given up; and substantially the controversy before Mr. Justice COYALJEE was whether any directions should be issued under section 397 and 398 of the Companies Act.

2. A preliminary objection has been taken by Mr. Bhabha and that is that Mr. Justice COYALJEE was in error in hearing the petition without notice having been given to the Central Government under section 400 of the Companies Act. Section 400 of the Companies Act provides that :

:The court shall give notice of every application made to it under section 397 or 398 to the Central Government, and shall take into consideration the representations, if any made to it by that Government before passing a final order under that section.”

3. Mr. Bhabha contends that the provisions of section 400 are mandatory and that on order can be passed on a petition which constitutes an application under section 397 or section 398 without notice being given to the Central Government and, what is more, without the court taking into consideration the representations, if any, made by that Government. Section 397, sub-section (1) deals with a complaint made by any members of a company who complain that the affairs of the company are being conducted in a manner oppressive to any member or members; and sub-section (2) confers the power upon the court to make, instead of a winding up order, any order which it thinks fit to bring to an end the matter s complained of. Section 398 enables a member to complain that the affairs of a company are being conducted in a manner prejudicial to the interests of the company or with regard to the various matters set out in sub-clause (b) of sub-section (1); and under sub-section (2) if the court is of opinion that the affairs of the company are being conducted in the manner complained of, the court may make such order as it thinks fir with a view to bringing to an end or preventing the matters complained of or apprehended. Section 399 lays down the qualifications for a member of the company to apply and it is not disputed in this case that the petitioner had the necessary statutory qualification under section 399, as far as shareholding is concerned. Now, what is urged by MR. Bhabha is that, as soon as a complaint is received by the court under section 397 or section 398, it is incumbent upon the court to give notice of this complaint to the Central Government and no action can be taken by the court on the petition preferred under section 397 or section 398 without such notice being given and the representations, if any, of the Central Government being considered.

4. Now, in this case, what happened was this. This was a composite petition, as it were, both for winding up and for directions under section 397 and section 398. It came before Mr. Justice K.T.DESAI and he admitted it and directed notice to be served upon the company. Pursuant to that notice the company appeared before Mr. Justice COYALJEE and Mr. Justice COYALJEE after considering the various aspects of the matter, intimately dismissed the petition. Now,it is very desirable that we should lay down the proper practice that should be followed with regard to the giving of notice to the Central Government under section 400. Recently in Western India Theatres Ltd. v. Associated Bombay Cinemas Ltd. my brother DIXIT and myself were considering the practice that should be followed in the case of admission of petitions for winding up and we were called upon there to construe rule 733 of the High Court Rules; and in that judgment we pointed out that the proper practice-which was the practice followed by this court and which was in conformity with that rule-was that when a petition for winding up is presented to a Judge, it is open to him to dismiss it summarily or to accept it and direct that notice should be given to the company. When he does that ,it does not constitute its admission for the purpose of rule 733 and it does not become obligatory for the court to advertise the petition. When the petition comes up on that notice before the court, it is open to the court at that stage to dismiss the petition or to direct that advertisement should be give; and if the directions given for advertisement, then the petition would be heard after this direction was carried out and it would then be heard finally on the merits. Now it is necessary that that practice should be approximated to the practice which now must be laid down with regard to notice to be given to the Central Government under section 400 of the Companies Act.

5. Turning first to the proper interpretation of section 400 two extreme views have been pressed before us-one by Mr. Bhabha and the other by Mr. Gupte. Mr. Bhabha’s contention is, as we have already indicated, that as soon as a complaint is made under section 397 or section 398, which complaint takes the form of a petition, the court without more must issue a notice to the Central Government. The other view, which has been pressed for by Mr. Gupte, is that section 400 has no application at all when the court dismisses a petition. It has only application when the court proposes to pass an effective order under section 397 or 398 or an order under section 402, and, according to Mr. Gupte inasmuch as the court in this case dismissed the petition and did not pass any effective order, no question of giving notice to the Central Government arose. In our opinion, both the extreme views are untenable. As in other matters of life so also in law, a happy compromise is better than an extreme attitude. Now turning first to MR. Bhabha’s contention, in our opinion, it cannot be suggested that an application made by a member who does not possess the statutory qualifications under section 399 is a petition which could not be summarily dismissed by the court without giving notice to the Central Government. The reasons for taking that view is that it does not constitute an application at all under section 397 or section 398 and what section 400 requires is an application which is made under section 397 or section 398. Equally so, if or reading the petition the court comes to the conclusion that the averments do not satisfy what is required by section 397 or section 398 and the court may dismiss it summarily without directing a notice to be given to the Central Government. With regard to Mr. Gupte’s contention, the object of section 400 is that the court should not pass any final order on merits one way or the other, in favour of the petitioners or against the petitioners, in favour of the company or against the comp[any, under section 397 or section 398 giving an opportunity to the Central Government to put forward its views before the court. It is impossible to accept the view that Government’s view should only be sought when the court is going to take one view of the petition and not the other; and the other insuperable difficulty in the way of accepting Mr. Gupte’s contention is that the court cannot make up its mind at the stage of giving notice to the Central Government whether it is going to dismiss the petition or grant it. Therefore, according to Mr. Gupte;s the question whether a notice was required to be served upon the Central Government or not would have to be decided ex post facto after knowing what the decision of the court was. In view of what we have said, therefore, the proper practice would be this: if a petition is presented to the court-let us say a petition which is a composite judge to dismiss it summarily and not to admit it at all. That would apply both with regard to the prayer for winding up and with regard to the directions under section 397 and section 398. But he court may not want to dismiss it summarily and the court may want it to be admitted at least for the purpIC Sof giving notice to the company so that the company should be heard. If the company judges takes the view, at that stage then we will direct that not only a notice should be given to the company, but also to the Central Government so that all difficulties with regard to section 400 would be obviated. It would also lead to this useful result, that when the petition comes up before the company judge, but also the Central Government. At that stage the learned judge will give such directions as he thinks proper. With regard to winding up, if he wishes to go further into the matter, he would have the petition he wishes to go further into the matter, he would have the petition advertised as required under the High Court Rules. If, on the other hand, he thinks that there is no case for winding up, he may dispose that part of the petition, and with regard to section 397 and 398 he would give such directions as the Companies Act provides, as we have just pointed out, after hearing both the company and the Central Government. If the petition is not a composite petition and is only a petition under section 397 or 398, we suggest that a similar practice should be followed. the judge may summarily dismiss it and the summary dismissal would arise under circumstances which we have already indicated in the judgment. But if he does not summarily dismiss it and admits or accepts it, then the office will immediately issue notice to the Central Government and the petition will come u for hearing after the Central Government has been served.

6. In this particular case, Mr. Justice K.T.DESAI did to summarily dismiss the petition; Mr. Justice COYALJEE heard it for three days; and it would be stretching the meaning of the term if we were to say that the effect of Mr. Justice COYALJEE’S judgment is that there was a summary dismissal of this petition. Not only it was a summary dismissal but Mr. Justice COYALJEE in terms says in his judgment that he dismissed the petition after a fair and full hearing. Now strictly Mr. Bhabha would be entitled to the order of Mr. Justice COYALJEE being set aside, there being a remand, and Mr. Justice COYALJEE hearing this petition after proper notice being given to the Central Government under after proper notice being given to the Central Government under section 400. But we do to think that this is a case where costs should be unnecessarily wasted. What we, therefore, propose to do is to adjourn the hearing of this appeal, direct the office to give a notice to the attorneys for the Central Government and this appeal will come u p after the notice has been duly served as we would like to hear what the Central Government has got to say with regard to the order of Mr. Justice COYALJEE. If after hearing the Central Government and the other parties we think that a remand is necessary, we will so direct. If on the other hand, we feel that we are in a position to dispose of the appeal without remand, we will proceed to do so.

7. The appeal shall be adjourned till the income-tax matters are over and it shall be placed on board after Appeal No. 54 of 1957.

8. Order accordingly.


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