PETITIONER:
NATIONAL CONDUITS (P) Ltd.
Vs.
RESPONDENT:
S. S. ARORA
DATE OF JUDGMENT:
01/09/1967
BENCH:
SHAH, J.C.
BENCH:
SHAH, J.C.
SIKRI, S.M.
SHELAT, J.M.
CITATION:
1968 AIR 279 1968 SCR (1) 430
CITATOR INFO :
R 1983 SC1272 (22)
ACT:
Companies Act, (1 of 1956) Ss. 433 and 439–Compulsory wind-
ing up–Petition admitted–Advertisement–If Court bound.
Companies (Court) Rules, 1959, rr. 9, 24(2) and 96.
HEADNOTE:
In an appeal to this Court, the High Court’s view that on
the admission of a petition under ss. 433 and 439 of the
Companies Act, 1956 for compulsory winding up of a company,
the Court is bound forthwith to advertise the petition, was
challenged.
Held: A petition for winding up cannot be placed for hearing
before the Court, unless the petition is advertised: that is
clear from terms of r. 24(2) of the Companies (Court) Rules,
1959. But that is not to say that as soon as the petition
is admitted, it must be advertised. If the petition is
admitted, it is still open to the company to move the Court
that in the interest of justice or to prevent abuse of the
process of Court, the petition be not advertised. Such an
application may be made where the Court has issued notice
under the last clause of r. 96, and even when there is an
unconditional admission of the petition for winding up. The
power to entertain such an application of the company is
inherent in the Court and r. 9 iterates that power. [432C-F]
In re. A. Company (1894) 2 Ch. D. 349 applied.
Lord Krishna Sugar Mills Ltd., v. Smt. Abnash Kaur A.I.R.
(1961) Punj. 505 approved.
JUDGMENT:
CIVIL APPELLATE JURISDICTION: Civil Appeal No. 1082 of 1967.
Appeal from the judgment and order dated March 7, 1967 of
the Delhi High Court in Company Appeal No. 3 of 1967.
A. N. Khanna and Harbans Singh, for the appellant.
P. C. Khanna and Maharaj Krishan Chawla, for the respon-
dent.
The Judgment of the Court was delivered by
Shah, J. The appellants private limited Company-is engaged
in the manufacture of electric conduit pipes. The respon-
dent who is a director of the Company presented a petition
in the High Court of Delhi under ss. 433 and 439 of the
Companies Act, 1956, for an order for compulsory winding up
of the Company. The respondent claimed that it was “just
and equitable” within the meaning of s. 443(f) of the
Companies Act, 1956, to make an order for compulsory winding
up, because one of the three factories of the Company had
been closed, that the accounts of the Company were not being
shown to the respondent, that no meeting of the Company had
been held, no balance-sheet had been prepared and a letter
of resignation purported to be signed 430
431
by the respondent had been forged. On July 18, 1966,
Capoor, J., directed that notice of the petition be issued
to the appellant Company. The order has not been formally
drawn up, and it is not clear whether by that order it was
intended to call upon the Company to show cause why the
petition should not be admitted, or that by the order the
petition was admitted and notice under r. 96 of the
Companies (Court) Rules, 1959 was issued.
The appellant Company filed its reply controverting the
allegations made by the respondent. The Company also filed
an application that the winding up petition filed by the
respondent be taken off the file and be dismissed and that
the petition in the meantime be not advertised.H. R. Khanna,
J., held that the appropriate remedy of the respondent on
the allegations of mismanagement of the affairs of the
Company and oppression of the minority shareholders by the
group of Anandi Lal was to file a petition under ss. 397 and
398 of the Companies Act. The learned Judge further held
that the petition for winding up was instituted with a view
“to unfairly prejudice the interests of the shareholders of
the Company”, respondent having set up a rival factory in
the name of his son for manufacturing electric conduit
pipes. The learned Judge directed that the petition be not
advertised and be. dismissed.
In appeal against the order passed by H. R. Khanna, J., the
High Court of Delhi held that under the Companies (Court)
Rules, 1959, once a petition is admitted to the file, the
Court is bound forthwith to advertise the petition. The
company challenges that order in this appeal.
Rule 96 of “The Companies (Court) Rules, 1959” framed by
this Court provides :
“Upon the filing of the petition, it shall be
posted before the Judge in Chambers for
admission of the petition and fixing a date
for the hearing thereof and for directions as
to the advertisement to be published and the
persons, if any, upon whom copies of the
petition are to be served. The Judge may, if
he thinks fit, direct notice to be given to
the company before giving directions as to the
advertisement of the petition.”
Rule 24 which relates to advertisement of petitions provides
“(1) Where any petition is required to be
advertised, it shall, unless the Judge
otherwise orders, or these, Rules otherwise
provide, be advertised not less than fourteen
days before the date fixed for hearing, in one
issue of the Official Gazette of the State or
the Union Territory concerned, and in one
issue each of a daily newspaper in the English
language and a daily newspaper in the
regional
language circulating in the State or the Union
Territory concerned, as may be fixed by the
Judge.
432
(2) Except in the case of a petition to wind
up a company, the Judge may, if he thinks fit,
dispense with any advertisement required by
these Rules.”
When a petition is filed before the High Court for winding
up of .a company under the order of the Court, the High
Court (i) may issue notice to the Company to show cause why
the petition should not be admitted; (ii) may admit the
petition and fix a date for hearing, and issue a notice to
the Company before giving directions about advertisement of
the petition; or (iii) may admit the petition, fix the date
of hearing of the petition, and order that the petition be
advertised and direct that the petition be served upon
persons specified in the order. A petition for winding up
cannot be placed for hearing before the Court, unless the
petition is advertised that is clear from the terms of r.
24(2). But that is not to say that as soon as the petition
is admitted, it must be advertised. In answer to a notice
to show cause why a petition for winding up be not admitted,
the Company may show cause and contend that the filing of
the petition amounts to an abuse of the process of the
Court. If the petition is admitted, it is still open to the
Company to move the Court that in the interest of justice or
to prevent abuse of the process of Court, the petition be
not advertised. Such an application may be made where the
Court has issued notice under the last clause of r. 96, and
even when there is an unconditional admission of the
petition for winding up. The power to entertain such an
application of the Company is inherent in the Court, and r.
Nothing in these Rules shall be deemed to
limit or otherwise affect the inherent powers
of the Court to give such direction or pass
such orders as may necessary for the ends of
justice to prevent abuse of the process of the
Court”,
iterates that power. In in re. A. Company(1) it was held
that if the petition is not presented in good faith and for
the legitimate purpose of obtaining a winding-up order, but
for other purpose such as putting pressure on the Company,
the Court will restrain the advertisement of the petition
and stay all further proceedings -upon it. We may state
that the High Court of Punjab in Lord Krishna Sugar Mills
Ltd. v. Smt. Abnash Kaur(2) was right in ,observing that
the Court in an appropriate case has the power to .Suspend
advertisement of a petition for winding up, pending disposal
of an application for revoking the order of admission of the
petition, though we may hasten to state that we cannot agree
H.R. Khanna,, J., was apparently satisfied that the petition
was not a, bona fide petition and the respondent in
presenting
(1) (1894) 2 Ch. D. 349.
(2) A.L.R. 1961 Punjab 505.
433
the petition was acting with ulterior motive and his attempt
to obtain an order for winding up was “unreasonable”.Before
the High Court directed that the petition for winding up be
advertised,the High Court was bound to consider whether the
view expressed by H. R. Khanna,, J., was right.
For reasons already set out, in our judgment, the High Court
erred in holding that a petition for winding up must be
advertised even before the application filed by the Company
for staying the proceeding for the ends of justice, or to
prevent abuse of the process of the Court. The view taken
by the High Court that the Court must, as soon as the
petition is admitted, advertise the petition is contrary to
the plain terms of r. 96. Such a view, if accepted, would
make the Court an instrument, in possible cases, of
harassment and even of blackmail, for once a petition is ad-
vertised, the business of the Company is bound to suffer
serious loss and injury.
The appeal is allowed. The High Court has disposed of the
appeal on a ground of procedure and has not considered
whether the view of H. R. Khanna, J., that in the exercise
of the inherent power for the ends of justice and for
prevention of the abuse of the process of Court, the
petition should not be advertised, is correct. The case is
therefore remanded with the direction that the High Court do
deal with and dispose of the appeal according to law. There
will be no order as to its costs in this Court. The costs
in the High Court will be costs in this appeal.
Y.P. Appeal allowed.
434