TMI Blog2001 (12) TMI 822X X X X Extracts X X X X X X X X Extracts X X X X ..... raising the following preliminary contentions : ( i )There is no resolution for institution of winding up proceedings against the respondent-company by the petitioning company; ( ii )Mr. S.L. Jain who has filed an affidavit in support of the petition was not authorised to initiate and/or institute the winding up petition. So, there is no winding up proceedings in the eyes of law which can be said to have been instituted ; ( iii )Duly constituted attorney or the authorised person of the petitioner-company has not signed the company petition, though it is mandatory, according to the form prescribed under the relevant rules ; ( iv )The affidavit filed in support of the winding up petition is not an affidavit in the eyes of law or in accordance with rule 21 of the Company (Court) Rules, 1959 ( the Rules ). After hearing the learned counsel for both the parties, and after considering the resolution dated 28-6-2000, passed by the board of directors of the petitioning-creditor, the learned company judge by order dated 20-7-2001, overruled the objections in as much as the learned company judge came to the conclusion that the irregularity in the verification of the affidavit and w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... this Court in Horst Kurves GmbH v. Assar Oils Ltd. [O.J. Appeal No. 24 of 2001 dated 4-9-2001]. 6. Mr. Ashwin Lalbhai for the appellant submitted that the adjudication by the learned company judge does affect the rights of the appellant-company because if the appellant s contentions were upheld by the learned company judge, and the winding up petition were held to be not maintainable, the same would have been dismissed. However, since the discussion on the question whether the order under challenge is merely a procedural order or whether it affects the rights of the parties also involved consideration of the arguments on the merits of the subject-matter of the appeal, we heard the learned counsel for the parties on all the facets of the controversy involved in the appeal. We, therefore, proceed to deal with the contentions raised by the learned counsel for the appellant-company which are a repetition of the preliminary objections which were raised before the learned company judge. Contention Nos. (i) and (ii) : ( i )At the time of institution of the petition, there was no resolution for institution of winding up proceedings against the respondent-com- pany by the p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and the proposal put forward by the Chairman before the members of the board. The Chairman had impressed upon the board members the need for the company to initiate "legal proceedings against those who have defaulted in making payment" and requested the members to authorise Mr. S.L Jain to do the needful in the matter. If Mr. Jain in light of the statutory notice already served on the respondent-company approaches a lawyer and in turn he is advised to initiate winding up proceedings, in that event the initiation of proceedings by Mr. Jain on the advice of a lawyer cannot be said to be initiation of proceedings without the consent or assent of the board of directors or without the authority conferred on him. After making the aforesaid observation, the learned company judge made the following observations in para 3.2 of the order : "3.2 Respondent-company, even if it has a slightest doubt in its mind that board of directors might not have decided to institute a winding up proceedings. . ., then in that event, the petitioner-company can be asked to tender clarificatory further resolution." Thereafter Mr. Sushikumar Jain, a director of the petitioning-creditor filed the affidavit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... counsel for the appellant-company relied on several decisions in support of his contention Nos. ( i ) and ( ii ), referred to hereinafter. 10. Reliance is placed on the decisions of the Delhi High Court in Nibro Ltd. v. National Insurance Co. Ltd. [1991] 70 Comp. Cas. 388 and in Ferruccio Sias v. Jai Manga Ram Mukhi [1998] 93 Comp. Cas. 750 , wherein the court has held that it is well settled that under section 291 of the Act, except where express provision is made that the powers of a company in respect of a particular matter are to be exercised by the company in general meeting, in all other cases the board of directors are entitled to exercise all its powers. Individual directors have such powers only as are vested in them by the memorandum and articles. It is true that ordinarily the court will not non-suit a person on account of technicalities. However, the question of authority to institute a suit on behalf of a company is not a technical matter. It has far-reaching effects. Order 29, rule 1 of the Code of Civil Procedure, 1908 ( the Code ) does not authorise persons mentioned therein to institute suits on behalf of a corporation it only authorises them to sign an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... one by an individual director or the secretary of the company unless he is so authorised by a board resolution to issue such letter of consent for the presentation of a petition under sections 397 and 398 by the company. Any case instituted without authority makes it invalid from its inception and cannot be validated by a later ratification. 13. Mr. Shah also relied on the decision of the Patna High Court in BOC India Ltd. v. Zinc Products Co. (P.) Ltd. [1996] 86 Comp. Cas. 358 and particularly on the following observations : "...In Nibro Ltd. v. National Insurance Co. Ltd. [1991] 70 Comp. Cas. 388 , it has been held that although ordinarily the court ought not to unsuit a person on account of technicalities, the question of authority to institute a suit on behalf of a company is not a technical matter. It has far-reaching effects. It often affects policy and finance of the company. Thus, unless a power to institute a suit is specifically conferred on a particular director, he has no authority to institute a suit on behalf of the company. Such a power can be conferred by the board of directors only by passing a resolution in that regard. ****** ...The defect in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... les or forms require any power of attorney to be filed. The resolution dated 28-6-2000, was clear enough to authorise Mr. S.L. Jain to file the winding up petition against the appellant-company and in any case the resolution dated 12-10-2001, passed by the board of directors of the petitioning-creditor has sufficiently clarified the matter and put the issue beyond any pale of doubt. 14. Before discussing the rival submissions, we may refer to rules 6, 9 and 17 of the Rules, which read as under : "6. Practice and procedure of the court and provisions of the Code to apply. Save as provided by the Act or by these rules the practice and procedure of the court and the provisions of the Code so far as applicable, shall apply to all proceedings under the Act and these rules. The Registrar may decline to accept any document which is presented otherwise than in accordance with these rules or the practice and procedure of the court. 9. Inherent powers of court. Nothing in these rules shall be deemed to limit or otherwise affect the inherent powers of the court to give such directions or pass such orders as may be necessary for the ends of justice or to prevent abuse of the proces ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... made an order substituting in his place Ishwarbhai Somabhai Patel. The respondent-company whose winding up was sought challenged the order in appeal. One of the grounds raised in the appeal was that the winding up petition was not properly presented by the petitioner. The petition was signed by the constituted attorney of the petitioning-creditor one Mr. Tijoriwala in whose favour the petitioner had executed a power of attorney. But the power of attorney was conferred only in respect of the five shares held by Ishwarbhai Somabhai Patel which were sold by Patel to Tijoriwala. Under the rules of the Bombay High Court, it is only an agent who is the donee of a general power of attorney that can perform any acts or take any proceedings in the court on behalf of his principal. The court came to the conclusion that the power of attorney executed by Patel in favour of Tijoriwala did not confer power upon the donee with regard to general litigation. Even, after upholding the contention of the company whose winding up was sought ( i.e., the appellant before the Division Bench of the Bombay High Court), that the winding up petition was not properly signed by the petitioner, the court went ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... up petition in person. Permitting the petitioning-creditor to produce on record the clarificatory resolution dated 12-10-2001, would, therefore, be in accordance with the aforesaid principle adopted by the Bombay High Court in the case of Western India Theatres Ltd. ( supra ). 20. At this stage, we would also like to refer to the decision of the Apex Court in Everest Coal Co. (P.) Ltd. v. State of Bihar AIR 1977 SC 2304, wherein the question was about the legality of the proceedings filed by a party against the receiver without leave of the court but the leave is obtained subsequently. In the said decision, the Apex Court observed as under : "....Equally clearly, prior permission of the court appointing the receiver is not a condition precedent to the enforcement of the cause of action. Nor is it so grave a vice that later leave sought and got before the decree had been passed will not purge it. If, before the suit terminates, the relevant court is moved and permission to sue or to prosecute further is granted, the requirement of law is fulfilled. Of course, failure to secure such leave till the end of the lis may prove fatal. This, in short, is the law which has been ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... root of the matter and is not curable. As the Delhi High Court has held in the above mentioned case even a subsequent authorisation/ratification by the board of directors cannot cure the defect." (p. 360) In view of the above quoted observation of the Patna High Court, we have again carefully gone through the decision of the Delhi High Court in Nibro Ltd. s case ( supra ). We are unable to find any observation in the judgment of the Delhi High Court in Nibro Ltd. s case ( supra ) to support the inference drawn by the Patna High Court that the Delhi High Court has held that even a subsequent authorisation/ratification by the board of directors cannot cure the defect. In Nibro Ltd. s case ( supra ), the Delhi High Court has not laid down or even whispered any such principle. 23. In Punjab State Co-operative Bank Ltd. s case ( supra ), the learned single judge of the Punjab and Haryana High Court went to the extent of saying that if the board of directors had passed a resolution deciding to file an appeal against the plaintiff, still such resolution could not revive the non-maintainability of the first appeal which was bad for want of the resolution of the board of dir ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ules, requires that the letters of consent signed by the members authorising the petitioner to present the petition under section 397/398 must be annexed to the petition. Filing of a winding up petition by the creditor-company against an outsider company-the debtor-company is a different matter altogether. The Act or the Rules do not require any such resolution to be annexed to the petition. The rationale discussed in the preceding paragraphs of this judgment is sufficient to accept the principle canvassed by Mr. Vakil for the respondent (original petitioning-creditor). 28. A learned single Judge of the Bombay High Court in Shantilal Khushaldass Bros. (P.) Ltd. s case ( supra ) has held that a constituted attorney must be specifically authorised to lodge company petitions for winding up a company and mere authorisation to file suits or proceedings for recovery of amounts is not sufficient to empower him to institute proceedings under the Act for winding up the company. 29. In the instant case, the resolution dated 28-6-2000, passed by the board of directors of the petitioning-creditor did not merely confer authority to file suits for recovery of amounts but it did auth ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r of the petitioning-creditor-company. In State Bank of India s case ( supra ), the Calcutta High Court has already held that it is sufficient, if the winding up petition is supported by an affidavit filed by a responsible officer (though not a principal officer of the company) who is fully conversant with the facts. Rule 21 is merely directory. In view of the above discussion, we reject both contention Nos. ( i ) and ( ii ) urged by the learned counsel for the appellant-company. Contention No. ( iii ) 32. The third contention of the appellant-company is that the duly constituted attorney or the authorised person of the petitioner-company had not signed the company petition, though it is mandatory, according to the form prescribed under the relevant rules. Hence, the learned Judge ought not to have subsequently granted the permission to put such signature. 33. Rule 95 of the Rules read with Form Nos. 45, 46 and 47 are relevant in this behalf. Rule 95 reads as under : "95. Petition for winding up. A petition for winding up a company shall be in Form No. 45, 46 or 47, as the case may be, with such variations as the circumstances may require, and shall be presente ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in accordance with rule 21. 36. Rules 18 and 21 of the Rules read with Form No. 3 are as under : "18. Affidavits . ( a ) Every affidavit shall be drawn up in the first person and shall state the full name, age, occupation and the place of abode of the deponent. It shall be signed by the deponent and sworn to in the manner prescribed by the Code or by the rules and practice of the court. . . . 21. Affidavit verifying petition . Every petition shall be verified by an affidavit made by the petitioner or by one of the petitioners, where there are more than one, and in the case the petition is presented by a body corporate, by a director, secretary or other principal officer thereof; such affidavit shall be filed along with the petition and shall be in Form No. 3 : Provided that the judge or Registrar may, for sufficient reason, grant leave to any other person duly authorised by the petitioner to make and file the affidavit." "FORM NO. 3 In the High Court at...... Original Jurisdiction In the matter of the Companies Act, 1956 and In the matter of... Affidavit verifying petition I, A. B., son of...aged....residing at.....do, solemnly affirm and say as follo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... its inherent power allow the petitioner to present a fresh affidavit in support of his petition in terms of the prescribed Rules and Form. In other words, even if there is some slight defect or irregularity in the filing of the affidavit, the appellant ought to be given an opportunity to rectify the same : ( i ) Malhotra Steel Syndicate v. Punjab Chemi-Plants Ltd. [1989] 65 Comp. Cas. 546 (Punj. Har.); ( ii ) DLF Industries Ltd. v. Essar Steel Ltd. [2001] 103 Comp. Cas. 467 (Guj.); ( iii ) Mrs. Roma Deb v. R.C. Sood Co. (P.) Ltd. [1990] 67 Comp. Cas. 350 (Delhi). 39. We find considerable substance in the contention of Mr. Vakil for the petitioning-creditor. The preponderance of judicial authority is that the defect in the form of verification or affidavit is only a technical irregularity and that an opportunity should be given to the concerned party to cure such defect. The inherent powers of the Court saved by rule 9, can certainly be invoked in such cases. Rule 9 reads as under : "9. Inherent powers of court. Nothing in these rules shall be deemed to limit or otherwise affect the inherent powers of the court to give such directions or pass such orde ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cribed as defective in any respect. But that apart, we are of the opinion that even if there is some slight defect or irregularity in the filing of the affidavit, the appellant should have been given an opportunity to rectify the same. We are, therefore, of the opinion that the division Bench was in error in dismissing the appeal on the short ground that the affidavit filed in support of the petition was not in proper form and that the petition could not be entertained. We, therefore, set aside the order of the Division Bench dated 21-8-1991." [Emphasis supplied] 41. With this pronouncement, the decisions of the learned single Judge as well as the Division Bench of the Punjab and Haryana High Court in Mool Chand Wahi v. National Paints (P.) Ltd. [1986] must be treated as having been impliedly overruled. 42. Following the aforesaid Supreme Court decision, this Court has also held in DLF Industries Ltd. s case ( supra ) that the importance of verification in an affidavit in Form No. 3 under rule 21, is to test the genuineness and authenticity of the allegations and also to make the deponent responsible therefor. In essence, the verification is required to enable the c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arty which may be compensated by costs or otherwise. A balance has to be struck between two warring parties. If amendment of the petition can be allowed, there does not seem to be any reason as to why a defective affidavit verifying the petition cannot be rectified. The court is not helpless in a case where the affidavit verifying the petition is not in the prescribed form. In the case of verification to the plaint, it is now settled that a defect in verification is only an irregularity in procedure and will not be a ground for rejecting the plaint and that could be cured at any stage of the suit. The court will not, however, permit the rectification of the defect in a winding up petition just as a matter of course; but would take into account all the relevant circumstances including the conduct of the parties. 47. In the instant case, we do not find any infirmity in the order of the learned company judge permitting the petitioning-creditor to rectify the defect in the verification on affidavit filed with the company petition. The effect of permitting such rectification is, inter alia , to relate it back to the original date of filing of the winding up petition and this has be ..... X X X X Extracts X X X X X X X X Extracts X X X X
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