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TMI Blog1972 (4) TMI 68X X X X Extracts X X X X X X X X Extracts X X X X ..... lectric fan plant and a food products plant, both at Delhi; a solvent extraction plant at Bombay and a vegetable products factory and flour mill in West Pakistan. Except the vegetable ghee plant at Kanpur, which is still running, the other factories of the company were closed. Up to November, 1968, the company was looked after by a board of directors whose chairman was S.N. Gupta and secretary and general manager was Kirpa Narain (he held this position since 1966). His brother, Kishan Narain, was the manager of the Kanpur unit. The company had made Rs. 8.39 lakhs profits in 1964-65, Rs. 5.67 lakhs losses in 1965-66, Rs. 9.67 lakhs profits in 1966-67 and a huge loss of Rs. 1 crore 25 lakhs in 1967-68. The assets of the company comprise, in addition to the above said factories, a piece of land in Sabzi Mandi measuring 5,600 sq. yards, industrial land at Najafgarh Road measuring 3,000 sq. yards, lands in Sonepat (Haryana) measuring 175 bighas (out of which 145 bighas are under acquisition) and a small plot of 0.084 acres at Kanpur. Inspection, made in 1969 (under section 209(4) of the Companies Act) of the accounts and other papers of the company, is stated to have revealed the foll ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Brady, Armstrong and Shakti, as selling agents, is also said to be in contravention of section 294 of the Companies Act. The company had a liability to pay Rs. 10,29,621 less income-tax, as interest and Rs. 35,32,323.74 as commission payable to Brady, Armstrong and Shakti as against a sum of Rs. 40 lakhs received as short-term loans from Belapur and Brady. On account of the poor financial position of the company it was proposed to issue second debentures of Rs. 95 lakhs to get additional finances for liquidating the company's debts and provide funds as working capital. Sanction of the Controller of Capital Issues was obtained from time to time the company was authorised to issue debentures to corporate bodies, individuals and financial institutions through private negotiations. The company, instead, issued debentures of the face value of Rs. 95 lakhs to Belapur, Armstrong and Brady as collateral security for the repayment of the loan of Rs. 30 lakhs and of Rs. 10 lakhs obtained from Belapur and Brady, respectively, interest thereon and all the commissions payable as noticed above on purchases and sales. The net position was that the initial loan of Rs. 40 lakhs swelled to Rs. 95 la ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d the money in spite of statutory notices having been given. On June 16, 1971, the Company Law Board filed Company Petition No. 45 of 1971 under sections 397 and 398 of the Companies Act and on the same day C.A. No. 254 of 1971 for certain interim reliefs was filed. On June 17, 1971, an ex parte order was passed, (1) restraining the company from disposing of its assets, and (2) restraining the debenture-trustees from enforcing their rights. On July 15, 1971, C.A. No. 269 of 1971, was filed by G.D. Morarka to order sale of certain stocks. On August 6, 1971, there was an order for sale of stocks to pay wages subject, however, to the rights of the National & Grindlays Bank. The bank refused to implement the order which, therefore, became infructuous. C.A. No. 323 of 1971 dated August 14, 1971, was filed under section 442 of the Companies Act by Belapur for stay of Company Petition No. 45 of 1971, and all proceedings therein and for vacating ad interim orders, including the one dated June 17, 1971, restraining the debenture-trustees from enforcing their right and their debenture deed. On November 19, 1971, Company Petition No. 89 of 1971 was filed by 125 shareholders under sections 397 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e to report to the chairman, who was to keep the board informed of the company's affairs. The board was to meet once a month. The board had also to prepare a report showing which of the units or other assets of the company could be immediately disposed of taking into consideration the agreement already stated to have been concluded for the sale of the solvent extraction plant in Bombay. Preliminary objections have been raised concerning the maintainability of these appeals. It was stated during the arguments, but not in the memoranda of appeal, that these appeals were maintainable both under section 5(1) of the Delhi High Court Act and under section 483 of the Companies Act or in the alternative either of these provisions. It is also urged that a single appeal against the orders conjointly passed in Company Applications Nos. 323 and 254 of 1971 was not enough. The second objection may be disposed of first. It is seen that four appeals have been preferred (C. As. Nos. 2 to 5 of 1972) by G.C.D. Morarka and another, Ganga Prasad Morarka, Brady and Belapur. Each one of these appeals is expressly against the common orders passed in both the above said applications. C.A. No. 3 of 1972 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in force immediately before the appointed day, exercisable in respect of the said territories, by the High Court of Punjab. It was contended by Smt. Shyamala Pappu, learned counsel for the Company Law Board, that orders passed on an application under sections 397 and 398 of the Companies Act are not orders pertaining to or made in the matter of winding up of the company. Sections 397 and 398, she urged, are included only in Chapter VI (Part VI) of the Companies Act which deal with prevention of oppression and mismanagement whereas provisions relating to the winding up occur in Part VII (Chapter I) commencing from section 425 onwards. In order to appreciate this argument it is necessary to notice the specific provision made by section 397(2)(a) and (b) that if the court is of the opinion, while considering an application under section 397, 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, even though facts exist which would otherwise justify the making of a winding up order it may make an order other than that of the winding-up with a view to bringing to an end the matters complained of; bot ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion 153 of the Companies Act, 1913 (present section 391), which provided for an alternative mode of winding up of unregistered companies was a provision with respect to winding up within the meaning of section 271 of the Act of 1913 (present section 483). The following observations of Venkataramana Rao J. in In re Travancore National and Quilon Bank Ltd. [1939] 9 Comp. Cas. 14 , 32 ; A.I.R. 1939 Mad. 318, occurring on page 327, column 2, are helpful and may be set out : "Under section 271, all the provisions of the Act with respect to winding up would apply to an unregistered company and a provision to avert a winding up will be a provision with respect to the winding up. A scheme under section 153 provides an alternative mode of winding up and it cannot be doubted that section 153 being a general law as to winding up is as much applicable to the winding up of a foreign company and the corresponding section of the English Act has always been employed to give effect to a scheme of compromise already arranged in a simultaneous winding up abroad". (Emphasis Here printed in italics added). The meaning of the expression "in the matter of" is stated in the Concise Oxford Dictionary to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... balance-sheets on certain "matters". Section 441 states that winding up will be deemed to have commenced when a resolution has been passed for voluntary winding-up before the presentation of a petition for winding-up. The terms of section 483 have been already noticed; it employs the expression "in the matter of winding-up". In addition to the powers conferred by section 641 on the Central Government to alter Schedules of the Act, section 642 enables it to make rules "for all or any of the matters which by this Act are to be, or may be, prescribed by the Central Government". Section 643(1)(b) enabled the Supreme Court to make rules "providing for all matters relating to winding-up" in respect of "matters" as may be prescribed, except those reserved to the Central Government; sub-section (3) provides that until the Supreme Court makes such rules all rules made by the High Court on the "matters" referred to in that section at the commencement of the Act (65 of 1960) shall continue to be in force. Rule 4 of the Companies (Court) Rules, 1959, framed by the Supreme Court, states that every proceeding shall be entitled "in the matter of the Companies Act, 1956,"and "in the matter of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... C.J. that the first part of the section conferred a substantive right of appeal upon a party aggrieved by an order made or a decision given by a company judge in winding-up. The second part of the section did not in any way cut down or impair the substantive right already conferred by the first part; it only dealt with the manner and the conditions in which an appeal could be preferred, namely, the procedural aspect of the appeal and the forum to which the appeal lay. The Supreme Court, approving the view of Chagla C.J., observed that the above section conferring a right of appeal was very wide and excluded only merely procedural orders or those which did not affect the rights and liabilities of the parties. A Full Bench of five judges of this court (to which we were parties) in University of Delhi v. Hafiz Mohd. Said A.I.R. 1972 Delhi 102 [F.B.] (F.A.O. (OS) 6 of 1968, decided on 2nd March, 1972) left intact the position as it existed under the Letters Patent (Punjab) prior to the passing of the Delhi High Court Act. The Full Bench confined itself to the questions falling under section 5(2) of the Delhi High Court Act and held that in view of the special position of Delhi, where ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ders which would be appealable under the Letters Patent of various High Courts in India has been the subject of great debate in India. We consider it sufficient, for the purposes of this case, to refer to the Full Bench decision of the Nagpur High Court in Manohar Damodar Bhoot v. Baliram Ganpat Bhoot A.I.R. 1952 Nag. 357, 376 [F.B.] J. Hidayatullah J. (as his Lordship then was) after an elaborate discussion, summed up the position as follows: "A judgment means a decision in an action whether final, preliminary or interlocutory which decides either wholly or partially, but conclusively in so far as the court is concerned, the controversy which is the subject of the action. It does not include a decision which is on a matter of procedure, nor one which is ancillary to the action even though it may either imperil the ultimate decision or tend to make it effective. The decision need not be immediately executable 'per se' but if left untouched, must result inevitably without anything further, save the determination of consequential details, in a decree or decretal orders, that is to say, an executive document directing something to be done or not to be done in relation to the facts of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the court and subject to such terms that the court may impose. The object of the section, it was pointed out, being to save the company, which has been wound up, from unnecessary litigation and to protect the assets for equitable distribution amongst its creditors and shareholders, no suit is possible against the company without obtaining leave of the court after a winding-up order was passed. Refusal to grant such leave, therefore, is clearly an order or decision in the matter of winding-up and hence subject to appeal. It was not a procedural order for it affected the valuable right to obtain relief by filing a suit. It seems needless, for the purpose of this case, to canvass in the abstract the further contention based on the Full Bench decision of the Madras High Court in Central Brokers v. Ramnarayana Poddar and Co. A.I.R. 1954 Mad. 1057 [F.B.], but a contrary view, even here, has been taken by a Division Bench of the Calcutta High Court in Jagannath Gupta and Co. Private Ltd. v. Mulchand Gupta [1969] 39 Comp. Cas. 262 ; A.I.R. 1969 Cal. 363, raised by Smt. Pappu that a refusal to stay proceedings could not be a judgment within the meaning of Letters Patent and hence could n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f proceedings after the presentation of a winding-up petition and before a winding-up order and these words apply to both (a) and (b); not merely that the dichotomy is only concerning applications being made to (a) the court where the proceedings, sought to be stayed, are pending and (b) the winding-up court. Company Appeals Nos. 2, 4 and 5 of 1972 are certainly appealable under section 483 : they directly come within the ambit of section 442 also, namely, orders passed with reference to stay of proceedings against the company after presentation of a petition for winding-up and before the passing of winding-up order. In the view we take (of section 283 and its scope) even C.A. No. 3 of 1972, which is without doubt appealable under section 483 of the Act, is also appealable under section 5(1) of the Delhi High Court Act. The Supreme Court observed in Shankarlal Aggarwala 's case (supra) (noticed above) that, since the appeal lay in that case under the Companies Act, the question as to whether that order was also appealable under the Letters Patent was not decided. In the present case since the impugned orders, removing the sole surviving director and appointing a board (and also re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n that if there is any information required by them, which the board is not willing to give, they will be at liberty to apply to the company judge for directions in that regard. The question whether the sole surviving director was properly removed by the learned company judge does not, therefore, arise for consideration. The appellants point out that at least a great part of the debt due to the secured creditors is not disputed, but has on the other hand been positively admitted even in the petition filed under sections 397 and 398 of the Companies Act. Hence, the secured creditors are interested in the assets of the company not being disposed of except in accordance with law, that is to say, by a proper resolution of the members of the company, and that it was not open to the company judge to direct, independently, or by any other mode, sale of any portion of the assets of the company. As we read the order of the learned company judge we are unable to find any particular direction directing the sale of any asset. The only observation bearing on this point seems to have been made in the following terms : "It would be in the interest of all concerned if the company is allowed to e ..... X X X X Extracts X X X X X X X X Extracts X X X X
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