TMI Blog1994 (3) TMI 315X X X X Extracts X X X X X X X X Extracts X X X X ..... out giving details of particulars and the ultimate relief sought) and which fails to set out the grounds of the application or the grounds on which the declaration or order is sought, is legally competent or is liable to be rejected as such as it fails to set out briefly the grounds on which the declaration or order is sought. The court is also required to consider in this context the question as to whether the aforesaid omission would be fatal so as to result in the rejection of the summons or whether under rule 261 by issuing directions, it is competent for the court to call upon the party to state the points of claim and, thereafter, to call upon the respondent to state the defence of the points of claim. In order to properly appreciate and answer the aforesaid questions, it is necessary to set out briefly the facts giving rise to these two company applications. ( i )Company Application No. 8 of 1983 is filed by the official liquidator of the company named Swashraya Benefit Pvt. Limited (In liquidation) under section 543(1) of the Companies Act, 1956, (1) for a declaration that the respondents/directors of the company had misapplied, retained or become liable and/or accounta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e money or properties of the company, and (2) for a declaration that the respondents/directors of the company were guilty of misfeasance, breach of trust, breach of duty, gross negligence in discharging their duties and managing the affairs of the company. Paragraphs 3 and 4 of the said application are verbatim taken from Form No. 121 of the prescribed form under the Companies (Court) Rules, 1959. An identical objection is taken by learned counsel appearing for the respondents as in this application also the applicant has omitted or failed to state the grounds and material facts based on which declaration and/or direction as sought in the judge's summons are prayed for. In the aforesaid fact situation, this court is called upon to decide the aforesaid legal submissions. It may be noted that the power of the court is invoked by the official liquidator (applicant) under section 543 of the Companies Act, 1956, which provides for power of the court to assess damages against delinquent directors. Under section 543(1) if in the course of winding up a company it appears that any person, who has taken part in the promotion or formation of the company or any past or present director, mana ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... creditor or contributory. The Companies (Court) Rules, 1959, which are framed in exercise of the powers conferred by sub-sections (1) and (2) of section 643 of the Companies Act, 1956, inter alia , provide by rule 6 thereof 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." It is thus clear that the practice and procedure of the court and the provisions of the Code of Civil Procedure so far as applicable shall apply to all proceedings under the Rules. The discretion is given to the Registrar to decline to accept any documents which are not in accordance with the Rules. Under the heading "Application against delinquent directors/promoters and officers of the company" rules 260, 261 and 262 are framed and rules 260 and 261 being material for the purposes of this judgment, they are repro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the ....... noon on the hearing of an application under section 543(1) on the part of the (official) liquidator of the company aforesaid (or A.B., a creditor/contributory of the above company) for 1.A declaration that the respondents, the (promoters, directors, etc., as the case may be) of the above company had misapplied, retained or become liable or accountable for the money or property of the company, or were guilty of misfeasance and breach of trust in relation to the said company in (here set out briefly the ground on which the declaration is sought, e.g., paying to the shareholders dividend out of capital in respect of the financial year .... or lending without consideration and without taking any security Rs ...... of the said company to ...... on ........ 19 ...... whereby the same became wholly lost to the said company on the adjudication of the said .... as insolvent on ....... 19 ..... (or, as the case may be). 2.An order that all necessary inquiries be made and accounts taken for ascertaining what sums the respondents are liable to contribute to the assets of the said company by way of compensation for such misfeasance and breach of trust as aforesaid. 3.An o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the summons. On the return of the summons the court has power to give directions, if it thinks fit, to call upon the party to state the points of claim or to call upon the respondent delinquent officers to submit the statement of defence. He, therefore, submits that omission to state the grounds of the application in the prescribed form, should not result in the rejection of the application as the court can always call upon the applicant to state the points of claim and can require the delinquent officers to state their defence to the points of claim. He further submitted that such omission should not result in rejection of an application as the court has power to issue directions at the preliminary hearing of summons and, therefore, an omission to state the grounds for passing any order under section 543(1) should not result in rejection of the application as such. In this connection reference is required to be made to the decision of the Supreme Court in the case of Official Liquidator v. Raghawa Desikachar [1975] 45 Comp Cas 136 . The proceedings before the Supreme Court had arisen out of misfeasance proceedings initiated under section 196 of the Indian Companies Act, 19 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ds in support of the relief or declaration prayed for. In fact, the Supreme Court was not concerned with this very question in the case of Official Liquidator v. Raghawa Desikachar [1975] 45 Comp Cas 136 and the observations made by the Supreme Court as extracted hereinabove shall have to be read as laying down that it is desirable that the applicant should state the grounds or detailed narrations of the specific acts of omission or commission on the part of the delinquent director or officer. The reason is that the nature of the proceeding is a misfeasance proceeding and, therefore, the charges levelled against the directors/officers, etc., are serious. Therefore, it is always advisable and desirable that as far as practicable, grounds for declaration/directions are stated in the application itself since the Supreme Court was not at all concerned with the situation which is faced more particularly in the context of pleadings under rules 260 and 261. The opinion of this court is that the aforesaid decision of the Supreme Court cannot be pressed into service to hold that an application made under rule 543 in the prescribed Form No. 121 shall have to be rejected if the applicant ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he case of Raghawa Desihdchar [1975] 45 Comp Cas 136, the learned single judge of the Delhi High Court proceeded to consider the objection taken by respondent No. 3, who remained the director only for a period of seven months during which no business was transacted by the company. The learned single judge observed that, in any event, the respondent having no control over the affairs of the company or of its accounts or records could not be held liable under the aforesaid provisions. The question whether any business was conducted by the company during the period the third respondent was a director and the extent to which the respondent was concerned with the conduct of the business of the company involved a controversy of facts which would require evidence for decision. This matter cannot, therefore, be decided on a preliminary objection. Having so observed, the learned single judge of the Delhi High Court proceeded to observe that in the application very vague allegations were made against all the directors and there was no specific allegation against the third respondent. The court, therefore, held that it would be an abuse of the process of the court to proceed against the thi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the Companies (Court) Rules, 1959, the practice and procedure of the court and the provisions of the Code of Civil Procedure shall apply to all proceedings under the Act and the Rules so far as they are applicable. Under Order 7, rule 11 of the Code of Civil Procedure, where the plaintiff does not disclose the cause of action, the same shall be rejected. It is submitted that consistent with such provision, there is power in the Registrar under rule 6 to decline to accept any application which is presented if it is not consistent with the procedure of the court. It is, therefore, submitted that the application which is filed which is in the prescribed form being Form No. 121 and since no grounds in support of the relief of declaration, order or direction are stated, the same is liable to be rejected. In my opinion, the aforesaid course of reasoning is fallacious and shall have to be avoided as an application under rule 260 read with section 543(1) is in the nature of a complaint or grievance made before the court by the official liquidator about serious acts of misfeasance committed by the directors or officers of the company. If the prayer and/or declaration and/or direction so ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t of summons or by writ of summons with the statement of claim endorsed. The rules of the Supreme Court (English Supreme Court) specify which summons have to be endorsed to state the claim. In other cases the statement of claim is to be presented to the party after the appearance of that party. It is open to an intending suitor to endorse his statement of claim even if he is not required to do so by law. The English procedure has also been varied from time to time with the object of getting the party before the court first and enabling the pleadings, etc., to be settled after appearance. This seems to be the procedure under sections 542 and 543 as envisaged by the Companies (Court) Rules. I am, therefore, of the view that in this particular case the respondents were not required to file a written statement on, appearance because the provisions of Order 8, rule 1 of the Code, were not applicable in this particular case." From the aforesaid observations made by the learned single judge of the Delhi High Court with which this court respectfully concurs, make it clear that in the case of applications under section 542 or 543 the procedure of the Code of Civil Procedure is not to be f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hearing or prejudice doing of justice to parties, the rule is mandatory. But, grammar apart, if the breach can be corrected without injury to a just disposal of the case, we should not enthrone a regulatory requirement into a dominant desideratum. After all, courts are to do justice, not to wreck this end product on technicalities." Keeping the aforesaid observations in mind in the opinion of this court the provisions of rules 260 and 261 are to be interpreted and applied and consistent with the spirit of the said provisions as interpreted by the learned single judge of the Delhi High Court, this court is of the opinion that omission to state the grounds in the judge's summons or application under section 543(1) of the Companies Act, 1956, will not be fatal so as to result in rejection of the application. The aforesaid was the only preliminary objection raised and since the said preliminary objection is rejected, for the reasons stated herein-above, I call upon the applicants in each application to file the statement of claim stating all claims specifically and stating various grounds in support of such claim within three weeks from today and to serve copies thereof to the res ..... X X X X Extracts X X X X X X X X Extracts X X X X
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