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2016 (3) TMI 60 - DELHI HIGH COURT

2016 (3) TMI 60 - DELHI HIGH COURT - TMI - Single Judge Jurisdiction under Section 392 of the Companies' Act, 1956 - Held that:- Except Section 446 (and dependent on the conditions which are to be fulfilled as spelt out by it) there is no other power under the Companies Act, authorizing the Company Court to exercise universal jurisdiction, as it were, and adjudicate disputes concerning third parties’ transactions with the company. Therefore, the power is, in a sense, sui generis and applicable o .....

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rds, the maxim exclusio unis est exclusio alterius (which means "mention of one thing implies the exclusion of another") squarely applies to this case.

The other feature peculiar to this case is that the power of the Company Court to decide upon matters and disputes which do not directly relate to its jurisdiction, apart from being limited in its operation to what is expressly stated in Section 446, is also excluded in relation to matters and causes which are to be tried by Tribunals .....

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05, 53/05, 85-88/05, 83/05, 33-39/05 & 89-92/05 - Dated:- 29-2-2016 - S. Ravindra Bhat And Deepa Sharma, JJ. For the Petitioner : Sh. Dayan Krishnan, Sr. Advocate with Sh. Nishant Datta, Advocate, Sh. P. Nagesh and Sh. Ankit Jain, Advocates, Sh. Rajat Aneja, Advocate For the Respondent : Sh. Sudhanshu Batra, Sr. Advocate with Sh. Bhuvan Gugnani, Advocate JUDGMENT Mr. Justice S. Ravindra Bhat 1. All these appeals under Section 483 of the Companies' Act, 1956 (hereafter "the Act") ar .....

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This led to the company facing financial difficulties and several winding-up proceedings were filed by its creditors. The balance sheet for the period ending December 1966, reflected substantial assets of the company valued at ₹ 21,18,319.37/-. These assets were vehicles, buildings, rented buildings, godowns and other buildings, furniture and realizable outstanding amounts and advances. Several applications were moved under Sections 391 and 392 of the Act, proposing Schemes of Arrangement. .....

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any Board superseded its own Board of Directors and appointed an Administrator to oversee the affairs and activities of the company. This appointment continued even after sanctioning of the Scheme. During the intervening period, the dues of all creditors were settled and apparently at the time the impugned judgment was delivered, the dues of income tax authorities were unpaid. 3. In this background of circumstances, several applications, (C.A. Nos. 323/1990, 324/1990, 471/1990, 472/1990, 610/199 .....

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y contested the claim of the applicant/company on diverse grounds. Some of them alleged that they were lawful tenants of the premises, which was made over to them by the landlord after the previous tenant, i.e the company had been evicted. These third party respondents also stated that their possession was settled since they were paying rents to the concerned landlords. Additionally, it was urged that the rent legislation applicable and in force in various States protected their possession and t .....

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ing the amounts to be recovered under the scheme and the interpretation of the scheme. Any claim by or against the company shall be instituted before the Company Court. However, the Company Court will be free to direct the parties to get the matter decided in the ordinary civil court if it is found that the matter cannot be decided by the Company Court either because of its complexity or because it requires a trial on facts The creditors will not have the right to interfere in the day-to-day wor .....

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rred to all claims by or against the company; the Scheme, therefore, made no distinction between ordinary civil disputes and those which fell within the exclusive jurisdiction of the Company Court. Thus, even disputes raised by third parties fell within the contemplation of the Scheme and were covered under Section 392. Furthermore, the applicants urged that Schedule-A and Schedule-B of the order dated 26.05.1978 itself had specifically mentioned the properties; consequently, any dispute pertain .....

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the retrieval of the godowns and other movables were integral to the efficacy and functioning of the sanctioned Scheme. Consequently, the Court had jurisdiction to entertain and adjudicate the disputes. The applicants had relied upon the judgements of the Supreme Court reported as S.K. Gupta and Anr. v. K.P. Jain & Anr. 1979 (3) SCC 54; Sudershan Chit (India) Limited v. O. Sukumaran Pillai and Ors. 1985 (58) Comp. Cas 633; Divya Vasundhara Financiers Ltd. v. K.N. Samant 1990 (69) Com. Cas. 6 .....

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77; 70 lakhs was lying to the credit of the company and furthermore, an application - C.A. No.403/1997 was pending, where it was stated that the purpose of the sanctioned Scheme had been achieved. The respondent also contended that the order of 26.05.1978 did not empower the propounders or the Administrator to file applications. The main objective to be achieved by the order was to ensure that the creditors' claims were satisfied. Since the raising of funds for satisfying the creditors itsel .....

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concerned premises from strangers who had no connection with the company except as previous landlords, could not be prejudiced in a proceeding before the Company Court as it was plainly without jurisdiction. The respondents relied upon Union of India v. Asia Udyog Pvt. Ltd. 1974 (44) Comp. Cas 359 as well as the decision in Anand Finance Pvt. Ltd. v. Ram Lal Anand 1977 (2) ILR (Del) 457. 7. The learned Single Judge, in the impugned judgment, was of the opinion firstly that Section 446(2) conferr .....

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p;……………….Whether this power would carry in its sweep the power to adjudicate the claims of the company against third parties who were not parties to the scheme sanctioned? Relying upon the expression "any matter" occurring in Section 392(i) which stipulates that Court has the jurisdiction to make any order and give directions in regard to any matter, the submission of the learned counsel for the applicants was that for proper implementation of .....

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S.K. Gupta (supra) the Court was dealing with the aspect of modification of the scheme at the instance of the applicant who was not the original propounder. Whether such person could move application for modification of the scheme was the question for consideration before the court and dealing with this question, the Court held that Section 392 does not specify that a member or creditor or in the case of a company being wound up, its liquidator, can alone move the Court under Section 392. The C .....

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elevant portion thereof the position was explained in the following terms: "In the forth place, if the power invested in a company court in s. 392 is held to be one akin to one under s.446(2), the company court will be required to assume jurisdiction which it does not possess of adjudicating or determining the disputed rights between a company and the persons who are not parties to the scheme of compromise and/or arrangement as if it is a court of ordinary civil jurisdiction, irrespective o .....

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ors as well as the company in question. The respondents in all these applications were not parties to the proceedings when the scheme of the propounder was sanctioned. 39. It may be, as contested by learned counsel for the Administrator and the applicants/propounder, that for proper functioning of the company, retrieval of these properties of which the company was the tenant is necessary. However, in the facts of this case the proper remedy for the company would be to file appropriate civil proc .....

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y are protected by the provisions of rent legislations and thus, their eviction can be only when the ground for eviction as stipulated in the rent legislations is established in the proceedings before the Rent Controllers." 8. The learned Single Judge lastly concluded that Clause 8 of the sanctioned Scheme relied upon by the appellant/propounders could not confer jurisdiction. Interpreting the said condition, it was held that it enabled the adjudication of rights of parties if the disputes .....

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he objectives underlining the sanction of the Scheme itself. Likewise, orders of the Company Court dated 04.12.1984 and 29.01.1985 were relied upon. 10. Learned counsel argued that Clause 8 read with Section 392 provided a mechanism for the effectuation of the Scheme. The peculiarity of the business carried on by the company, i.e. transport, was such that godowns and other premises were essential for its functioning. During the pendency of long drawn proceedings, Directors of the company and the .....

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TRIBUNAL TO ENFORCE COMPROMISES AND ARRANGEMENTS. (1) Where the Tribunal makes an order under section 391 sanctioning a compromise or an arrangement in respect of a company, it - (a) shall have power to supervise the carrying out of the compromise or an arrangement ; and (b) may, at the time of making such order or at any time thereafter, give such directions in regard to any matter or make such modifications in the compromise or arrangement as it may consider necessary for the proper working o .....

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When a winding up order has been made or the Official Liquidator has been appointed as provisional liquidator, no suit or other legal proceeding shall be commenced, or if pending at the date of the winding up order, shall be proceeded with, against the company, except by leave of the [Tribunal] and subject to such terms as the [Tribunal] may impose. (2) The [Tribunal] shall, notwithstanding anything contained in any other law for the time being in force, have jurisdiction to entertain, or dispo .....

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question has arisen or arises or such application has been made or is made before or after the order for the winding up of the company, or before or after the commencement of the Companies (Amendment) Act, 1960. (3) 3 [***] (4) Nothing in sub-section (1) or sub-section (3) shall apply to any proceeding pending in appeal before the Supreme Court or a high Court. " 13. Both parties have extensively relied upon S.K. Gupta (supra). The issue there was that after a Scheme was sanctioned under Se .....

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Shah 1976 (46) Comp. Cas 279, where the power of the Court to continue supervising of a compromise was termed as one extending to, unenvisaged, unanticipated, unforeseen or even unimaginable hitches, obstructions and impediments that affected the smooth functioning of a Scheme. The Supreme Court described the extent of the power to modify. It noticed that at the stage of framing and finalization of a scheme of compromise and arrangement, not all eventualities could be taken into account and in .....

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h modification in the compromise and/or arrangement as the Court may consider necessary, the only limit on the power of the Court being that such directions can be given and modifications can be made for the proper working of the compromise and/or arrangement. The purpose underlying s. 392 is to provide for effective working of the compromise and/or arrangement once sanctioned and over which the Court must exercise continuous supervision[see s. 392(1)], and if over a period there may arise obsta .....

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red on the High Court and this is a basic departure from the scheme of the U.K. Act in which provision analogous to s. 392 is absent. The sponsors of the scheme under s. 206 of the U.K. Act have tried to get over the difficulty by taking power in the scheme of compromise or arrangement to make alterations and modifications as proposed by the Court. But the Legislature foreseeing that a complex or complicated scheme of compromise or arrangement spread over a long period may face unforeseen and un .....

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hich defines the expressions, modify and modification as, including making of additions and omissions. Thereafter, it was held: According to the definition 'modify' and 'modification' would include the making of additions and omissions. In the context of s. 392 'modification' would mean addition to the scheme of compromise and/or arrangement or omission therefrom solely for the purpose of making it workable. Reading s. 392 by substituting the definition of the word 'm .....

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rkable in course of its continued supervision as ordained by s. 392 (1). 15. In Sudershan (supra), the facts were that a company was ordered to be wound-up; that order was carried in appeal and the Division Bench kept it in abeyance. Thereafter a Scheme for compromise arrangement was propounded. During the implementation of the Scheme, it was necessary to recover certain dues and claims due to the company and an application was moved before the Division Bench, (which was then supervising the Sch .....

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ch a winding up petition is pending or which has made an order for winding up of the company and further winding up proceedings are continued under its directions. Undoubtedly, looking to the language of Sec. 446 (1) and (2) and its setting in Part VII which deals with winding up proceedings would clearly show that the jurisdiction of the court to entertain and dispose of proceedings set out in sub-cls. (a) to (d) of sub-sec. (2) can be invoked in the court which is winding up the company. Later .....

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l proceedings by or on behalf of the company or against it. 16. In the judgment reported as K.N. Samant (supra), the Gujarat High Court held that even though the power under Section 392(1) is of wide amplitude, there are in-built limitations in the provision itself. The in-built mechanism can be invoked only for the purpose of working out a proper arrangement; it was further stated that: The power cannot be invoked for purposes of determination or adjudication of any right or interest claimed by .....

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n motion or on the application of a person interested in the affairs of the company" then there ought not to be any justification for restricting the meaning of the word of modification and whittle down the powers of the court. However, the next paragraph holds the key to the judgment that the "basic fabric" of the scheme ought not to be changed. The limit on the powers of the Court to modify by way of even additions or omissions as contemplated is that the "basic fabric" .....

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not work. In fact in S.K. Gupta (supra) this court recognized that to be the very reason why the legislature in India has given such a power to the courts; and such power can be exercised only to order those minimal modifications that would bring the aspect that is not working into a functional zone, with the proviso that at any rate such a modification cannot lead to a change of the "basic fabric" of the Scheme. 17. This Court s decision in Asia Udyog (supra) also noticed the limitat .....

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r the court was either supervising " the carrying out of compromise or arrangement" as contemplated by Clause (a) of the said sub-section or by taking any steps " for the proper working of the compromise or arrangement" as envisaged by Clause (b) of that sub-section. This appears to be so because the scheme of amalgamation makes no provision regarding the manner in which the transferee-company would have to discharge the liability of the transferor-company and the only provis .....

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in which the creditors of a company have to be paid, as a compromise or arrangement between the company and its creditors normally would, it is doubtful if the court would have any power either under Section 392 or Section 394 of the Act of 1956 or under the corresponding provisions of the Act of 1913 to make the direction of the kind sought by the petitioner and become a forum capable of making a decree or an executable order having the force of a decree, which is what the appellant in effect .....

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mpany if it comes to the conclusion that the conditions of that sub-section have been satisfied. The court could not in such a case assume the role of an ordinary civil court for the enforcement of the creditors' right to payment as it could, for example, in a winding up, by virtue of the provisions of Section 446(b) of the Act of 1956 and its corresponding provision in the Act of 1913. These provisions obviously have no application to the case of an amalgamation. In this Court s decision in .....

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92 were not maintainable, noticing that such claims could be tried only under Section 446 upon application of certain preconditions, all of which were absent, because of the existence of a compromise and arrangement and not of a winding up order: None of these conditions is present. At one stage the winding up petition was pending but never a provisional liquidator was appointed. No winding up order has been made. The company can pursue its legal remedy in the ordinary way in a civil court. 18. .....

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day affairs of the Company. The conduct of the legal proceedings for obtaining the possession of the premises of the Company shall exclusively be handled by the Board appointed by this Hon ble Court or by the nominee of the Board. 19. Later, after discussing the financial health of the Company and the nature of the Scheme, the Court sanctioned the Scheme with some modifications. At the same time, in the course of the judgment, the Company Judge had expressed certain reservations in the following .....

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c. 391(2) of the Companies Act. If the original board of Directors of the company has been responsible for not maintaining the books etc. then there would be a ground for refusing the scheme. Unfortunately, the present position has emerged when the Court itself had appointed a Board of Management consisting mainly of lawyers who have not been able to do much in the matter of recovering the assets or tracing out the same. I, thus, feel that I should not reject the scheme merely because in this ve .....

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propounders. It is stated as follows in paragraph 9 of the scheme: That the Interim Board has the complete confidence of the propounders and that Board along with S. Pritam Singh and S. Joginder Singh will run the company till the scheme moved works out There are a number of other provisions in the scheme which bring me to the question that if I approve the scheme what changes I should make. I think I will proceed on the basis that this scheme cannot be rejected by me because without it there i .....

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s to be recovered under the scheme and the interpretation of the scheme. Any claim by or against the company shall be instituted before the Company Court. However, the Company Court will be free to direct the parties to get the matter decided in the ordinary civil court if it is found that the matter cannot be decided by the Company Court either because of its complexity or because it requires a trial on facts. The creditors will not have the right to interfere in the day-to-day work of the comp .....

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e by orders of this Court. 19. Some features of the Scheme were modified and directions were also issued by the judgment delivered on 27.03.1980. That judgment recounted the steps taken and directions made earlier to secure possession of a godown located at Naya Bazar. The legal proceedings emanating from it had found its way to the Supreme Court after appeals were disposed of. Further directions/modification inter alia were to the following effect: H. The Administrator would take immediate step .....

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have been delivered to or taken and to take all steps what may be necessary for the restoration of these properties to the Company for resumption of its business. The Administrator would also review the existing arrangements with regard to utilization of the various godowns and offices of the Company and obtain direction of this Court with a view to enter into proper arrangement in that behalf. The Administrator would also prepare a list of persons, who were entrusted with the funds of the Comp .....

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cipated obstacles and for its smooth functioning. The company, it must be noticed, was not facing winding up; no orders were made. Undoubtedly, certain interim orders were made during the pendency of winding up proceedings, to protect the properties of the company, including the tenancies, which inured in its favour. Some of these tenancies were in Delhi and others were in Gujarat and Amritsar. Those tenancies were surrendered, pursuant to eviction decrees issued by competent Courts/Tribunals. N .....

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f winding up proceedings. 21. What in effect the appellants urge is that the Company Court must exercise its jurisdiction to supervise the scheme sanctioned in 1978 to evict tenants of premises which are not owned by the company. The judgments relied on are all instances where the companies properties, owned by it, were under occupation of tenants or trespassers. Here, the company was a tenant. Furthermore, the tenancies were given up pursuant to lawful decrees, in legally maintainable proceedin .....

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on 391. In these circumstances, whatever be the intent or assumed intent of the propounder, the Company Court could never have exercised jurisdiction. 22. An aspect- and one important in this case, which was touched upon in Sudershan (supra), in a tangential manner (because the issue was never directly in question in that case) is that Section 446 of the Act applies only when a winding up order subsists. The next vitally important fact is that except Section 446 (and dependent on the conditions .....

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d jurisdiction of the kind invoked by the appellants. Thus, Section 446 and the exclusive jurisdiction provided by it, subject to express preconditions, which regulate its exercise, rule out the existence of a wide, un-spelt residual jurisdiction under Section 392 which is both ubiquitous and unregulated. In other words, the maxim exclusio unis est exclusio alterius (which means "mention of one thing implies the exclusion of another") squarely applies to this case. This rule has been d .....

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