Ellal Textile Mills Ltd. and others Vs. Md. Abdul Awal and others, 38 DLR (AD) (1986) 26

Case No: Civil Appeal Nos. 53 and 54 of 1984

Judge: Badrul Haider Chowdhury,

Court: Appellate Division ,,

Advocate: Mr. Rafique-ul-Huq,Amirul Islam,,

Citation: 38 DLR (AD) (1986) 26

Case Year: 1986

Appellant: Ellal Textile Mills Ltd.

Respondent: Md. Abdul Awal

Subject: Company Matter, Business and Commercial Law,

Delivery Date: 1984-8-22


Supreme Court
Appellate Division
(Civil)
 
Present:
F.K.M.A. Munim CJ
Badrul Haider Chowdhury J
Chowdhury A.T.M. Masud J
Syed Md. Mohsen Ali J
 
Ellal Textile Mills Ltd. & ors
……… Appellants (In CA. 53 of 1984).
Shohagpur K Trans­port Services Ltd. & ors
..............Appellants (In CA. 54 of 1984).
vs.
Md. Abdul Awal & ors
……...... Respondents (in both the appeals).
 
Judgment
August 22, 1984.
 
The Companies Act, 1913 (VIII of 1913)
Sections 38, 162, 184
The prayer for winding up of the Company under section 162 of the Companies Act and Prayer for rectification of the share register under section 38, simultaneously in the same petition before the Company Judge, in not maintainable and cannot be disposed of together ………..(23)
 
Where winding up order had intervened whereby rights of creditors were made paramount, application for rectification must be refused…………..(14)
 
The Petition containing the prayer for winding up of the company and the rectification of the share registrar being not entertainable, two separate petitions with prayer aforesaid independently may be filed before the Company Judge and both the Petition may be heard and disposed of analogously by the same Court……(23)
 
Cases Referred to-
Hindusthan Bank Vs. Mehraj 55 1C 820; Mulkraj vs. Q.L.P. Bank AIR 1938 (Lah) 658; O.L. Universal Bank vs. Qureshi AIR 1945 Lah 146; 52 CWN 535; AIR 1920 Cal 789; AIR 920 Mad. 571; AIR 1955 Pat. 486; Sankarlal Agarwala AIR 1965 (SC) 507; Peninsular L.A. Co. 1936 Bom. 24; Union India Sugar Mills Co. ILR 44 All, 151; De-venkumar Mishra AIR 1955(Pat) 486; Ramesh 47 Cal 901; Nenakshi Naidoo 14 IA 160.
 
Lawyers Involved:
Rafiq-Ul-Huq, Senior Advocate instructed by Abu Backkar, Advocate-on-Record—For the Appellants.
Amirul Islam, Advocate instructed by Sharifuddin Chaklader, Advocate-on-Record— For the Respondent No, 1.
Ex-parte—For the Respondent Nos. 2 & 3.
 
Civil Appeal Nos. 53 and 54 of 1984.
(From the Judgment and order dated 8th March, 1984 passed by the High Court Division in Matter Mo. 3 of 1982.)
 
JUDGMENT

Badrul Haider Chowdhury J.
 
1.         These appe­als by special leave is directed against the order of the Company Judge in Matter No.3 of 1982.
 
2.         Respondents filed an application for winding up the petitioner No. 1 Company under section 162 of the Companies Act and in the same self application they also prayed for rectification of the share-register under section 38 of the Act.
 
3.         The company was incorporated in 1953 and father of the respondent M. A. Jalil was one of the share-holders who died on 1.10.73. His uncle Md. Yusufuddin Mia who was also share-holder in the company died on 17.11.73. The respondent alleged that since then the petitioner No. 2 has taken complete control of the management of the company and no dividend was paid to the heirs of late M. A. Jalil nor has given them any notice of the meeting of the company or of the Board of Directors. It is alleged that the 1700 shares have been allotted to other share-holders without offering them to the heirs of late M. A. Jalil. It was further alleged that a dead-lock had been created in the Company and therefore it should be wound up.
 
4.         The appellant took the stand: (a) that the application under sections 38 and 162 of the Companies Act cannot be joined together. The petition is liable to be dismissed on the ground of mis-joinder, (b) the respondents could not be registered as share-holder in place of late M. A. Jalil inasmuch as the heirs did non file any Succession Certificate to the Company, (c) the heirs of M. A. Jalil did not comply with the legal formalities as provided in the Articles of Association before their names could de entered into the Share-Regis­ter,(d) since their names were not mutated as share-holders they cannot attend any mee­ting of the company as, such the question of issuing notice of the meeting of the Company and or Board of Directors did not arise, (e) lastly, the application is barred by limitation, acquiescence and estoppel.
 
5.         The company Judge then considered that the prayer of the appellant for hearing two issues, namely— (i) Is the application main­tainable in its present form? (ii) Is the application bad for mis joinder of causes of action as preliminary issue under Order 14, rule 2 C.P.C.
 
6.         The impugned order was passed and while disposing of the preliminary issue the learned Single Judge after considering the contention concluded;
 
"Therefore, if a petitioner makes a joint application under sections 38 and 166 of the Companies Act and if his appli­cation under section 166 of Companies Act contains all the particulars required to be mentioned in form No. II of 12 then I do not see why in the matter of form as well the joint application will not be entertainable and maintainable".
 
The learned Company Judge then repelled the contention of the appellant that scope of the two different remedies are distinct inas­much as two kinds of appeal have been pro­vided for, namely under section 38 and under section 202. The contention that two differ­ent applications have to be prosecuted under two different procedures was met by the follow­ing observation:
 
"With the abolition of the letters patent, 1865 and the omission of section 100 C.P.C. by the Law Reforms Ordi­nance, 1978 (Ordinance No. XLIX of 1978) the position with regard to the aforesaid proviso to section 38 (3) is that if and when the Company Judge directs an issue to be tried in connection with an application under section 38 of the Companies Act in which any question of law may be raised, an appeal from the decision of the Company Judge on such an issue shall lie to the Appellate Divi­sion directly and the grounds of appeal shall not be limited to the grounds men­tioned in erstwhile section 100 of the Code of Civil Procedure. It therefore appears that if an application under sec­tion 38 of the Companies Act is disposed of by the Company Judge in which any question of law is decided the appeal will lie to the Appellate Division."
 
7.         Leave was granted to consider the question whether the reliefs claimed under sections 38 and 162 of the Companies Act are different and distinct in nature and the character of the proceeding are also separate and distinct and whether reliefs could be granted in the same proceed­ing and further whether the view taken that consequent upon the repeal of the Letters Patent and section 100 C.P.C. appeal would lie to the Appellate Division in the absence of any Legislation.
 
8.         Mr. Rafiqul Huq appearing for the appellant contended that the procedure and the rules framed by the High Court under the Companies Act provide for different proc­edures for application under sections 38 and 162. He pointed out that rules 51 to 240 deal with winding up matter. The procedure and responsibility as to filing of returns as well as copies of the order of the Court passed under section 38 and under section 166 are also quite different. It is contended that since the nature of two proceedings are basically different both cannot be joined together which would cause inconvenience to the litigant and as well as to the court for which provision under Order 2, rule 6 of the Code could be invoked. Insofar as the view of the High Court Division as to the forum Mr. Huq contended that the learned Judges overlooked the provision of the Companies Act, specific­ally section 202 of the Act and the interpre­tation that had been given in 19 D.L.R. page 735 which noticed that the Companies Act precluded appeals from judgment and order made under the Act, except those which are made under sections 38 and 153 (7) and 202 of the Act. It is submitted that in the absence of any law jurisdiction cannot be conferred for hearing an appeal by any authority.
 
9.         Mr. Amirul Islam, learned Counsel appearing for the respondents contended that there is no legal bar against petition being heard both under sections 38 and 162 of the Companies Act. It is contended that because both the reliefs are interlinked it will be just and convenient to hear both of them under the same petition. Section 84 provides that after making a winding up order the court shall settle the list of contributories with power to rectify the Register of members and those reliefs incorporate section 38 of the Companies Act.
 
10.       In order to appreciate the conten­tion of the respective parties, it is necessary to consider the prayer that was made in the petition that was filed by the respondent be­fore the Company Judge. In the cause title it is mentioned:
 
"An application for winding up under section 162 of the Companies Act, 1913 and for rectification of share register under section 38 of the Companies Act, 1913."
and the prayer was made in the following terms:
‘‘(a) to admit the petition
(b) To cancel the allotment of 1,700 further shares by the respondent Com­pany and rectify the share register
(c) To call for the records from the Registrar of Joint Stock Companies.
(d) To wind up the respondent Com­pany
(e) To appoint a liquidator to take over the possession of the respond­ent Company
(f) To award costs to the petitioner.
(g) To pass an order restraining the respondent assets, stock in-trade, now in their custody.
(h) To pass such other order or ord­ers as to your Lordships deem fit."
 
11.       As noticed earlier that trouble broke out upon the death of M. A. Jalil and Md. Yusufuddin Mia. Respondent alleged that the management of the Company was com­pletely taken over by M.A. Matin who began to manage the company all by himself with­out constituting a Board as required under law and the Articles of Association of the Company. The heirs of M. A. Jalil and Mr. Yusufuddin Mia having 50% of the total shares were not represented in the Board nor any meeting of the share-holders was called to fill up the vacancies caused by the death of M.A. Jalil and Yusufuddin Mia nor any dividends have been paid to the heirs of M. A. Jalil. No meeting was held instead returns filed with the Registrar of Joint Stock Com­pany. It is further alleged that M.A. Matin in collusion with Md.Yahiya had been ille­gally managing the company and they have fraudulently allotted additional 1700 shares to M.A. Matin and his son. This was done with a view to gaining absolute control of the Company. In view of these unlawful acts the Company could not run smoothly and the deadlock could not be resolved and as such the only way is to wind up the company.
 
12.       On these allegations the Company Judge considered the petition for winding up and. in doing so the learned Company Judge passed the impugned order taking up both the matters for rectification of the share register and winding up which was re­sisted by the appellant on the ground that the proceeding being completely different it should be taken separately. In repelling the contention the Company Judge framed pre­liminary issues and decided in favour of ta­king up both the matters together on the ground that separate petition “will be both time consuming and expensive". Be it noted that the petition for winding up is still pend­ing before the Company Judge as noticed above.
 
13.       A. S. has already been noticed that the respondents prayed for the reliefs amongst others:
 
(b) To cancel the allotment of 1700 further shares by the respondent com­pany and rectify the share-register.
(d) To wind up the respondent comp­any.
(e) To appoint a liquidator to take over the assets of the respondent Com­pany".
 
The terms of section 38 are as follows:
 
"38. (1) If—
(a) the name of any person is fraud­ulently or without sufficient cause ent­ered in or omitted from the register of members of a company; or (b) default is made or unnecessary delay takes place in entering on the regis­ter the fact of any person having ceased to be a member, the person aggrieved, or any member of the company, or the company, may apply to the Court for rectification of the register.
(2) The Court may either refuse the application or may order rectification of the register and payment by the company of any damage sustained by any party aggrieved, and may make such order as to costs as it in its discretion thinks fit.
(3) On any application under this sec­tion the Court may decide any ques­tion relating to the title of any person who is a party to the application to have his name entered in or omitted from the register, whether the question arises between members or alleged mem­bers, or between members or alleged members on the one hand and the company on the other hand; and gene­rally may decide any question necessary or expedient to be decided for recti­fication of the register;
Provided that the Court may direct an issue to be tried in which any question of law may be raised; and an appeal from the decision on such an issue shall lie in the manner directed by the Code of Civil Procedure, 1908, on the grounds mentioned in section 100 of that Code."
 
The power to rectify the register is depen­ding upon the circumstances of each case and this power was exercised where there has been misrepresentation of the prospectus; where shares of company have issued at a discount; where there is no valid allotment of shares; where allotment is irregular; where transfer of share has been improperly regis­tered or registration has been refused. Whe­re the Company put in the register matters which are not required by the Statutes; and in order to set right allotment of share which have been issued- as fully paid up share wi­thout proper contract being filed or where transfer was a colourable transaction, etc. but this power was not exercised in some circumstances namely, if something remained to be done to complete the transfer or if the articles require the Directors to exercise their discretion and they have not yet done so.
 
14.       This section gives unlimited jurisdic­tion to the Court as to rectification of the regis­ter though there is discretion as to whether it ought to be exercised under the circumstances of the particular case. It is well settled that where winding up order had intervened where­by rights of creditors were made paramount, application for rectification must be refused.
 
15.       The proviso shows that an appeal is allowed from a decision of an issue directed to be tried and when there is no issue to be tried an argument can be built up that no right of appeal exists. When there is a ques­tion of title for which an issue is to be framed, the decision of the Court is appealable in the manner provided by the Cade of Civil Pro­cedure. 1908 on the ground mentioned in section 100 of that Code". This means right of appeal is limited as it is for Second Ap­peal to a point of law (Sec 44 Allahabad 156). Calcutta High Court Rules, 1939 repea­led the Rules in Chapter XXXI and the form prescribed in appendix K of the Original Side Rules, 1914 and now the entire procedure is regulated by the Rules framed by the High Court. There Rules were framed under the power conferred under section 246 of the Companies Act, 1913 as amended by the Amendment Act XXII of 1936. Since 15th November, 1939 in the matter of Companies Act the practice and procedure is regulated by these rules. Rule 5 prescribed for the register of Companies matters and an applica­tion under section 38 is to be entered and numbered and then rule 15 provides the pro­cedure for rectification of shares register. Be­fore 1939 Rules an appeal from the judgment of a court of first instance at the original side lay to the Division Bench by virtue of clause 37 under Letter Patent of 1865 which conferred upon the High Court the Rule ma­king power. Since its repeal the matter is regulated by 1939 Rules. These Rules had been adopted by this Court.
 
16.       The next question is what is the nature of appeal provided in section 202. The terms of 202 are as follows:
 
"202. Re-hearing of and appeals from, any order or decision made or given in the matter of the winding up of a company by the Court may be had in the same manner and subject to the same conditions in and subject to which ap­peals may be had from any order or decision of the same court in cases within its ordinary jurisdiction."
 
This section differentiates between appeal against order and appeal against decision. Section 199 applies only to orders. The last part of the section which lays down that appeal will be had in the same manner and subject to the same condition in and subject to which appeal may be bad from any order or decision of the same court in case within its Ordinary Jurisdiction. (See the case of Mulkraj Vs. Q.L.P. People's Bank of N. India, A.I.R. 1938 Lahore, 658, wherein it was held that the Court under the Act being a Court of Civil Juris­diction is governed by the general provisions of the Code of Civil Procedure as made appli­cable by section 141 of the Code and should in dealing with ex parte or proceeding under Order 9, rule 13 mutatis mutandis. Such view was taken in the case of Hindusthan Bank vs. Mehraj 55 1C 820. In the matter of court fees also it was noticed that a decision to overrule that preliminary objection and to proceed with the case on merit and a refusal to grant leave to proceed with the suit in an­other court are decisions and not order with­in the meaning of section 199 and it was held that Memo of appeal filed under section 202 has to be stamped under Schedule II Article 11 of the Court Fees Act. (See O.L. Univer­sal Bank Vt. Qureshi A.I.R. 1945 Lahore 146). Some High Courts expressed the view that an order of winding up is a 'judgment’ within the meaning of clause 15 of the Letter Patent (See 52 C.W.N. 535, A.I.R 1920 Calcutta 789, A.I.R. 1920 Madras 571 and A.I.R. 1955 Patna 486). But this view was not approved in subsequent decisions by the Supreme Court of India. That an order made in the winding up of a Company by Single Judge of the High Court Division in order to be appealable under section 202 must satisfy the requirement of clause 15 of the Letters Patent namely, that it must be a ‘judgment’ within the meaning of that clause had been a matter of controversy in different High Courts in India. In some cases the view was taken that it must be a judgment within the Letters Patent and so appealable under that provision. The Bombay High Court took a contrary view and the view of the Calcutta High Court was not followed. The Supreme Courts of India in the case of Sankarlal Agarwala and others Vs. Shankarlal Poddar A.I.R, 1965 (SC) 507 took the view that the appeal under section 202 of the Companies Act is independent of provision of sections 96, 104 of the Code of Civil Procedure and that of Letters Patent clause 15. The Court observed:
 
"This conflicting opinion was referred to by this court in Asrumati Devi Vs. Rupendra Deb Rajiot, A.I.R 1953 (SC) 198 and the State of U.P. Vs. Maharaj-kumar of Visianagaram, A.T.R. 1963 (SC) 946 where, after setting out the cleavage of views on the question by the several High Courts, the point as to the proper construction of the work was left open for future decision when the occasions required. We consider that occasion has not arisen before us either since in view of the construction which we have adopted of section 202 of the Indian Companies Act, the scope of the expres­sion "judgment" in the Letters Patent does not call for examination or final decision".
 
17.       The contention of Mr. Amirul Islam can be met by referring to the decision in the Peninsular Life Assurance Co. Ltd., A.I.R. 1939 Bombay 24 which also cited by him. Section 184 provides that notwithstanding the winding up order the court shall settle a list of contributories with power to rectify the register of the members in all cases where rectification is required in pursuance of the Act. It was observed:
 
"Section 184, incorporates section 38, under which, inter alia, if the name of a person is fraudulently or without suffi­cient cause entered in the register of members of a company, the person aggrieved, or any member of the com­pany apply to the Court for "rectification of the register".
 
Exercise of powers under this section is dependant upon making a final order as the terms are “as soon as may be after making a winding up order". The Court shall settle the list of contributories with power to rectify the register of members in all eases where rectification is required in pursuance of this act and shall cause the assets of the Company to be collected and applied to discharge of its liabilities.
 
18.       Here in the present case the winding up petition is still pending before the learned Company Judge and he has not passed an order of winding up yet. Part V of the Com­panies Act deals with winding up and sections 155 to 247 deal with winding up matter and elaborate procedure had been laid down while dealing with a matter of winding up by a Court. The winding up matter is a serious affair which is evident from the perusal of the entire Part V of the Act and in this conne­ction the anxiety of the Privy Council in the case of unjustified winding up order may be noticed in the decision of the Ripon Press and Sugar Press Vs. Gopal Chetti A.I.R. 1932 (PC) 1. Their Lordships observed:
 
"It is moreover well settled that an ultra vires transaction, on the part of directors, if this was one, is of itself no ground for a winding up order. The share-holder has his complete remedy in other directions at page 10".
 
Then their Lordships expressed their anxiety by observing:
 
''There is therefore far, and even at this distance of time, everything to be said for the discharge of the winding up order appealed against. But what would now be the consequence of dis­charging that order? The business of the company has ceased for years; its has been broken p III reconstitution except under new auspices is now probably quite impracticable and the task of adjusting liability for the mischief which has resulted from the liquidation presents prospects of far reaching and ruinous litigation. Nor could those consequences be mitigated nor could any bounds be set by their Lordships to the range and extent of future trouble if the winding up order were not to be set aside."
 
Any company Judge would, no doubt, keep the words of wisdom in view while dealing with a matter of winding up a Company.
 
19.       In the case of Union Indian Sugar Mills Company Limited Vs. Jai Den, ILR 44 Allaha­bad 151 it was held on a construction of section 38 of the Indian Companies Act, 1913, that the District Judge is not obliged to decide a question of title raised in a proceeding before him under the section; but if he does not decide such a question or if he directs an issue to be tried, in either case an appeal from the decision will lie in the manner provided by section 100 of the Code of Civil Procedure, which means a right of appeal is limited as it is in second appeal, to a point of law. But such application cannot be allowed where there are serious disputes as to whether the resolution of the Company is void and ultra vires and whether there can be a valid transfer of those shares in pursuance of that resolution. In case of Devtkumar Mishra vs. Rupak Ltd. A.I.R. 1955 (Patna) 486 it was held that such issue arising between the par­ties cannot be properly decided in the sum­mary proceedings under the section. Relying on the English decision it was held that a pro­per course in such a case is for the parties to get the question determined in the Civil Courts. Same view was expressed in Ramesh vs. Jogini in 47 Cal 901. It is true that an appeal lies from an order under section 38 but when winding up petition was brought, the rectification of the register is depending upon making winding up order under section 184 but treating the same petition as a petition under section 38 and petition for winding up under section 162 highlights incongruity and such petition should not be entertained by the Court. Not that the petitioner has got no remedy. His remedy lies as has been noticed already under section 184 of the Act. Even the courts fees payable under the Court Fees Act are different as it has been noticed in the case of Official Liquidator Vs. M.U. Qureshi, A.I.R. 1945 (FB) 146. It was held that Memo of appeal under section 202 has to be stamped under Sch. 2 Art. II, Courts Fees Act. 1970.
 
20.       Summarising the aforesaid principles it appears that section 38 provides for summary jurisdiction and the Court will only entertain such discretion when there is no complicated question of title but if any title is decided then appeal will lie thereto. Winding up is a serious matter. Section 162 onwards deals with winding up by the Court. Section 166 of the Companies Act provides that an applica­tion to the Court for winding up a company shall be by petition presented, and then sections 184 to 194 give the ordinary power of the Court, whilst sections 194-198 give extraor­dinary power of the Court. Sections 199 to 202 relate to the endorsement of the order and rule of appeal from orders passed under the Act. Sections 246 of the Act give power to the High Court to make rules. An appeal under section 102 is independent of section 96 or 104 or of the clause of Letters Patent. Petitioner could have his remedy by filing an application under section 184. If he is keen upon pre­senting a petition for winding up but judging in the light of the aforesaid principles a petition under sections 38 and 202 cannot proceed paripasu inasmuch as section 38 pre supposes of the existence of the Company and section 202 presupposes winding up of the order of the Court.
 
21.       That upon the repeal of the Letters Patent Act and section 100 an appeal to any particular forum was not an issue before the learned Single Judge. With respect, the observation that an appeal will lie in the changed circumstances to the Appellate Divi­sion is unwarranted. Article 103 of the Con­stitution provides the Jurisdiction of the Ap­pellate Division and further says the same could exercise jurisdiction "under such other cases as may be provided for by Act of Parliament." "An appeal is a creature of Statute and no amount of consent can confer a jurisdiction which is not otherwise vested in it (Nenakshi Naidoo vs. Subramaniya Sastri 14 LA. 160). The observation of the learned Company Judge is therefore bereft of any legal founda­tion.
 
22.       The moot question that was submitted before him was whether the prayer could be entertained together on the same petition. Having noticed that the scope of these prayers are diverse leading to diverse types of appeal as noticed above, there is no hesitation in saying that the learned Company Judge would have been well advised to treat these two prayers separately and asking the respondents for filing a supplementary affidavit either for prayer (b) or for prayer (d) and (e). Section 20 not only provides for appeal but also provides for re-hearing. It may be noted that in the corresponding section, namely, section 224 of the English Act, 199 the word 'rehear­ing" had been omitted. In India, this word had been omitted in section 483 of the Companies Act? 1956. The nature and scope of section 202 is therefore much wider. The purport of the petition that was filed by the respondents was to rectify the share register by cancelling the allotment of 1700 shares and at the same time for winding up of the Com­pany and that could be dealt with under section 184 which provides "As soon as may be after making a winding up order, the Court shall settle a list of contributories, power to rectify the register of members in all cases where rectification is required in pursuance of this Act and shall cause the assets of the Com­pany to be collected and applied in discharge of its liabilities."
 
23.       The appeal that has been provided under section 38 is of different nature as noticed already and the appeal under section 202 is co-extensive with other right of appeal that could be had under Letters Patent. In view of the provisions of law as enunciated above, it appears that the better course is to follow to exercise these prayers separately as different consequences followed from such orders upon two different types of application. Be it noted that winding up matter is still pend­ing before the learned Company Judge. In this view of the matter we refrain from mak­ing any comment and disposing of this appli­cation on the nature and scope of the appeal provided for under the relevant section.
 
       In this result, therefore, the appeals are allowed. The judgment and the order of the Company Judge is set aside and it is directed that two separate petitions, if so advised, be filed and heard analogously by the same court. There will be no order as to costs.
 
Ed.