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Walford Transport (Eastern) India Ltd. Vs. S.K. Mandal, Registrar of Companies and ors. - Court Judgment

LegalCrystal Citation
Subject;Company
CourtGuwahati High Court
Decided On
Case NumberCivil Rule No. 375 of 1978
Judge
ActsCompanies Act, 1956 - Sections 125, 138, 138(2) and 140
AppellantWalford Transport (Eastern) India Ltd.
RespondentS.K. Mandal, Registrar of Companies and ors.
Appellant AdvocateJ.P. Bhattacharjee, A.R. Barthakur and G. Bhattacharjee, Advs.
Respondent AdvocateD.P. Gupta, S.C. Bardalai, S. Paul, B.R. Jhunjhunwala, M.A. Laskar and A. Hazarika, Advs.
DispositionApplication dismissed
Prior history
K. Lahiri, J.
1. In this writ action the petitioner questions the jurisdiction of the Registrar, acting under the Companies Act, 1956 (hereinafter referred to as 'the Act'), to : (i) issue the impugned letter dated October 7, 1978 (annex. 'B' to the petition), (ii) cancel his previous order recording satisfaction of the charge created by the petitioner in favour of respondent No. 3 (M/s. Grindlays Bank Ltd.) and (iii) reopen the question of satisfaction of the charge and proceed to dispose of
Excerpt:
.....ex post facto or post hearing may be given by a quasi-judicial authority in exceptional cases. such exceptional cases include a case in which in the first instance the authority breached the principles of natural justice inadvertently--vide cit v. it might be better expressed that the decision is invalid or vitiated......violated by the registrar in issuing annex. 'a' behind the back of 'the bank'. the principles of natural justice are engrafted in section 138(2) of 'the act'. the learned counsel questions the legitimacy of the communication dated april 26, 1978, the touchstone of the petitioner's right. neither 'audi alteram partem rule' had been observed nor had the quasi-judicial authority observed the mandatory statutory requirement of service of prior notice before making the purported order. as such, the counsel contends that the order was null or invalid. however, the registrar, a quasi-judicial authority, having had realized the invalidity of the order, proceeded to grant ex post facto hearing. in the event of breach of natural justice or violation of statutory requirement of post-hearing.....
Judgment:

K. Lahiri, J.

1. In this writ action the petitioner questions the jurisdiction of the Registrar, acting under the Companies Act, 1956 (hereinafter referred to as 'the Act'), to : (i) issue the impugned letter dated October 7, 1978 (annex. 'B' to the petition), (ii) cancel his previous order recording satisfaction of the charge created by the petitioner in favour of respondent No. 3 (M/s. Grindlays Bank Ltd.) and (iii) reopen the question of satisfaction of the charge and proceed to dispose of the question already decided by him. The order of 'cancellation' has been challenged as violative of the audi alteram partem rule (right to prior notice and opportunity to be heard). The endeavour to throw open the question of satisfaction has been imputed as an unwarranted endeavour of the Registrar 'to review' his earlier order--he being a creature of 'the Act' cannot exercise review jurisdiction as no such power has been conferred on him by 'the Act'. It suffers from the same vice of lack of jurisdiction and is equally void.

Relevant facts necessary for disposal of this application :

2 The petitioner is a public limited company incorporated under 'the Act'. It requested respondent No. 3, M/s. Grindlays Bank Ltd. (hereinafter referred to as 'the bank') on or about May 27, 1976, to grant overdraft facilities and by or pursuant to a mutual agreement a sum of Rs. 25 lakhs became due and owing from the petitioner to 'the bank'. The resultant charge was created in favour of 'the bank'. The petitioner got 'the charge' registered with the Registrar of Companies, Assam (respondent No. 1) on June 23, 1976, as required under Section 125 of 'the Act'. The petitioner contends that as 'the bank' had declined to open an overdraft account in favour of the petitioner, in violation of the terms of the agreement, 'the charge' created stood satisfied on the following day of its registration. As the charge stood satisfied the petitioner intimated to 'the Registrar 'the factum of satisfaction and filed due intimation in Form No. 17 of 'the Act' stating therein that the charge stood fully satisfied on June 24, 1976. The Form is dated November 30, 1977 ; it was taken on record of the office of the Registrar on December 2, 1977. The petitioner as well as the Registrar claim that as late as on April 17, 1978, a notice by ordinary post was issued by the Registrar to 'the bank' under Section 138(2) of 'the Act' affording two weeks' time to the holder of the charge, 'the bank', to show cause why satisfaction of the charge should not be registered. It is indubitable that two weeks' time allowed to 'the bank' was due to expire on May 1, 1978. However, before the expiry of the last date for showing cause, the petitioner by its letter dated April 24, 1978, sought confirmation as to the existence of any charge on the petitioner by any banker. It was received in the office of the Registrar on April 26, 1978, and on the very same day the following communication was addressed by 'someone' for the Registrar (it is marked as annex. 'A'). It reads :

'With reference to your letter dated April 24, 1978, it is to inform you that a charge created on May 27, 1976, for Rs. 25,00,000 in favour of Grindlays Bank Ltd, was got registered on June 23, 1976, The said charge stands satisfied as per satisfaction of charge filed in Form No. 17 on December 2, 1977. Thus there seems no charge outstanding against the company as per records of this office.' [underscored by me]

3. The letter marked as annex. 'A' is the cornerstone of the petitioner's 'legal right'. It claims that the letter containing the order of the Registrar created a right in its favour and the reliefs claimed in this writ action are to enforce this legal right. Thereafter, the petitioner received from the Registrar the impugned letter dated October 7, 1978 (annex. 'B' cancelling the order recording satisfaction of the charge and containing as well the order initiating a review proceeding for the purpose of adjudging afresh whether the charge was satisfied or not.

4. 'The bank' contends that the charge was a valid one, duly registered and was never satisfied. It contends that the petitioner has had no enforceable legal right as the purported order of satisfaction suffers from various vices and is invalid and void. Mr. D.P. Gupta, the learned counsel for the bank, has relentlessly attacked the validity of the communication or order, vide annex. 'A', on various grounds to be dealt with in due course. The learned counsel contends that the petitioner has had no judicially enforceable right or any legally protected right. Ergo, the counsel submits, that the petitioner cannot complain about denial of any legal right when it has had none. Counsel submits that the audi alteram partem

rule was blatantly violated by the Registrar in issuing annex. 'A' behind the back of 'the bank'. The principles of natural justice are engrafted in Section 138(2) of 'the Act'. The learned counsel questions the legitimacy of the communication dated April 26, 1978, the touchstone of the petitioner's right. Neither 'audi alteram partem rule' had been observed nor had the quasi-judicial authority observed the mandatory statutory requirement of service of prior notice before making the purported order. As such, the counsel contends that the order was null or invalid. However, the Registrar, a quasi-judicial authority, having had realized the invalidity of the order, proceeded to grant ex post facto hearing. In the event of breach of natural justice or violation of statutory requirement of post-hearing notice, the authority was competent to rectify the invalid proceeding by a full and fair de novo hearing.

5. The learned counsel submits that the communication, annex. 'A', was no decision and/or order and so the question of review does not arise in the instant case. The learned counsel submits that the petitioner shall get all opportunities in the proceedings to be taken up and may put up all its grievances.

6. Now, let me consider the contentions of Shri J.P. Bhattacharjee, the learned counsel for the petitioner. The learned counsel urges that by virtue of the letter dated April 26, 1978, the petitioner acquired a valuable right. There was a specific order of the Registrar that the charge stood satisfied and no charge was outstanding against the petitioner 'as per records'. It was passed by the Registrar, a quasi-judicial authority, who had the authority to issue the order. It is a valid order creating legal rights in favour of the petitioner. Thus, the locus standi of the petitioner being well established, it can question the validity of annex. 'B'. The learned counsel submits that 'the impugned order' of cancellation is bad as no previous hearing, howsoever minimum it might have been, was afforded to the petitioner. It is violative of the principles of natural justice. The second contention is that the purported attempt to reopen the case is an endeavour to review its earlier order. Review is a creature of statute and cannot be entertained in the absence of a provision therefor. There is no such provision in the Act. Therefore, the impugned order suffers from the same vice of lack of jurisdiction and is void.

7. To appreciate the contentions of the parties it is requisite to set out the provisions of Sections 138 and 140 of the Companies Act, 1956 :

'138. Company to report satisfaction and procedure thereafter.--(1) The company shall give intimation to the Registrar of the payment or satisfaction, in full, of any charge relating to the company and requiring registration under this Part, within thirty days from the date of such payment or satisfaction.

(2) The Registrar shall, on receipt of such intimation, cause a notice to to be sent to the holder of the charge calling upon him to show cause within a time (not exceeding fourteen days) specified in such notice, why payment or satisfaction should not be recorded as intimated to the Registrar.

(3) If no cause is shown, the Registrar shall order that a memorandum of satisfaction shall be entered in the register of charges,

(4) If cause is shown, the Registrar shall record a note to that effect in the register, and shall inform the company that he has done so.

(5) Nothing in this section shall be deemed to affect the power of the Registrar to make an entry in the register of charges under Section 139 otherwise than on receipt of an intimation from the company,'

'140. Copy of memorandum of satisfaction to be furnished to company.--Where the Registrar enters a memorandum of satisfaction in whole or in part, in pursuance of Section 138 or 139, he shall furnish the company with a copy of the memorandum.'

8. It appears from Section 138(1) that a company is required to 'give intimation to the Registrar of the satisfaction' within 30 days from the date of satisfaction. It is a unilateral act of the party. There is a time-limit fixed for lodging such intimation. Section 138(2) enjoins the Registrar 'to cause a notice to be sent to the holder of the charge' calling upon him to show cause within a period not exceeding 14 days. It is also a unilateral act of the Registrar, Thereafter, two contingencies may arise --(1) 'the holder of the charge' may show cause, or (2) may not show cause. Ordinarily, no cause is shown when there is a genuine or undisputed satisfaction of payment. When no cause is shown the duty of the Registrar is to order that the memorandum of satisfaction be entered in the register of charges. It appears that no such order can be made by a Registrar within the period allowed to the holder of the charge to show cause. Further, the Registrar must order entry as to the memorandum of satisfaction in the register of charges. The reason is obvious. When the Registrar enters a memorandum of satisfaction he is bound to furnish the company with a copy of the memorandum--vide Section 140 of the Act. Section 138(4) comes into play if cause is shown. The duty of the Registrar is to make a note to that effect in the register and to inform the company that he has done so. We are not concerned with Section 138(5) in the instant case.

9. It will be seen that Section 138(2) engrafts the audi alteram partem rule in so far as the right to prior notice and opportunity to show cause are concerned. It is a statutory recognition of the principles of natural justice. No proceeding under Section 138(3) and (4) can be entertained without, (1) complying with the mandatory provision of Section 138(2) and/or, (2) giving prior notice and opportunity to show cause. Even according to the petitioner the provisions of Section 138(2) were not fully complied with. Though a show-cause notice had been sent to the holder of the charge the impugned order dated April 26, 1978, had been communicated informing the petititioner that the charge stood satisfied long before the expiry of the period allowed to the bank to show cause. It is indubitable that the Registrar has no jurisdiction to make any order recording satisfaction or to record memorandum of satisfaction in the register without complying with the pre-condition just alluded. It is also indubitable that there is no order for making an entry by the Registrar that the memorandum of satisfaction should be entered in the register of charges, as required under Section 138(3) of the Act. Nor is there any entry in the register of charges about the satisfaction. It may be observed in passing that the register of charges was produced in court at the hearing and we found no such entry in the register.

10. Before dealing with the contentions of the parties let me record that it is the common case that the Registrar is a statutory authority and not an executive creature. It is also admitted by the parties that quasi-judicial responsibilities are implied by the statute in the authority's function, it has been saddled with affecting the rights of parties and is bound to act quasi-judicially ; any order affecting the rights of parties must be made by it after prior notice and opportunity to show cause. The Registrar is required to follow the principles of natural justice in such proceedings and the first requirement is prior notice and opportunity to show cause. Once this position is admitted it must be held that the contention of the petitioner that the impugned order is bad for breach of the audi alteram partem rule has a strong force provided the petitioner had acquired any legal right which was nullified by the impugned order. Naturally two questions come up for consideration--first, whether the petitioner had acquired any legal right by virtue of the correspondence, allegedly an order of the Registrar dated April 26, 1978, (vide annex. 'A'). Secondly, whether ex post facto hearing or a full and fair de novo hearing to rectify the earlier proceeding in breach of natural justice and the statutory provision engrafting the audi alteram partem rule (re Section 138(2) of the Act) now sought to be given by the Registrar is liable to be quashed as invalid, null and void.

11. On behalf of the respondent-bank some strong arguable points have been raised to show that the petitioner did not acquire any legal right by virtue of the communication dated April 26, 1978 (annex. 'A'). Therefore, it is necessary to consider the effect of the submission.

12. It is well settled that a petitioner under Article 226 of the Constitution must establish his locus standi to file the petition. The relief asked for must be one to enforce a legal right. The existence of the right is the foundation of the exercise of jurisdiction of the court under Article 226 of the Constitution. The right that can be enforced under Article 226 shall ordinarily be the personal or individual right of the petitioner though in the case of some of the writs like habeas corpus or quo warranto the rule may be relaxed or modified. The High Court cannot exercise jurisdiction and grant relief to a party unless the pre-condition for the issuance of a writ, that is existence of a legal right, is fully established by the petitioner. There is a plethora of decisions handed down by the Supreme Court to the above effect and I note hereinbelow only a few :

State of Orissa v. Madan Gopal Rungta : [1952]1SCR28 , Calcutta Gas Company v. State of West Bengal : AIR1962SC1044 , State of Punjab v. Jagdip Singh : (1966)ILLJ749SC , State of Orissa v. Ram Chandra Dev : AIR1964SC685 , Gadde Venkateswara Rao v. Govt. of Andhra Pradesh : [1966]2SCR172 , Dr. Satyanarayana Sinha v. S. Led & Co. (P.) Ltd. : [1974]1SCR615 , J. Fernandes & Co. v. Dy. Chief Controller of Imports & Exports : [1975]3SCR867 , and D. Nagaraj v. State of Karnataka : [1977]2SCR626 .

13. In view of the judicial pronouncements noted above I have no hesitation in coming to the final conclusion that this court can go into the question of the standing or locus standi of the petitioner and decide the question of the existence of the writ petitioner's legal right. These are all justiciable.

14. At the conclusion of the argument Mr. J.P. Bhattacharjee, advocate for the petitioner, as well as Mr. D.P. Gupta, advocate for the respondent-bank, have submitted that the question as to the validity or legality of the order may not be determined in this writ application and should be left open for due determination by the Registrar in the pending proceeding. However, the learned counsel for the parties submitted that I might determine only the question as to the violation of the principles of natural justice enshrined in Section 138(2) of the Act and its effect on annex. 'A' (the communication dated April 26, 1978).

15. As alluded, the parties conceded that the Registrar is a judicial authority and was bound to observe the principles of natural justice in making any order affecting any right of the parties. The learned counsel for the petitioner conceded that the effect of the communication dated April 26, 1978, while creating rights in its favour destroyed the right of the respondent-bank. It is also evident that the communication or order dated April 26, 1978, was made or rendered in violation of audi alteram partem rule engrafted in Section 138(2) in so far as the service of notice to show cause was concerned. As such, I have no difficulty in arriving at the conclusion that the communication and/or letter which purported to create rights in favour of the petitioner destroying some valuable rights of the respondent-bank is invalid as violative of the principles of natural justice and being an order rendered in complete disregard of the provisions of the said principles fused in Section 138 of the Act and, as such, is liable to be declared as invalid unless it can be shown that the invalidity of pre-hearing notice has been insulated or cured by a full and fair de novo hearing and/ or ex post facto hearing.

16. The respondent-bank filed an application to reopen the case pointing out the illegalities committed by the Registrar including the invalidity of annex. 'A'. The Registrar has entertained it and the proceeding is sub judice. In the said proceeding the petitioner as well as the respondents shall have opportunities to place their respective cases. The parties have been put in the same position as they were prior to the issuance of the communication dated April 26, 1978.

17. The present weight of authority supports the view that a breach of natural justice in the first instance can be cured or insulated or rectified by a full and fair hearing or show-cause notice by the body perpetrating the original breach. The rule has been recognised in England in De Verteuil v. Knaggs [1918] AC 557, Ridge v. Baldwin [1964] AC 40 and Spackman v. Plumstead District Board of Works [1885] 10 App Cas 229. However, in Ridge v. Baldwin the rehearing granted was considered to be inadequate. It appears that in Canada the same principles have been accepted in Posluns v. Toronto Stock Exchange : [1968]3SCR330 Canada. I would quote the headnote of De Verteuil (supra):

'The power given by Section 203 of the Immigration Ordinance of Trinidad to the Governor, 'on sufficient ground shown to his satisfaction,' to transfer the indentures of immigrants from one employer to another cannot properly be exercised without inquiry ; except in special circumstances such as an emergency, any person against whom a complaint is made must be given a fair opportunity to make any relevant statement, and to controvert any relevant statement made to his prejudice.

The discretion is properly exercised when, after an order has been made ex parte in consequence of complaints by the Protector of Immigrants, the employer and his manager are given a fair opportunity to answer the complaints, and the order is put into operation only after a consideration of their explanations.'

18. In India their Lordships of the Supreme Court have given a new life and meaning to the principle ; a new vista appropriate for India, a large democracy where Indians are ruled and governed by quasi-judicial and administrative tribunals. It is pretty onerous for the majority of Indians to come to the doors of the highest courts, complain about the breach of the audi alteram partem rule, get a declaration of invalidity of an order and to return back and face a de novo proceeding. It is unbearable for Indians to holster the expenses and to undergo long-drawn proceedings. In the fitness of things their Lordships of the Supreme Court have held in innumerable cases that ex post facto hearing or post hearing after notice or a full and fair de novo hearing by a quasi-judicial authority is permissible to insulate or rectify breach of natural justice committed by it in the first instance. The principle accords with the legal maxim actus curiae neminem gravabit (an act of the court shall prejudice no man). Right of hearing or prior notice of hearing by an authority which decides controversial issues affecting the rights of the rival contestants is precious. It has its root in the notion of fair procedure. The rule is an integral part of our judicial process which also governs quasi-judicial authorities when they decide controversial points affecting rights of parties. In CIT v. B.N. Bhattacharjee : [1979]118ITR461(SC) , the order was passed by the Settlement Commission ex parte which defaulted to afford opportunity under Section 245D of the I.T. Act, 1961, to the assessee. The assessee urged for a review of the order as no hearing had been afforded to him. The Commission on hearing the assessee decided to proceed with the application on merits. The contention was that the Commission had no power of review, and, as such, the reopening of the proceeding was invalid. Their Lordships rejected the contention of the Commissioner of Income-tax and held the proceedings to be a valid one. Section 245D(1) obligates the Commission to hear the applicant before rejection, apart from that it was fair play not to prejudice a party without hearing unless the Act expressly excluded it. Nothing was lost by hearing the petitioner whose application for settlement was rejected and much might be gained by such hearing in properly processing the application in the spirit of Chap. XIX-A of the I.T. Act. Their Lordships observed (p. 473) :

'Without expounding any inflexible rule of natural justice of universal validity, we cannot find fault with the Settlement Commission for what it has done. We take the view that, having regard to the rulings of this court in M.S. Gill's case : [1978]2SCR272 , and Maneka Gandhi's case : [1978]2SCR621 , the Settlement Commission's decision to re-hear and pass a de novo order cannot be said to be illegal......Law leans in favour of natural justice where statutory interdict does not forbid it.'

19. In Sunil Batra v. Delhi Administration : 1978CriLJ1741 we note a similar observation permitting post hearing by the quasi-judicial authorities. The relevant observation reads AIR 1978 SC 1723 :

'A previous hearing, minimal may be, shall be afforded to the victims. In exceptional cases, the hearing may be soon after. The rule in Gill's case : [1978]2SCR272 , and Maneka Gandhi's case : [1978]2SCR621 gives the guidelines.'

20. In my opinion, omission on the part of the quasi-judicial authority to serve notice inadvertently falls within the category of cases described by their Lordships as 'exceptional cases'. It is all the more necessary to bring such cases of inadvertent omission of the authority within the class of ' exceptional cases ' in poor India. In Rama Varma Bharathan Thampuran v. State of Kerala : [1980]1SCR136 , their Lordships observed :

'Quasi-judicial responsibilities are implied by the statute in the Board's functions and if the board breaches these norms and canons the constitutional remedy under Article 226 comes into play. After all, the board is a statutory body and not an executive creature. It has been saddled with affecting the rights of parties and is bound to act quasi-judicially. Its deviances are not unreviewable in writ jurisdiction. Therefore, we direct the board to comply with- the requirements prescribed in several decisions of this court in quasi-judicial jurisdictions. Natural justice is obviously the first as this court has ruled in a shower of cases especially highlighting in Maneka Gandhi's case : [1978]2SCR621 and M.S. Gill's case : [1978]2SCR272 .'

21. Therefore, it appears that the Supreme Court has held in a shower of cases that ex post facto or post hearing may be given by a quasi-judicial authority in exceptional cases. Such exceptional cases include a case in which in the first instance the authority breached the principles of natural justice inadvertently--vide CIT v. Bhattacharjee : [1979]118ITR461(SC) . Under these circumstances, when the law leans in favour of natural justice and where the Registrar has given opportunities to the petitioner to appear and contest the proceeding, the impugned order of reopening of the case and putting the parties to the position in which they had been prior to the first order cannot be termed to be an injudicious order which calls for a declaration that it is invalid. I hold, in view of the settled law, that the Registrar is competent to proceed and dispose of the matter.

22. This answers the petitioner's second contention that the proceeding was a review and the authority had no jurisdiction to entertain it. As has been held by the Supreme Court in CIT v. B.N. Bhattacharjee : [1979]118ITR461(SC) such proceedings are not review proceedings but are proceedings to insulate or cure the invalidity in the first proceeding and to make a valid decision, after due rectification or insulations.

23. I repeat that the learned counsel for the parties, at the conclusion of arguments, made a joint prayer not to decide any other point other than those disposed of by me, though urged by them. Therefore, the points urged by the parties have been left open for due determination by the Registrar.

24. The only point that remains to be disposed of is the claim of the respondent-bank that the impugned order was void. Counsel for the petitioner has submitted that it is not void. It is needless to decide the said question as the argument leads necessarily into the difficult area, i.e., what is void and what is voidable, about which some confusion still exists. However, I am of the tentative view that if it becomes necessary to fix upon one or other of these expressions, I would observe that a decision made contrary to natural justice is void, but that until it is so declared by a competent body or court it may have some effect or existence in law. It might be better expressed that the decision is invalid or vitiated. The consequences of an order rendered in violation of the principles of natural justice remain in effect unless and until the decision is challenged and quashed or set aside. Till the order is set aside the order by itself expresses its existence in law.

25. In the result, I hold that the proceeding is valid. The Registrar shall undoubtedly dispose of the matter at the earliest opportunity in accordance with law and in the light of the observations made in the judgment and the decisions of their Lordships of the Supreme Court referred to above. With these observations I dismiss the application and leave the parties to bear their respective costs.

26. Before parting, I would observe that in view of the present weight of decisions of the Supreme Court and the legislative recognitions of the principles, in the event of a breach of 'natural justice', in the first instance the invalidity can be cured or insulated by a quasi-judicial authority by ex post facto hearing or a full and fair 'de novo' hearing by the same authority or body. I conclude by saying that I have derived immense benefit from the erudite and scholarly arguments advanced by the learned counsel for the parties.


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