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Mool Chand Wahi Vs. National Paints P. Ltd. and anr. - Court Judgment

LegalCrystal Citation
SubjectCompany
CourtPunjab and Haryana High Court
Decided On
Case NumberCompany Petition No. 49 of 1981
Judge
Reported in[1986]60CompCas402(P& H)
ActsCompanies (Court) Rules, 1959 - Rules, 11, 18 and 21
AppellantMool Chand Wahi
RespondentNational Paints P. Ltd. and anr.
Appellant Advocate M.S. Ratta, Adv.
Respondent Advocate R.K. Chibbar, Adv.
DispositionPetition dismissed
Cases Referred and Dipendra Nath Sarkar v. State of Bihar
Excerpt:
.....is not in due form, no value can be attached to it. 410): the words that the contents of the affidavit 'are true and correct to the best of my knowledge and belief carry no sanctity, and such a verification cannot be accepted. observed :we desire to impress on those who propose to rely on affidavits that, in future, the provisions of order 19, rule 3, must be strictly observed, and every affidavit should clearly express how much is a statement of the deponent's knowledge and how much is a statement of his belief, and the grounds of belief must be stated with sufficient particularity to enable the court to judge whether it would be safe to act on the deponent's belief'.this enunciation of the principle was endorsed by the supreme court in state of bombay v. secondly, if leave is..........by him to respondent no. 2 asking him to make payment of four lakh rupees, later, another notice dated dated january 9, 1980, under section 434 of the act was sent through his counsel requesting the respondents to make payment of rs. 4,20,000. however, the company has not paid the amount. consequently, it is prayed that the company be ordered to be wound up.3. the respondents have contested the petition and, inter alia, pleaded that the petitioner at no point of time was the managing director of the company. it was resolved by the company on august 15, 1960, that the petitioner would supervise the company under the control of the board of directors and he would be paid a monthly salary of rs. 1,000, with effect from august 16, 1960, subject to the confirmation by the shareholders of.....
Judgment:

Rajendra Nath Mittal, J.

1. This is a petition under Sections 433, 434 and 439 of the Companies Act, 1956, (hereinafter called 'the Act').

2. Briefly, the facts are that respondent No. 1 is a private limited company and respondent No. 2 is its director in-charge. The petitioner, it is alleged, was the managing director and shareholder of respondent No. 1 in the year 1970. It is further alleged that as per the account books for the year 1971, an amount of more than one lakh rupees stood to the credit of L.R. Wahi and Co., a proprietorship concern of the petitioner, which amount has now swelled to more than four lakh rupees. A registered notice was sent by him to respondent No. 2 asking him to make payment of four lakh rupees, Later, another notice dated dated January 9, 1980, under Section 434 of the Act was sent through his counsel requesting the respondents to make payment of Rs. 4,20,000. However, the company has not paid the amount. Consequently, it is prayed that the company be ordered to be wound up.

3. The respondents have contested the petition and, inter alia, pleaded that the petitioner at no point of time was the managing director of the company. It was resolved by the company on August 15, 1960, that the petitioner would supervise the company under the control of the board of directors and he would be paid a monthly salary of Rs. 1,000, with effect from August 16, 1960, subject to the confirmation by the shareholders of the company. Respondent No. 2, however, would carry on as a manager and technical director on the remuneration already drawn by him. It is alleged that the shareholders of the company did not confirm the resolution regarding payment of a monthly salary of Rs. 1,000 to him. The company had been crediting the personal account of the petitioner with Rs. 1,000 p.m. The credit towards salary was transferred from his personal account to the account of L.R. Wahi and Co., in which account some money of the petitioner lay already deposited. Thus, in the balance-sheet for the year 1970-71, the company showed an unsecured loan of Rs. 1,03,455.23 from L.R. Wahi and Co. Later, when it was pointed out in the meeting of the board of directors that there was no provision about the payment of the salary to Mr. M.C. Wahi after August 31, 1960, and so the amount already paid to him from September 1, 1960, onwards was recovered from him.

4. The company also received a notice under Section 226(3) of the Income tax Act, 1961, saying that a sum of Rs. 40,741 was due from the petitioner on account of income-tax, etc., and it was directed to pay the said amount to the Income-tax Officer forthwith. Again, a notice dated August 2, 1968, was received by the company from the Income-tax Officer to the effect that if any salary or other sum was paid to the petitioner without specific permission from him, the company and its principal officers will be personally liable to the extent of payment made or Rs. 40,741, whichever was less. Later, a notice dated May 29, 1971, was received from the Tax Recovery Officer, Income-tax Department, directing the company to pay to him a sum of Rs. 26,414 forthwith. Accordingly, the company paid to the Income-tax Department all the dues demanded from the petitioner towards arrears of income-tax/wealth-tax. After debiting the abovesaid amounts, the account of L.R. Wahi and Co., now shows a debit balance of Rs. 57,980.28. It is stated that thus no amount is due to the petitioner and the application is liable to be dismissed.

5. Two preliminary objections were raised by the learned counsel for the respondents. Firstly, that no notice under Section 434 of the Act was served upon the company which was necessary to be served. Secondly, the affidavit, dated February 20, 1980, accompanying the petition, was not in proper form. According to him, in this situation, the petition is liable to be dismissed on these short grounds.

6. The first question that arises for determination is whether a notice under Section 434 of the Act was served by the petitioner on the company. The petitioner, through his counsel, Mr. M.S. Ratta, served a notice dated January 9, 1980 (copy annexure 'C'), on Shri L.R. Wahi, director in-charge, National Paints (P.) Ltd., Sonepet. In the petition, it was alleged that notice dated January 9, 1980, under Section 434 of the Act was sent under registered cover requesting the respondents to make the payment of Rs. 4,40,000 as outstanding to the petitioner. In reply to the para, no objection was taken that a proper notice was not served upon the company. On the other hand, it was stated by the respondents that the receipt of the notice dated January 9, 1980, was admitted. The notice, as already stated above, was served upon respondent No. 2 as director in-charge of the company. Taking into consideration the above circumstances, I am of the opinion that the notice will be deemed to have been served upon the company.

7. The second question that arises for determination is whether the affidavit dated February 20, 1980, is in proper form and, if not, with what effect. The contention of the learned counsel for the respondents is that in the verification clause, paras 1 to 14 of the affidavit have been shown to have been true and correct to the best of the deponent's knowledge and belief whereas he was required to delineate which paras were correct to the best of his knowledge and which to the best of his belief. To support his contention, he made a reference to Bhupinder Singh v. State of Haryana, AIR 1968 P& H 406 and Gaya Textiles P. Ltd. and Star Textile Engineering Works Ltd., In re, AIR 1968 Cal 388. It is not disputed by Mr. Ratta that in the verification clause, the deponent is required to say which of the paras are true to his knowledge and which true to his belief but he submits that the verification of an affidavit is a matter of form and the petition should not be dismissed on the ground that the affidavit does not bear a proper verification. To fortify his argument, he has referred to Manohar Narayan Joshi v. Ramu Mhatang Patel, AIR 1973 Bom 105.

8. I have duly considered the argument of the learned counsel. Rule 11 (a) of the Companies (Court) Rules, 1959 (hereinafter called 'the Rules'), defines '' petitions'. A petition under Section 439 of the Act for winding up of a company is mentioned at serial No. 15 in the said rule. Rule 21 prescribes that every petition shall be verified by an affidavit made by the petitioner and such affidavit shall be filed along with the petition and shall be in Form No. 3. Form No. 3 prescribes that the petitioner shall mention the paragraphs of the petition which are true to his knowledge and the paragraphs which are based on information and he believes them to be true. Paragraph 2 of the Form reads as follows:

'2. The statements made in paragraphs...of the petition herein now shown to me and marked with the letter 'A' are true to my knowledge, and the statements made in paragraphs...are based on information, and I believe them to be true.'

9. Rule 18 says that every affidavit shall be signed by the deponent and sworn to in the manner prescribed by the Code or by the rules and practice of the court. Order 19, Rule 3 of the Code of Civil Procedure says that affidavits shall be confined to such facts as the deponent is able to prove from his own knowledge except on interlocutory applications, on which statements of his belief may be admitted. From the aforesaid rules, it is evident that the petition for winding up is required to be accompanied by an affidavit in due form. It is well-settled that if an affidavit is not in due form, no value can be attached to it. In the above view, I am fortified by the observations in Bhupinder Singh's case, AIR 1968 P & H 406, wherein Tek Chand J., after noticing Order 19, rule 3(1) of the Code, observed as follows (p. 410):

'The words that the contents of the affidavit ' are true and correct to the best of my knowledge and belief carry no sanctity, and such a verification cannot be accepted. It has been held over and over again that affidavits must be either affirmed as true to knowledge, or from information received provided the source of information is disclosed, or as to what the deponent believes to be true provided that the grounds for such belief were stated. Such affidavits where the verification lacks the essential requirements, are valueless.

In Padmabati Dasi v. Rasik Lal Dhar [1910] ILR 37 Cal 259,Jenkins C.J. and Woodroffee J. observed :

'We desire to impress on those who propose to rely on affidavits that, in future, the provisions of Order 19, Rule 3, must be strictly observed, and every affidavit should clearly express how much is a statement of the deponent's knowledge and how much is a statement of his belief, and the grounds of belief must be stated with sufficient particularity to enable the court to judge whether it would be safe to act on the deponent's belief'. This enunciation of the principle was endorsed by the Supreme Court in State of Bombay v. Purushottam Jog Naik, AIR 1952 SC 317. There is a catena of decided cases supporting this proposition and among others, reference may be made to Durga Das v. Nalin Chandra Nandan, AIR 1934 Cal 694, Bisakha Rani Ghose v. Satish Chandra Roy Singha, AIR 1956 Cal 496, and Dipendra Nath Sarkar v. State of Bihar, AIR 1962 Pat 101.'

10. The learned judge, in view of the fact that the verification of the affidavit was not proper, ignored the affidavit filed by the petitioner in that case. In a petition for winding-up, it is mandatory to file an affidavit along with the petition. The purpose of the affidavit is that the allegations in the affidavit read with the petition are treated as substantive evidence. In case the petition is not accompanied by an affidavit, in view of the rules mentioned above, it is no petition in the eye of law and consequently it is liable to be dismissed on this ground alone. The main reason is that the petition for winding-up, if accepted, relates back to the date of its presentation. In case a properly sworn affidavit is allowed to be filed subsequently, the question will arise as to whether the winding-up petition would relate back to the date of presentation of the petition or the affidavit and in many cases a great deal of confusion regarding the rights of the third parties would crop up. In that regard, the following observations in Gaya Textiles P. Ltd., In re, AIR 1968 Cal 388, be read with advantage (pp. 390, 391):

' Learned counsel for the petitioner, however, contended that the defect in the verification of the petition was a mere irregularity which should be overlooked, and leave should be granted to the petitioner to re-verify the petition according to the rules.

Had this not been a petition for winding-up a company, I would have already accepted the contentions of the learned counsel for the petitioner. But it cannot be overlooked that the present petition is a petition for winding-up of a company and a winding-up order relates back to the date of the presentation of the winding-up petition. If on the date when the petition was presented, there was no proper verification according to law, then there was no petition at all on which the court could issue directions for advertisement. Secondly, if leave is granted to cure the verification today, then a proper petition for winding-up of the company would come into existence as from today, and in that event the question of dealings by the company with its assets between the date of presentation of the winding-up petition and the date when the court grants the company leave to re-verify the petition would also create a good deal of confusion. Since a winding-up order relates back to the date of presentation of the winding-up petition, all dealings by the company with its assets would be subject to the rules relating to fraudulent preferences and transactions are liable to be set aside on the ground that the company had unlawfully dealt with its assets in order to deprive its creditors. Bat if leave is granted to the petitioner to cure the defect in the verification by allowing re-verification of the petition according to the rules today, it would be open to the company to contend, if a winding-up order is made, that the rules relating to fraudulent preference or unlawful dealing with the assets from the date of presentation of the winding-up petition would not apply, as a petition properly verified according to law came into existence only on the date on which leave was granted to the petitioner to re-verify the petition.'

11. Manohar Narayan Joshi's case, AIR 1973 Bom 105, on which reliance was placed by Mr. Ratta is distinguishable. That was a case under the Representation of the People Act, 1951. The learned judge observed that the main purpose for requiring an affidavit to be filed in the case of an allegation of a corrupt practice being made is to prevent wild allegations of corrupt practices being made against the successful candidates so that some restraint is exercised on the persons making those allegations. An affidavit filed in support of an election petition is not intended to be treated as evidence of facts stated in the affidavit itself because ultimately the election petition is to be decided on the evidence recorded by the High Court. After taking into consideration the aforesaid circumstances, the learned judge held that failure to disclose the source of information in the affidavit did not render the affidavit in any way defective. The case is distinguishable and Mr. Ratta cannot derive any benefit from the observations therein.

12. As the petition is liable to be dismissed on the ground that it is not accompanied by a proper affidavit, it is not necessary to deal with the case on merits. Consequently, I dismiss the petition on the preliminary objection. No order as to costs.


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