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B.K. Khanna Vs. K.N. Khanna and ors. - Court Judgment

LegalCrystal Citation
SubjectCompany
CourtDelhi High Court
Decided On
Case NumberCompany Petn. No. 64 of 1976, and Company Appln. No. 567 of 1976
Judge
Reported inAIR1978Delhi48
ActsCode of Civil Procedure (CPC), 1908 - Order 32, Rule 15
AppellantB.K. Khanna
RespondentK.N. Khanna and ors.
Advocates: J.L. Nain and; S.C. Malik, Sr. Advs.,; Daljit Singh and
Excerpt:
.....rule 15--scope of--petition under sections 397 & 398 of the companies act, 1956--question of state of mind of one of the respondents in dispute--duty of court to determine the question before proceeding further in the matter--forum for such determination.; that the provisions contained in order 32 not only empower the court to take appropriate steps where a party to the proceedings is a minor or a person who is incapable of protecting his interest, whether by reason of unsoundness of mind or mental infirmity, but also cast a mandatory duty on the court to take steps to ensure proper representation for such persons so as to ensure that their interest in, relation to the proceedings are fully protected.; further, that there can be no doubt that before the court proceeds with a suit..........of the respondents. the various allegations on which the petition is grounded are denied. the state of mind and the consequential mental incapacity attributed to the mother, the third respondent is vehemently dehied. a number of preliminary objections are also raised with regard to the jurisdiction of this court and as to the maintainability of the petition. in his rejoinder the petitioner. by and large, reiterated the allegaltions made in the petition.5. by-an application, being c. a. 567/ 76, under o. 32, r. 3 read with r. 15 and s. 151 of the code of civil procedure the petitioner prayed that an independent and proper person be appointed as guardian-ad-litern of the mother, the third respondent for the purpose of the proceedings and for a direction to respondents i -and 2 to.....
Judgment:
ORDER

1. B. K. Khanna & Co. (P.) Ltd., (for short, the company) was incorporated on December 3, 1949 with a nominal capital of Rs. 10 lakhs divided into 10,000 equity shares of the value of Rs. 100 each. The subscribed and paid up capital at all material times has been Rs. 4,99,800. The company was incorporated, inter alia, with the object to acquire -and take over as a going concern the business of importers, exporters, agents, distributors, dealers in machinery, contractors, engineers etc. which was then being carried on under the name and style of B. K. Khanna & Co. The company is a family concern. 44% of the issued capital is held by each of the two brothers B. K. Khanna and K. N. Khanna, petitioner and the first respondent respectively, while the remaining 12% is held by their mother, Smt. Shama Khanna, the third respondent. The Board consists, besides the three shareholders, of Smt. Kamla Rathour, 2nd respondent the sister of the two brothers who has, however, no shareholding.

2. One of the questions in controversy between the parties is as to whether the continuance of the sister as a Director of the Company during the lost over 10 years was valid the contention of the petitioner being that she was appointed as an ad hoc Director some 14 years back and ceased to be a Director on the expiry of the term for which she was appointed, the rival contention of the respondents being that she was appointed a permanent Director and has continued to hold that office in that capacity throughout. The Company owns valuable immoveable property and, inter alia, has controlling interests in Shama Forge Co. Ltd., (for short, Shama Forge). Shama Forge which was an Ifci aided unit had some financial difficulty some time back leading to proceedings against it at the instance of the Ifci under the provisions of the Industrial Finance Corporation Act in course of which a Receiver was appointed of the assets and property of the Company forming subject-matter of the mortgage in favor of IFCI. The Company, as well as the individual Directors, had guaranteed the loan which Shama Forge had taken from the Ifci and the claim against the company and the Directors arising out of the guarantees, forms subject-matter of a civil suit filed by the IFCI. The disputes between the two brothers apparently have their genesis in the financial difficulty facing the Shama Forge and the consequential liability of the company and its Directors which appears to have been accentuated by the fact that, either on account of the old age, infirmity or mental incapacity, the mother who held the balance as also the moderating influence on the brothers, may perhaps have become ineffective or is otherwise not able to exercise the necessary cementing force between the two brothers. There is considerable controversy between the parties as to whether the mother has been of unsound mind for some time now and has become incapable by reason of mental infirmity of protecting her interests and of conducting the affairs of the company as its Chairman, as indeed to be an instrument to resolve the unfortunate differences that have arisen between the brothers in the midst of the crisis that appears to have overtaken them. It is a common case of the parties that for quite some time the company has not been carrying on its business and the only worthwhile activity of the company has been the realisation of rent of immoveable property owned by it and in meeting the essential expenditure besides dividing part of the residue between the two brothers. During the years that the sister has been on the Board she has also been drawing salary while there are arrears of salary in respect of some period. Considerable controversy centres round the validity of her appointment as a permanent Director and as to her right to receive arrears of salary and as to her liability to refund the amount already received. By all accounts, the major problem that the company, as indeed the brothers, are called upon to face is the one that arises out of the proceedings initiated by the Ifci against the Shama Forge the company and the Directors of the Company. H. P. Singh son of the sister is the fifth respondent in the petition. He is neither a member nor a Director of the company but has been made a party because of an allegation that part of the premises of the company was being misused by him for his personal business with the connivance of the other brother and the sister.

3. B. K. Khanna, the petitioner has invoked the provisions of Ss. 397/398 for a number of directions so as to obtain a declaration that the sister ceased to be a Director since 1963, to restrain her from -acting as a Director and from intermeddling with the affairs of the company, to obtain refunds from her of the moneys received by her by way of salary, to restrain the fifth respondent from carrying on business in the company's premises, to restrain the first, second and the fifth respondents from using or permitting the me of any part of the company's premises for purposes other than those of the business of the company. to determine the state of the mind of the mother to appoint an Administrator or an additional Director as Chairman of the company, to restrain any transfer of shares held by his mother, to direct the first respondent to co-operate in-facilitating the sale of the company's interests in Shama Forge and in settlement of outstanding tax matters of the company. The petition is grounded on the allegations that since the middle of 1975 the mother has not been able to function as a Chairman or be able to protect her interest being of unsound mind leading to a. complete deadlock in view of the fact that the brothers are unable to agree with each other on various matters of vital importance to the company, including its management and control; that the second respondent the sister, who had been coopted as additional Director in 1962 and, thereforee, ceased to be a Director in 1963, has nevertheless been inter-meddling with the affairs of the company and acting in collusion with the first respondent the other brother, who have collectively been responsible for having brought the company to the present deplorable position; the company is, thereforee, liable to be wound up on the ground that it was just and equitable to do so and as the affairs of the 6ompany were being carried on prejudicial to the public interest, to that of the company and also to the petitioner. These allegations arc-, sought to be supported by certain specific instance of acts of commission and omission on the part of some of the respondents which arc set out in paras 17 to 38 of the petition.

4. The petition is opposed on behalf of the respondents. The various allegations on which the petition is grounded are denied. The state of mind and the consequential mental incapacity attributed to the mother, the third respondent is vehemently dehied. A number of preliminary objections are also raised with regard to the jurisdiction of this Court and as to the maintainability of the petition. In his rejoinder the petitioner. by and large, reiterated the allegaltions made In the petition.

5. By-an application, being C. A. 567/ 76, under O. 32, R. 3 read with R. 15 and S. 151 of the Code of Civil Procedure the petitioner prayed that an independent and proper person be appointed as guardian-ad-litern of the mother, the third respondent for the purpose of the proceedings and for a direction to respondents I -and 2 to produce the third respondent in Court for examination on the ground that by reason of unsoundness of mind and mental infirmity the said respondent was incapable of protecting her interest; that none of the near relatives of the parties was capable of acting as guardian; and that the third respondent was being kept in confinement by the first and the second respondents. Notice of this application was issued to the respondents and the relief sought was opposed on the ground that the third respondent was capable of protecting her interest and it was thereforee unnecessary to appoint any guardian-ad-litem. for the said respondent for the purpose of the present proceeding&. The (Application was apparently beard at considerable length by D. K. Kapur, J. and by an order made on October 11, 19716 the learned Judge postponed the decision on the application. In the course of a detailed order Kapur, J. observed that the question whether the third respondent was Incapable of protecting her interests by virtue of unsoundness of mind and mental infirmity 'has great importance in respect of the deadlock between the two brothers' and that 'in any case, the question of the unsoundness of mind of respondent 3 is a major question to be decided in the petition itself. The learned Judge, thereforee, felt that even though ordinarily in the face of the allegation in the application the Court would ordinarily hold a preliminary enquiry with regard to the state of mind of the said respondent before taking lip the consideration of the petition) such a course would be 'somewhat unfair and impracticable' in view of the fact that the question of the state of the mind of the third respondent was itself an important question in controversy between the parties in the petition. Tile learned Judge, however, notices a number of decisions in which the principal question in the suit was connected with the question of mental infirmity of one of the -parties and there were observations in those caser, that there should been preliminary enquiry as to the mental infirmity for the purpose of appointing a guardian followed by a subsequent enquiry on the merits in the trial of the suit. After n consideration of the peculiar circumstances of this case the learned judge came to the conclusion that the procedure for holding two enquiries would not be justified in the present case it was thereforee, held that there 6hould be only one enquiry regarding the alleged unsoundness of mind of the third respondent and once the Court come to the conclusion that the third respondent was incapable of looking after the interests the Court' could then appoint guardian- ad-litern at that stage and continue with the proceedings thereafter. The learned Judge notices the anomaly that may arise if the 'third respondent was found to be of unsound mind in that in the course of the trial of that question she would have been represented by some one who might later be found to hove no authority to represent her. The learned Judge, however, notices that there was no objection on behalf of the Petitioner to the counsel, purporting to appear for the third respondent. being allowed to 'represent the third respondent 'only for the purpose of preliminary enquiry.'

6. It is not difficult to spell out of the aforesaid order of the learned Judge an explicit decision that this Court would first go into this question as to the State of mind of the third respondent both (or the purpose of a preliminary enquiry under O. 32, as indeed, for a decision at the question on the merits and to appoint a guardian-ad-litem for further proceedings, should the court return a finding on the question in favor of the petitioner. It is also not difficult to spell out of the order an implied conclusion that the consideration of the petition, apart from the question as to the state of the mind of the third respondent should remain deferred till the decision of that question.

7. Even so learned counsel for the first respondent as indeed the other respondents, sought to urge the preliminary objection, before the consideration of the question of the state of mind of the third respondent as to the maintainability of the petition. The parties, thereforee, addressed elaborate arguments on the question as to the maintainability of the petition subject, however, to the objection that in view of the aforesaid order of the learned Judge, as indeed, in the face of the provision of O. 32, the Court could not take up the consideration of the petition except to the limited extent indicated above until the question of proper representation of the third respondent had been decided.

8. Two questions, thereforee, arise for consideration at this stage:

(1) Whether the preliminary objection with regard to the maintainability of the petition could be considered before determining either in preliminary enquiry or in a composite enquiry, as envisaged by the order of the learned Judge state of the mind of the third respondent;

(2) If so, whether the petition is maintainable?

9. After hearing learned counsel for the parties it appears to me that the first question must be answered in the negative and, in view of that, the consideration of the second question must be deferred till after the question as to' the state of mind of the third respondent has been determined.

10. Order 32, Rule 3 of the Code of Civil Procedure provides that where the defendant was a minor the Court on being satisfied with regard to the fact of his minority shall appoint a proper person to be guardian in suit for such minor. By virtue of the provisions of Rule 15, the provisions of Rules 1 to 14 of O. 32, relating to minors, are made applicable, so far as may be, 'to persons adjudged to be of unsound mind and to persoi-15 who though not so adjudged are found bi the court, on enquiry, by reasons of unsoundness of mind or mental infirmity to be incapable of protecting their interests when suing or being sued'. The,, provisions contained in Order 32 not only empower the court to take appropriate empower steps where a party to the proceedings is a minor or a person who is incapable of protecting his interest whether by] reason of unsoundness of mind or mental!, infirmity, but also cast a mandatory duty' on the court to take steps to ensure proper representation for such persons sol, as to ensure that their interest in relation to the proceedings are fully protect-I ed. These provisions are a legislative re-cognition of the well-known principle' that the State, as indeed the Court, which is part of the judicial wing of the State ' is in locus parentis to its citizens, who are either minors or are incapable of protecting their interests in judicial proceedings by reasons of unsoundness of mind or mental infirmity. There can.1 thereforee, be no doubt that before the Court proceeds with a suit or other proceedings, in which one of the parties is either a minor or otherwise incapable of protecting his interests, the Court is bound to hold a preliminary enquiry and, if satisfied that the conditions of the relevant rules are attracted, to make appropriate directions with regard to the proper representation of such persons. In such a case it would not be open to the court to consider the suit or the other proceedings before complying with these mandatory requirements.

11. There is no force in the contention urged on behalf of some of the respondents that Rule 15 would not be attracted unless the person said to be incapable of protecting his interest had been 'adjudicated to be of unsound mind' This contention clearly overlooks the later part of the Rule which envisages the case of 'persons who though not so adjudged are found by the Court on inquiry... ... ... to be incapable of protecting their interests when suing or being sued'. A prior adjudication with regard to the state of mind of a person is, thereforee, not necessary for the court to invoke the provision of R. 15 of O. 32.

12. The further contention urged on behalf of some of the respondents is that, in any event, this Court was not the forum for the determination of the state of mind of the third respondent said to be incapable of protecting her interest, and that such a question could only be agitated in a court competent to administer the Indian Lunacy Act. Counsel was unable to point to any provision of any statute which may vest in any court or authority an exclusive jurisdiction to determine such questions. On the contrary, the language of Rule 15 leaves no manner of doubt that every court, which is seized of proceedings in which there is a person who is said to be incapable of protecting her interests in relation to the proceedings. has the necessary power, as indeed a duty, to hold a preliminary inquiry to find if such a person was incapable and to take such steps as may be necessary to protect his interest. This contention must also fail.

13. Lastly, it was urged that the question -as to the maintainability of the petition was not a question which forms part of the consideration of the petition and that such a question could be considered without holding an inquiry as to the state of mind of a person said to be incapable of protecting his or her interests. This contention is equally fallacious. The question -as to the maintainability of the petition is not foreign to the petition. Whether a petition is maintainable or not is a part of the consideration of the petition itself even though for the purpose of a consideration of the question of maintainability the allegations made in the petition have to be assumed to be correct. A minor or a person of unsound mind is as much entitled to participate in the proceedings for the consideration of the petition on merits as also of the basic question if the petition, as laid, is maintainable. The question of maintainability has its impact on the course that the further proceedings in the petition would take. The decision may turn out to be in favor of or against the minor or a person who is incapable of protecting his or her interests. If a petitioner such a person would be entitled to canvass in favor of its maintainability, while if a respondent he would be entitled either to support the petitioner or to canvass that the Petition was not maintainable. In either of these cases, a proper representation is a sine qua non for any valid consideration of the question of maintainability. It is, thereforee, not possible to accept the contention that the question of maintainability could be considered and decided without first determining if the third respondent is or is not capable of protecting her interest. It is also not possible to legitimately hear counsel for the third respondent on the question of maintainability unless the validity of his representation has first been considered and decided following a decision with regard to the true state of mind of the third respondent.

14. Apart from the principle and the provisions of Order 32 of the Code of Civil Procedure the order made by Kapur, J. on October 11. 1976, to my mind, clearly envisages that before any further proceedings the question of the state of mind of the third respondent must be first determined even though in a composite enquiry in the peculiar circumstances of this case which would ensure not only for the purpose of a preli- minary enquiry under Order 32, but 'also for the purpose of decision of the question of state of mind of the third respondent on the merits of the petition, Speaking for myself, 1 should have thought the scope of the preliminary enquiry and the scope of the trial of the question as to the state of mind of the petitioner on the merits is not co-extensive and ordinarily, the Court would have first held a preliminary enquiry to determine the state of mind of the third respondent for the purpose of appointment of guardian-ad-litem but in the peculiar circumstances the learned Judge had directed a composite enquiry before proceeding further with the petition. The order remains unchallenged and I do not see how in the face of this order it is open to the respondents to raise the the question of maintainability of the petition or any other matter on the merits of the petition until the question of the state of mind of the third respondent has been determined and the problem of proper representation has been dealt with. The order clearly excludes all proceedings on the petition except the question as to the state of the mind of the third respondent.

15. In the result, I would defer the decision of the question as to the maintainability of the petition till the composite enquiry envisaged by the afore said order has been held and the question as to the true state of mind of the third respondent has been decided. In case the respondents are keen to have a decision on the question of maintainability of the petition before a decision on the merits with regard to the state of the mind of the third respondent the respondents would have the option to have the preliminary enquiry de-linked from the enquiry on the merits.

16. Let the matter be listed for further consideration to enable the respondents to exercise their option.

17. Order accordingly.


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