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Lord Krishna Sugar Mills Ltd. Vs. Smt. Abnash Kaur - Court Judgment

LegalCrystal Citation
SubjectCompany
CourtDelhi High Court
Decided On
Case NumberC.A. No. 382 of 1971 in C.O. No. 58-D of 1960
Judge
Reported in[1974]44CompCas210(Delhi)
ActsCompanies Act, 1956 - Sections 397, 398 and 402; Companies (Court) Rules, 1959 - Rule 9; Code of Civil Procedure (CPC) , 1908 - Sections 151
AppellantLord Krishna Sugar Mills Ltd.
RespondentSmt. Abnash Kaur
Appellant Advocate Ved Vyas, Senior Adv. and ; S.P. Aggarwal, Adv
Respondent Advocate R.M. Lal, Senior Adv. and ; G.C. Mittal, Adv.
Cases ReferredBhagwati Pershad v. British India Corporation Ltd.
Excerpt:
.....not effect substantive rights of parties - specific powers conferred on courts for passing orders affected rights of the parties - it was held that such powers could not come within the scope of inherent powers of the court in the matters of procedure - further, neither rule 9 of the companies rules 1959 nor section 151 of the code was applicable to make direction to board of the directors for proper functioning the company - it was also held that the court had power under section 402 of the companies act, 1956 to make direction - - in this view of the matter the finances of the company are in safe hands and smt. the whole purpose of that order would be defeated if for lack of proper guidance and supervision theinterim management is frustrated in its efforts to continue proper..........the company will be in the hands of the board constituted by the court and not in the hands of the board of directors to be appointed under the memorandum and articles of association of the company. 3. the present application has been moved on behalf of the company under instructions of the board of management appointed by this court for a direction that the company may be permitted to avail of the sub-limit of rs. 1,50,000 that it has with its bankers in the overall limit of the cash credit facility given by the bank to the company by pledge of general stores and to execute the requisite documents required by the bank in this behalf. the occasion to move this application has arisen because of alleged financial stringency caused on account of the high price of cotton and suspension of.....
Judgment:

Prakash Naeain, J.

1. Smt. Abnash Kaur had filed a winding-up petition against Lord Krishna Sugar Mills Ltd. and others under the provisions, inter alia, of Section 433(f) of the Companies Act, 1956. This petition was decided by me on May 27, 1971. I had not granted the relief of winding up of the company but had made an order granting to the petitioner relief under Sections 397, 398 and 402 of the Companies Act, 1956. Against this order the respondents in the company petition went up in appeal and the said appeals have been admitted.

2. For the purposes of the relief that I had granted to Smt. Abnash Kaur I had constituted an interim board of management. The constitution of this board was somewhat changed by the Appellate Bench but, by and large, the Appellate Bench continued the order passed by me that till the valuation of the shares is fixed by this court, the management of the company will be in the hands of the board constituted by the court and not in the hands of the board of directors to be appointed under the memorandum and articles of association of the company.

3. The present application has been moved on behalf of the company under instructions of the board of management appointed by this court for a direction that the company may be permitted to avail of the sub-limit of Rs. 1,50,000 that it has with its bankers in the overall limit of the cash credit facility given by the bank to the company by pledge of general stores and to execute the requisite documents required by the bank in this behalf. The occasion to move this application has arisen because of alleged financial stringency caused on account of the high price of cotton and suspension of production in the textile mills for two months; The company negotiated with its bankers that it may make available a sum of Rs. 1,50,000 to the company in the credit account against pledge of general stores within the sanctioned limit of Rs. 2,75,000 already sanctioned by the bank. On this the bank agreed to make the money available to the company provided the necessary resolution in this behalf passed by the board of directors is produced before it. The board of directors as presently constituted has unanimously passed the requisite resolution but by way of abundant caution, Shri A. N. Kirpal, the chairman of the board, so appointed by the court suggested that it would be desirable to bring the matter to the notice of the court and not to avail of this facility till appropriate orders are passed by the court.

4. Notice of this application was given to Smt. Abnash Kaur who has strongly opposed the application. Apart from the objection on merit that the directors of the company have been misappropriating huge amounts of the company the objection is that this court has no jurisdiction to pass any order as prayed.

5. I may first dispose of the objection about the alleged misappropriation of money by the directors. Whatever may have been the situation obtaining prior to my order dated 27th May, 1971, to-day the company is functioning under a board of directors constituted by this court and can take no action unless it has approval and consent of the court's nominee, Shri A. N. Kripal. In this view of the matter the finances of the company are in safe hands and Smt. Abnash Kaur cannot be heard to repeat the allegations against the former directors in the conditions that are obtaining today unless she can show positively that any misappropriation has taken place since 27th May, 1971.

6. I now come to the other question whether this court has jurisdiction to pass any orders or not in the application moved on behalf of the company. The application is moved under Rule 9 of the Companies (Court) Rules and Section 151 of the Code of Civil Procedure, 1908. Without quoting any section the application also purports to be under the Companies Act. Rule 9 of the Companies (Court) Rules is a general provision which provides that nothing in those Rules shall be deemed to limit or otherwise affect the inherent powers of the court to give such directions or pass such orders as may be necessary for the ends of justice or to prevent abuse of the process of the court. This rule appears among rules dealing with practice and procedure of the company court and so cannot confer any substantive right in a party to move the court under this rule so as to confer jurisdiction upon the court to deal with such an application as has been moved. Mr. R. M. Lal's contention is that C.O. 58-D of 1960 having been decided this court becomes functus officio to deal with any matter arising out of that litigation, particularly when an appeal had been filed and admitted. Mr. Ved Vyas's contention originally was that this court would always have jurisdiction particularly when some aspects of the relief granted in C.O. 58-D of 1960 are still to come up before this court for final decision. In any case Mr. Ved Vyas urged that since the appellate Bench has chosen not to give any directions on a similar application as the present one moved to-day this court alone would have jurisdiction to give directions. As Mr. R. M. Lal urged that it should be clarified by the petitioner-company whether its contention was that C.O. 58-D of 1960 stood finally decided or not, Mr. Ved Vyas only restricted his submissions to urge that since the appellate court has not entertained a similar application and has directed that it should be decided by the company court, this court hasjurisdiction to decide the matter and give necessary directions. In my view the appellate Bench has not given any directions that this court should decide the matter. It has only declined to give any directions itself and left it to the applicant-company to seek its remedy before the appropriate forum. It is only because of this that a separate application as moved by the applicant-company can be justified. So, the question that arises is whether this court has jurisdiction to give any directions as sought for by the company.

7. Order 41, Rule 5, of the Civil Procedure Code, is obviously not attracted at all and I have already commented that Rule 9 of the Companies (Court) Rules had no applicability in the present case. The same would be my view with regard to invoking Section 151 of the Code of Civil Procedure. Section 151 of the Code refers to procedure to be followed by the court in deciding the case before it. Those powers do not affect the substantive rights of litigants. Specific powers have to be conferred on the courts for passing orders which would affect the rights of a party. Such powers cannot come within the scope of inherent powers of the court in matters of procedure, for such powers must have their source in statute or common law. Indeed, these points have been settled by a Bench decision of the Punjab High Court in Smt. Abnash Kaur v. Lord Krishna Sugar Mills Ltd. (L. P. A. No. 38(A)-D of 1961 decided on 10th March, 1965) by Falshaw C.J. and Mehar Singh J. (as their Lordships then were). That was a decision interprets and would, in any case, bind the parties to the present application and so I hold that the application is not maintainable either under Rule 9 or under Section 151, Civil Procedure Code.

8. This brings me to the question as to whether the application is maintainable under any other provision of the Companies Act. Section 402 under which relief has been given by me in deciding C.O. 58-D of 1960, inter alia, provides that the court may by its order while giving relief under Sections 397 and 398 provide for regulation of the conduct of the company's affairs in future. The interim board that has been appointed by this court or by the appellate Bench of this court is to function only till such time as provided in my judgment dated 27th May, 1971. During this period it is thus obvious that the board functions under the supervision of the court. Since relief has been granted under Sections 397, 398 and 402 of the Companies Act and the interim management has been appointed by the court and has to function under the supervision of the court, it follows that the court can under its supervisory powers not only curtail the term of the committee or its powers but also give guidance to it whenever it is placed in any difficulty. The order under Sections 397 and 398 of the Companies Act is for the protection of the shareholders. The whole purpose of that order would be defeated if for lack of proper guidance and supervision theinterim management is frustrated in its efforts to continue proper functioning of the company. I, thereforee, hold that it is within the competence of this court to give directions and instructions from time to time so as to resolve the problems and difficulties of the board of interim management. I am fortified in coming to this view by a Bench decision of the Allahabad High Court in Bhagwati Pershad v. British India Corporation Ltd.

9. Keeping in view the circumstances disclosed in the present application, I, thereforee, sanction and approve the resolution of the board of directors passed on 27th August, 1971. There will be no order as to costs of this application.


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