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East India Co. Vs. Official Liquidator and anr. - Court Judgment

LegalCrystal Citation
SubjectCompany
CourtGujarat High Court
Decided On
Judge
Reported in(1970)GLR457
ActsCompanies Act, 1956 - Sections 457(1), 457(2), 457(3), 460(4) and 643(1)(A); Companies (Court) Rules, 1959 - Rule 139
AppellantEast India Co.
RespondentOfficial Liquidator and anr.
Appellant Advocate R.M. Shukla representing the Majoor Mahajan Sangh, Petlad; B.R. Shah, Adv.
Respondent Advocate J.M. Thakore, Adv.
Cases ReferredKanssen and Marsh v. March
Excerpt:
(i) company - winding up - sections 457 (1), 457 (2), 457 (3), 460 (4) and 643 (1) (a) of companies act, 1956 and rule 139 of companies (court) rules, 1959 - company ordered to be wound up by court - company judge at instance of official liquidator passed order that textile mill owned by company need not be sold at public auction - said mill sold in favour of second respondent being highest bidder at newspaper advertisement put by liquidator - order challenged on ground of being in violation of rule 139 - decision given in breach of mandatory requirement of rule 139 whether void or voidable - compliance of requirement of rule 139 by official liquidator conditions precedent for court to exercise power to give directions of sale in winding up proceedings - in absence of compliance of rule.....bhagwati, c.j.1. these appeals raise questions of considerable importance and complexity having impact alike in the filed of administrative law as in the field of civil law. they arise out of proceedings in the winding up of a company called rajratna naranbhai mills ltd. (hereinafter referred to as 'the company'). the company owned a textile mill in petlad, a town situate in kaira district, and by an order made by a single judge of this court on 26th june, 1967, the company was ordered to be wound up by the court one the ground that it was unable to pay its debts . on the making of the winding up order, the official liquidator attached to this court took charge of the assets of the company and commenced the winding up proceedings. the official liquidator, after obtaining the sanction of.....
Judgment:

Bhagwati, C.J.

1. These appeals raise questions of considerable importance and complexity having impact alike in the filed of administrative law as in the field of civil law. They arise out of proceedings in the winding up of a company called Rajratna Naranbhai Mills Ltd. (hereinafter referred to as 'the company'). The Company owned a textile mill in Petlad, a town situate in Kaira District, and by an order made by a single judge of this court on 26th June, 1967, the company was ordered to be wound up by the court one the ground that it was unable to pay its debts . On the making of the winding up order, the official liquidator attached to this court took charge of the assets of the company and commenced the winding up proceedings. The official liquidator, after obtaining the sanction of the company judge, disposed of some of the stocks and stores of the company which were likely to deteriorate in value with the the passage of time but he was obstructed in giving delivery of the goods by the workers who insisted that he should proceed to sell the textile mill so that it might be started by the purchaser and the workers might get employment. The official liquidator, therefore, made report to the company judge on 5th March, 1968, for directions in regard to the sale of the textile mill comprising land, buildings, plant and machinery and other assets such a equipment, furniture, etc. It may be mentioned at this stage that prior to the making of this report for directions, on December 26, 1967, the directors of the company had made out and submitted to the official liquidator a statement as to the affairs of the company as required by section 454 of the Companies Act, 1956, and this statement showed the estimated value of the assets of the company to be in the neighborhood of rupees sixty-six lakhs. The official liquidator in report made by him pointed out this fact to the company judge and sought the directions of the company judge a to whether he should obtain valuation report in regard to the textile mill before issuing advertisements for a sale of the textile mill or he should issue such advertisements without obtaining the valuation report and, in the absence of the valuation report, fix any offset price and whether he should demand any earnest money by way of deposit along with the application for offer. On the report, namely, 5th March, 1968. The company judge directed that advertisements for sale of the textile mill should be given in two Gujarati newspapers, namely Sandesh and Gujarat Samachar, and two English newspapers, namely, Times of India, bombay edition, and Times of India, Ahmedabad edition, without obtaining any valuation report no offset price need be fixed before issuing such advertisements and rupees twenty-five thousand should be demanded as earnest money by way of deposit along with the application for offer. Pursuant to these directions of the company judge, the official liquidator issued advertisement in Times of India, bombay and Ahmedabad editions and Sandesh and Gujarat Samachar, inviting offers for purchase of the textile mill belonging to the company 'for running the mill'. It was stated in the advertisements that the offers should be accompanies by the earnest money of rupees twenty-five thousand and that the sale would be on 'as is and where is' basis and would be' subject to sanction of this hon'ble High Court and upon additional payment of 10% of the value offered within a week from the date of such intimation by the official liquidator '. Six offers were received by the official liquidator in response to the advertisements but out of them, three were not accompanied by the earnest money of rupees twenty-five thousand and they were therefore not eligible to the considered according to the directions given by the company judge. These three offers which were not accompanied by the earnest money of rupees twenty-five thousand were as under :

(1) Shri Parshottamdas H. Choksi Rs. 10,00,00

(2) Shri Dhaneshkumar Rameshchandra Rs. 9,25,000

(3) Shri Ishwarbhai R. Patel Rs. 11,25,000

2. The remaining three offers which were accompanied with the earnest money of rupees twenty-five thousand and which were, therefore, in order were from :

(1) Shri Vrajeshkumar A. Parekh for Rs. 11,12,111

(2) Shri Vithalbhai P. Patel, the Rs. 12,50,000 second respondent for

(3) Shri Ambubhai K. Patel for Rs. 12,00,000

3. It may be pointed out that Shri Vrajeshkumar A. Parekh who made an offer of Rs. 11,12,111 was one of the directors of the company at the date when it was ordered to be wound up by the court and he along with other directors was a sanitary to the statement of affairs filed under section 454 of the Act. On receipt of these offers, the official liquidator made a report to Divan J. on 24th April, 1968, placing these offers before the learned judge and seeking his further directions on the points specified in the report. On the report the learned judge made an order dated 25th April, 1968, that it was not necessary to obtain any valuation report nor was it necessary to sell the textile mill of the company by public auction and that the official liquidator should write to the second respondent, the highest offered, that this offer would be accepted provided he deposit ten per cent. of the purchase price with the official liquidator. Pursuant to these directions given by the learned judge, the official liquidator wrote to the second respondent stating that his offer would be accepted if he deposited ten per cent. of the purchase price and calling upon him to pay the same within one week from the date of receipt of the letter. THe second respondent accordingly deposited with the official liquidator a sum of Rs. 1,25,000 by a demand draft forwarded along with his letter dated 30th April, 1968, and on receipt of the amount of deposit, the official liquidator addressed a letter dated 3rd May, 1968, to the second respondent intimating to him that his offer for purchase of the textile mil of the company was accepted. All that remained to be done thereafter was for the official liquidator to obtain confirmation of this sale in favour of the second respondent.

4. But before the official liquidator could take any steps for the purpose of obtaining such confirmation, one manharila Shah a creditor of the company, who had supported the appellant in the winding up petition, preferred an appeal, being Original Jurisdiction Appeal No. 2 of 1968, against the order of Divan J. dated 25th April, 1968, sacntioning the sale in favour of the second respondent. The appeal, interim order was obtained staying the operation of the order impugned in the appeal. The appeal was however, dismissed by a Division Bench of this court on 25th April, 1968, on the ground that the appeal was not maintainable at the instance of Manharlal Shah since he was not a party to the proceeding in which the impugned order was passed by Divan J. Manharlal shah thereupon applied for and obtained leave to appeal to the Supreme Court but subsequently he decided not to proceed further and the leave was therefore revoked.

5. Some time thereafter, on 7th October, 1968, the appellant in these appeals took out a judge's summons, being Company Application No. 76 of 1968, praying that the orders dated 5th March, 1968, and 25th April, 1968, passed by Divan J. and the proceedings taken by the official liquidator pursuant to those orders be set aside since those orders were passed by the learned judge without issuing notice to the appellant and giving him an opportunity to be heard and they were, therefore, null and void. This summons was, however, subsequently by an order dated 12th December, 1968, made by Divan J., allowed to be withdrawn by the appellant with liberty to adopt fresh proceedings if so advised in respect of the same subject matter and without prejudice to the rights and contentions of the parties.

6. The appellant did not thereafter adopt any fresh proceedings for setting aside the orders dated 5th March, 1968, and 25th April, 1968, but, in the meantime, the official liquidator took out a summons for directions in Company Application No. 3 of 1969 on 17th January, 1969. By this summons for directions, which we shall hereafter refer to as the first summons, the official liquidator sought sanction of the court in regard to the exercise of the power to sell the movable and immovable properties of the company. Now, obviously, this summons was futile since the official liquidator had already agreed to sell the textile mill comprising all the assets of the company to the second respondent after obtaining the sanction of the court and no other property of the company remained to be sold but the summons was taken out by him ex abundanti cautela in view of a judgment given by a Division Bench of this court in the meantime in a matter arising in the winding up of a company called Anant Mills Ltd. This judgment, to which we shall refer in some detail a little later, decided that whenever the official liquidators wants to exercise the power to sell any property of the company under section 457, sub-section (1), clause (c), it is obligatory upon him to comply with the procedure set out in rule 139 and to take out a summons for directions as contemplated by that rule so that notice of the summons would go to the petitioning creditor and the petitioning creditor would have an opportunity of being heard before the court gives directions in regard to the exercise of the power of sale and that the directions given by the company judge in that case on the report of the official liquidator without complying with the procedure set out in rule 139 were, therefore, liable to be set aside. The official liquidator probably felt in view of this judgment that the defect in the procedure followed by him in the present case should be remedied and, therefore, with a view to regularising the steps he had already taken huge took out the first summons for directions. The appellant supported the prayer in the first summons for direction on the ground that the orders dated 8th March, 1968 and 25th April 1968, were null an void since they had been passed by Divan J. without complying with the procedure set out in rule 139 and in any event in breach of the principles of natural justice and the entire proceedings being thus vitiated it was necessary to issue fresh directions to the official liquidator with regard to the sale of the properties of the company. The second respondent was also joined as a party respondent to this summons for directions and his stand was that the entire assets of the company having already been agreed to be sold to him by the official liquidator with the sanction of the court nothing further remained to be done and the first summons for directions was therefore misconceived.

7. The first summons for directions came up for hearing before D.A.Desai J. and at the hearing it was felt that the appropriate stage at which the objections against the validity of the sale in favour of the second respondent could be properly considered would be when the official liquidator moved the court for confirmation of the sale under rule 272 of the companies (Court) Rules, 1959, and the first summons for directions was, therefore adjourned in order to enable the official liquidator to take out a summons for directions for confirmation of the sale. The official liquidator, accordingly took out another summons for directions in Company Application No. 23 of 1969 on 1st February, 1969, for confirmation of the sale in favour of the second respondent. This summons for directions which we shall hereafter refer to as the second summons was also addressed tothe appellant and the second respondent. The appellant opposed the summons for directions while the second respondent supported it. The two summonses for direction were heared together by D.A.Deasi J> and by an order dated 12/13th March, 1969, the learned judge rejected the contentions of the appellant and upheld the proposed sale in favour of the second respondent. The learned judge held following the judgment of the Division Bench in Anant Mills case, that the official liquidator had failed to comply with the mandatory provision of rule 139 which required that if the official liquidator wants to exercise his power to sell any property of the company under section 457 sub- section (1), clauses (c) he must take out a summons for direction with notice to the petitioning creditor. But, observed the learned judge, this non-compliance did not have the effect of rendering the orders dated 5th March, 1968, and 25th April, 1968 void ab initio; these orders were merely voidable at the discretion of the court in properly constituted proceedings adopted by the appellant and since no proper proceedings had been adopted by the appellant to annual or set aside these orders, they stood valid and could not be ignored by the court as a nullity in subsequent proceeding adopted by the official liquidator; the learned judge observed that these orders being judicial orders made by a single judge of this court, they could not be disregarded unless they were set aside by adopting appropriate proceedings such as appeal or review and, since no such proceedings were adopted by the appellant, it was not competent to him of disregard these orders. The learned judge then proceeded to consider whether the proposed sale in favour of the second respondent should be confirmed and, after considering various relevant facts and circumstances bearing upon this question, the learned judge came to the conclusion that the price at which the textile mill of the company was proposed to be sold to the second respondent was neither improper nor unduly low and there was no reason why the proposed sale should not be confirmed. The learned judge in this view of the matter rejected the first summons for directions and granted th second by confirming the proposed sale in favour of the second respondent. The appellant thereupon preferred two appeals, one in each summons for directions.

8. The Principal contention urged on behalf of the appellant in support of the appeals was that, on a proper construction, rule 139 required that if the official liquidator wants to sell any property of the company in liquidation in exercise of th power under section 457, Sub- section (1), clause (c),he must take out a summons for directions and notice of the summons must be given to the petitioner on whose petition the winding up order is made and since this procedure was not followed in the present case and the mandatory requirement of rule 139 was infringed the orders dated 5th March, 1968, passed by Divan J. and all subsequent proceedings pursuant to those orders were null and void and the proposed sale in favour of the second respondent was not liable to be confirmed as claimed in the second summons for directions and fresh directions in regard to the sale of the textile mill of the company were necessary to be given as prayed for in the first place, submitted that rule 139 had on application when the official liquidator wanted to exercise his power to sell any property of the company under section 457, sub-section (1), clause (c); it did not oblige him to follow the procedure therein set out; he could obtain necessary directions on a report without taking out a summons for directions . If contrary to this submission, rule 139 was held applicable then, said the second respondent,. it was directory and not mandatory, and branch of it did not have any invalidating consequence. The second respondent also urged that if rule 139 was so construed as suggested by the appellant it went beyond section 643 which conferred rule-making power onthe Supreme Court and was, therefore, without authority and void. Even if rule 139 was held to be valid an obligatory in this mandate, contended the second respondent, a disregard of that rule did not have the effect of rendering the orders of Divan J. and void : it merely made them voidable in an appropriate proceeding and , since no appropriate proceedings by way of appeal or review was taken by the appellant to have these orders quashed and set aside, they stood valid an could not be ignored by D.A.Desai j. in disposing of the two summonses for directions before him. It was also urged on behalf of the second respondent that, in any event,even if the orders of Divan j. were a nullity, they were judicial orders of a superior court and, therefore unless they were set aside by adopting appropriate proceedings such as appeal or review, they could not be ignored by the courts as a nullity in subsequent proceedings and D.A.Desai J. was right in proceedings on the basis that they were valid and effective. The second respondent also urged in the last alternative that, in any view of the matter the appellant had waived breach of the mandatory requirement or rule 139 and the orders of Divan J. were, therefore, not null and void and, in any event the appellant was preluded from contending that they were so.

9. On there rival contentions, the first question which arises for consideration is as to whether rule 139 has any application when the official liquidator wants to exercise his power to sell any property of the company under section 457, sub-section (1), clause (c). Is he obliged, then, to take out a summons for directions with notice to the petitioning creditors on pain of invalidity of the proceedings taken by him or is it competent for him to obtain directions of the court on a report The learned Advocate-General appearing on behalf of the second respondent contended that rule 139 is not applicable in such a case and it is not necessary for the official liquidator to take out a summons for directions under this rule if he wants to sell any property of the company in exercise of his power under section 457, sub-section (1) clause (c). He pointed out that the occasion to exercise the power of sale may arise at any point of time in winding up proceedings and if rule 139 were construed to mean that, whenever the official liquidator wants to sell any property of the company he must come under rule 139, that would make nonsense of the provision in the opening part of the rule which says that a summons for directions shall be taken out by the official liquidator ' as soon as practicable after the winding up order is made and, in any event, not later than seven days after filing his preliminary report under sub-section (1) of section 455'. How can this prescription of the opening part f the rule fit in where the official liquidator proposes to sell any property of the company, say three of four years after the winding up order is made As a matter of fact, in a majority of cases, no question of selling any property of the company would arise until after various steps in the winding up have been taken by the official liquidator and that might take quite a long time. In such cases it would be impossible to comply with the requirements as to time set out in the opening part of rule 139. The learned Advocate-General Pointed out that the summons for directions contemplated in rule 139 is a summons which is required to be taken out by the official liquidator without unreasonable delay in order that the court should have complete seizin of the winding up proceedings and the programme of winding up may be chalked out at the earliest so as to expedite the winding up proceedings and avoid unnecessary delay. This summons for directions, contended the learned Advocate-General, is akin to a summon for directions which is required to be taken out in suits in city civil courts in order to fix in advance the various steps in the proceeding in the suit. Rule 139, said the learned Advocate-General, does not contemplate summonses for directions to be taken out from time to time in the course of winding up whenever the official liquidator wants to exercise any of his powers under section 457, sub- section (1), or requires directions of the court on any matter arising in the winding up. This contention urged by the learned Advocate- General on behalf of the second respondent might have required serious consideration by us, if the construction of the rule were res integral, but, as held by D.A. Desai J., this contention is already concluded adversely to the second respondent by the decision of the Division Bench in Anant Mills' case and it would therefore be futile on our part to examine its validity. What happened in Anant Mills' case was that, after the Anant Mills Ltd. was ordered to be wound up by the court, the official liquidator made a report, dated 5th March, 1968, to Divan J. on 5th, March. 1968, was also a common order applicable to both the companies. the same procedure was followed by the official liquidator as he did in the present case and Divan J., by an order dated 6th June, 1968, made on the report submitted by the official liquidator, directed him to accept the offer made by one Raojibhai Patel. The petitioning creditor thereupon preferred an appeal against the order dated 6th June, 1968, after obtaining leave of the court and this appeal came up for hearing before a Division Bench consisting of Bakshi and D. A. Desai JJ. The main contention in support of the appeal was that no directions could be given by the court in regard to the exercise by the liquidator of his power to sell any property of the company under section 457, sub-section (1), clause (c), unless a summons for directions was taken out by him and notice of the summons was given to the petitioning creditor as required by rule 139 and that the order dated 6th June, 1968, not being in compliance with the mandatory requirement of rule 139, was therefore, invalid. This contention was upheld by the Division Bench and the order, dated 6th June, 1968, was set aside. Bakshi J., speaking on behalf of the Division Bench said :

'On a plain reading of the rule its effect is that when any of the three matters mentioned above is to be considered and orders are to be taken in regard to it, a summons for directions and a notice to the petitioning creditor are essential. This rule specifically refers to the taking out of a summons and the issuance of a notice, and the words `upon the hearing' in the rule make it amply clear that such orders are intended to be passed after a hearing. The matters included within the scope of the rule are such that while passing orders in regard to them, rights or interests of persons concerned and it would be in consonance with the principles of justice that persons whose interests are likely to be affected should be heard before any orders were passed on matters in which they are likely to be concerned. In cases, for example, where it is proposed to grant permission to sell the property of the company, several questions might arise which the court might be required to consider whether the property should be sold wholly or in part, whether the property should be leased out or use or dealt with in any other manner, whether the sanction to sell should be general or restrictive. On all these and several other questions including the value and the price of the assets, it would be necessary for the court to apply its mind. The exercise of powers mentioned in sub-section (1) of section 457 by the liquidator would be such a matter and in such cases it has been thought proper to make a specific rule to take out summons for directions and to issue a notice to the petitioning creditors so that a hearing to the persons concerned may be given before the court considers and applies its mind on the questions before it and the parties may be enabled to place their point of view before the court...... when the liquidator asks for permission to sell...... In such a case ......the provisions of rule 139 would be attracted and it would be necessary to take out summons for directions and to issue a notice to the petitioning creditor..... Now rule 139 makes no exception and any matter which would be within its ambit would be governed by that rule and it would then be necessary to follow the procedure prescribed therein. When directions for the use of power of the liquidator are to be obtained from the court, that is the rule which would apply and when directions relating to permission to sell are sought rule 139 would come into operation .... We are, therefore, of the view that when the liquidator filed his report on 5th March, 1968, seeking directions from the court, the provisions of rule 139 were attracted and it was necessary that a summons for directions was taken out and a notice was issued to the petitioning creditor.'

10. These observations apply wholly and completely in the present case and it must, therefore, be held that rule 139 was application and the official liquidator making a report to the court for directions in regard to the exercise of the power to sell the textile mill of the company under section 457, sub-section (1), clause (c), ought to have taken out a summons for directions and notice of the summons ought to have gone to the appellant as required by rule 139. These observations also conclude the contention of the second respondent that rule 139 is directory and not mandatory. Bakshi J. has emphasised at several places that the taking out of a summons for directions and giving notice of it to the petitioning creditor are 'essential', which is the same thing as saying that they are mandatory. As a matter of fact, if rule 139 were directory and not mandatory, it is difficult to see how the Division Bench could have come to the conclusion that breach of it had the effect of invalidating the order dated 6th June, 1968. We must, therefore, reject the contention of the learned Advocate-General that rule 139 had no application when the official liquidator sought directions of the court in regard to the sale of the textile mill of the company and that, in any event, the provision enacted in it was directory and not mandatory.

11. That takes us to the next question whether rule 139 is outside the scope of the rule-making power conferred on the Supreme Court under section 643. That section provides :

'643. (1) The Supreme Court, after consulting the High Court, -

(a) shall make rules providing for all matters relating to the winding up of companies which, by this Act, are to be prescribed ; and may make rules providing for all such matters as may be prescribed......

(b) may make rules consistent with the Code of Civil Procedure, 1908, - (i) as to the mode of proceedings to be had for winding up of a company in High Courts and in courts subordinate thereto ;.....'

12. Clause (a) of sub-section (1) of section 643 confers power on the Supreme Court to make rules providing for all matters relating to winding up of companies which by the Act are to be prescribed. Now, rule 139, as interpreted by the Division Bench in Anant Mills case, prescribes the manner in which the official liquidator should obtain directions of the court with regard, inter alia, to the exercise of the power to sell the assets of the company under section 457, sub- section (1), clause (c). The question is whether this rue can be said to be a rule providing for any matter relating to the winding up of companies which, by the Act, is to be prescribed. The sale of the assets of the company is certainly a matter relating to the winding up of the company and rule 139 is, therefore, a rule providing for a matter relating to the winding up of companies. But, as the plain language of the section shows, that is not enough. the matter must be one in relation to which rules are required to be prescribed by the Act. We must, therefore, turn to inquire whether there is any provision in the Act which prescribes making of rules in regard to sale of the assets of the company. The learned Advocate-General contended that there is no such provision in the Act, and he relied on the absence of any such provision in section 457, sub-section (1), and section 458 which are the sections providing for the exercise of the power to seel the assets of the company. But the search for such a provision cannot be limited to section 457(1) and section 458. Section 460, sub-section (4), clearly enacts such a provisions. It says that the liquidator may apply to the court in the manner prescribed, if any, for directions in relation to any particular matter arising in the winding up. The manner in which an application may be made by the official liquidator for directions in relation to the exercise of the power to sell the assets of the company is a matter which by this provision is to be prescribed and rule 139 is, therefore, clearly a rule providing for a required to be prescribed within the meaning of section 643, sub-section (1), clause (a). Rule 139 as interpreted in Anant Mills case, must therefore be held to be within the scope of the rule-making power of the Supreme Court under section 643 and the challenge to its validity must fail.

13. We now pass on to consider the next question as to what is the effect of breach of the mandatory requirement of rule 139. Does it render the decision given in breach of if void or voidable? Now, in order to answer this question, it is necessary first to appreciate the distinction between 'void' and 'voidable'. As pointed out by Sir Frederick Pollock in his Law of Contracts, the words 'void' and 'voidable' are imprecise and apt to mislead and it is therefore all the more necessary that we should clear the ground by pointing out what exactly is the sense in which these words are used when we speak of a void decision or a voidable decision. There are two points of distinction between void and voidable acts. Firstly, as act which is void is of no force and effect ab initio : it never had any binding force. On the other hand, an act which is voidable is valid and remains valid until the court takes some action to avoid it; it is voidable at the discretion of the court so that the court is not bound to quash it; the court has discretion to uphold or condemn the acts and it may quash the act only if justice so requires; where the court quashes it, its action is not declaratory but constitutive. Secondly, the distinction between void and voidable acts depends on the method by which it is challenged. A voidable act can be invalidated for the purpose of directly challenging such acts. Appellate proceedings constitute the classic instance of such a method of review. In such proceedings the disputed decision may be set aside or modified without affecting its essential validity prior to the appeal. Following American nomenclature, these proceedings may be terms 'direct proceedings'. One the other hand, when an act is not merely voidable but void, it is a nullity and can be disregarded and impeached in any proceedings, before any court or tribunal and whenever it is relied upon. In other words, it is subject to 'collateral attack' : vide Benjafiled and Whit more on Principles of Australian Administrative Law. With these prefactory remarks, we shall no proceed to examine whether breach of the mandatory provision of rule 139 rendered the orders of Divan J. void or voidable.

14. Now, reading section 457, sub-section (1), clause (c), and rule 139, as interpreted by the Division Bench in Anant Mills' case together, it is clear that the official liquidator cannot take any steps for sale of the property of the company without obtaining the directions of the court, a view which also finds support from section in 457, sub- section (3), which prescribes that the exercise by the liquidator, in a winding up by the court, of the powers conferred by section 457, sub-sections (1) (2), shall be subject to the control of the court and the court has no power to give such directions unless the official liquidator takes out a summons for directions, notice of the summons is given to the petitioning creditor and if the petitioning creditor appears, he is heard on the summons. The giving of notice of the summons for directions to the petitioning creditor and affording him an opportunity to be heard are matters of substance and not mere matters of form : as we shall presently point out, they constitute 'essentials of justice'. Compliance with these requirements of rule 139 is a condition for the exercise of the power to give directions in regard to sale of the property of the company by the official liquidator. If the condition is not satisfied, the court cannot exercise the power, or, in other words, the court would lack power and the purported exercise of the power would be no exercise at all : it would be void and of no effect. This would appear to be the plain inevitable effect of the language used in rule 139 and no authority is needed to support it but we find that there are at least two decisions of high authority where identical approach has been adopted in construing similar statutory enactments.

15. The first decision to which we may refer in this connection is the decision of the Privy Council, in Raghunath Das v. Sundar Das. In this case the judgment-debtor became insolvent pending attachment but no notice was given to the official assignee as required by Order 21, rule 22, of the code of Civil Procedure, and the property was sold in execution of the decree and the question was whether such a sale was a nullity. Now, the jurisdiction or power to execute a decree is conferred on the court which passed the decree by section 38 of the Code, but Order 21, rule 22 prescribness that in cases falling within the rule, the court shall issue a notice to the person against whom execution is applied for calling upon him to show cause why the decree should not be executed against him. The Judicial Committee of the Privy Council held that the omission to give notice as required by Order 21, rule 22, rendered the sale absolutely void for want of jurisdiction or power and it was not a mere irregularity rendering the sale voidable. Referring to an earlier decision of the Calcutta High Court in Gopal Chunder Chatterjee v. Gunamoni Dasi, the Judicial Committee said :

'As laid down in Gopal Chunder Chatterjee v. Gunamoni Dasi, a notice under section 248 of the Code (the present Order 21, rule 22) is necessary in order that the court should obtain jurisdiction to seel property by way of execution as against the legal representative of a deceased judgment debtor.' (Underlining* is ours).

16. This statement from the opinion of the Judicial Committee clearly shows that without service of notice under Order 21, rule 22, the court would have no jurisdiction or power to sell the property of the judgment debtor in execution of the decree and the sale would be a nullity. The analogy of this decision applies wholly in the present case. There is no difference in substance between section 38 and Order 21, rule 22, of the Code and section 457, sub-section (1), clause (c), and rule 139 so far as the present question is concerned.

17. The decision of the House of Lords in Ridge v. Baldwin also supports the construction we are placing on rule 139. In that case the chief constable of Brighton was dismissed by the watch committee without complying with Regulation 1 of S. I. 1952 No. 1706 and the question was whether the dismissal was void or voidable. Section 191, sub- section (4) of Municipal Corporations Act, 1882, conferred power on the watch committee to dismiss any borough constable whom they think negligent in the discharge of his duties or otherwise unfit for the same. Regulation 1 of S.I. 1952 No. 1706 provided that if there is a report or allegation from which it appears that a chief constable may have committed an offence against the Discipline Code, then the police authority must, 'unless they are satisfied that he has not committed an offence, inform him in writing of the report or allegation and ask him whether or not he admits that he has committed an offence and give him an opportunity, if he so desires, of making to the police authority any oral or written statement he may wish to make concerning the matter'. Regulation 2 of S.I. 1952 No. 1706 as applied to chide constables by regulation 18 carved out an exception from this rule and said that if the chief constable 'admits that he has committed an offence, the police authority may impose a punishment in accordance with regulation 11 of these regulations without the case being heard in accordance with the following provisions of these regulations'. On a plain construction of these provisions, Lord Morris of Borth-y-Gest observed :

'The power to dismiss for an offence was a power that could only be exercised if the procedure of the regulations was set in motion. A purported dismissal in complete disregard of them cannot be recognised as having any validity.'

and concluded the discussion of this point by saying :

'My Lords, if the regulations were applicable in this case, as in my judgment they were, regulation 2 of S.I. 1952 No. 1706, to which I have referred above, only gives a power of impose punishment without a hearing if a condition is satisfied, namely, if there is an admission of the commission of an offence. In the present case there was not such admission, and the watch committee therefore lacked power to impose punishment for an offence without a hearing : in purporting to dismiss the appellant they acted without jurisdiction and their decision was a nullity.'

18. The powers to dimiss was conferred on the watch committee by section 191(4) of the municipal Corporations Act, 1882. There was a condition introduced by the Regulations which trenched on that power and qualified is so that, on a combined reading the power to dismiss for an offence could be exercised by the watch committee only after a hearing and the watch committee had no power to impose punishment of dismissal for an offence without a hearing. This view taken by Lord Morris of Borth-y-Gest was shared by Lord Reid, who observed 1 :

'The other ground on which some of your Lordships prefer to proceed is the respondent's failure to act in accordance with the police regulations. I have had an opportunity of reading the speech about to be delivered by my noble and learned friend Lord Morris of Borth-y- Gest, and I agree with his views about this.'

19. So also, Lord Hodson expressed his agreements with the judgment of Lord Morris of Both-y-Gest on this point. This decision clearly supports the conclusion that the power to give directions under section 457, sub-section (1) and (3) could be exercised by the court only after notice of the summons for directions to the petitioning creditor and after hearing him if be chose appear on the summons and the court lacked the power to give directions without complying with this procedure. The orders dated 5th March, 1968, and 25th April, 1968, passed by Divan J. in disregard of the mandatory requirement of rule 139 cannot, therefore, be recognised as having any validity and must be held to be a nullity.

20. This question may also he looked at from a slightly different angle. It is a basic principle of natural justice enshrined in the Latin maxim, audi alteram partem taken from the tag which Coke first quoted from Seneca's Media Lancaster v. Lowe sub-nom Boswel's Case 2 that no order shall be passed tothe prejudice of any person unless he been given a fair and reasonable opportunity to make any relevant statement statement which he might desire to bring forward and to correct or controvert any relevant statement prejudicial to his view. It is a rule of fundamental importance basic to our system of administration of justice and hallowed and sanctified by three centuries of judicial decisions in England. As far back as 1723, holding the deprivation of Dr. Bently of his degrees without notice to be illegal and invalid, Fortescue J. proclaimed the rule, in words which have become memorable:

'Besides, the objection for want of notice can never be got over. The laws of God and man both give the party an opportunity to make his defense, is he has any.' Willes J. in Cooper v. Wandsworth Board of Works 1. described the rule as one 'of universal application, and founded upon the plainest principles of justice'. So also, in Ridge v. Baldwin 2 Lord Morris of Borth-y-Gest said of the rule : 'My Lords, here is something which is basic to out system: the importance of upholding it far transcends the significance of any particular case.'

21. It is this rule which is embodied and incorporated in rule 139 : vide also the observations of Bakshi J. quoted above. The same consequence must, therefore, attach to a breach of rule 139 as would attach to a breach of audi alteram partem rule. That raises the question : what is the effect of breach of audi alteram partem rule. Does it render the decision void or voidable

22. Now, as pointed out by Lord Reid in Ridge v. Baldwin 2, this point has been decided 'time and again' and the consistent view taken by the courts in England and India has always been that a decision given in breach of audi alteram partem rule is null and void and not voidable at the discretion of the court. There are numerous decisions on the point but we will refer only to a few which directly illustrate the point we are making. One of the earliest cases in England in Which this question came up of consideration was Bunker v. Evans. 3 The Consistory Court issued sequestration taken the profits, an action of debt for money had and received was brought against him by the vicar. The action was held by the Queen's Bench to be well-founded on the ground that the sequestration was made in breach of audi alteram partem rule and was, therefore, void. The court said :

'But then, when the order was issued and disobeyed, he should not have proceeded to punish the disobedience by sequestrating without giving the plaintiff a fair opportunity of being heard: and the omission to do so, in our opinion, renders the subsequent sequestration void....On the grounds then, that this sequestration was void for the reasons given before, we think that the plaintiff was entitled to recover.'

23. The sequestration was held void and was ignored in a collateral proceeding, namely, a suit to recover the profits taken by the sequestrator as moneys had been received. If the sequestration were voidable and not void, it would have had to be set aside on appeal or in certiorari jurisdiction : it could not have been challenged in a collateral proceeding.

24. The question again came up for consideration in Hewitson and Milner v. Fabre 1. There, Order 11, rule 6, provided that when the defendant is neither a British subject nor in British dominions, notice of the writ and not the writ itself should be served upon him. The defendant was not a British subject nor was he resident in British dominions and yet, contrary to the requirement of this rule, he was served out of the jurisdiction with the writ instead of with notice of the writ. No appearance was entered on behalf of the defendant and the plaintiff accordingly signed judgment against him. The defendant thereupon took out a summons to set aside the judgment on the ground that the service of the writ was a nullity and Wills J. held that the service of the writ instead of notice in breach of Order 11, rule 6, was a nullity and not a mere irregularity and, since there had been no service the proceedings were void ab initio.

25. We may also refer to the decision of the English Court of Appeal in King v. North; Ex parte Oakey 2. There the Consistory Court had made an order requiring the vicar to pay certain expenses and costs but had given him no opportunity of being heard in his defence. The vicar applied for a writ of prohibition when the order was sought to be enforced against him and since prohibition when the order was sought to be enforced against him and since prohibition would issue only if there was lack or excess of jurisdiction, the Court of Appeal was called upon to consider whether the order of the Consistory Court was without jurisdiction on the ground that it was made in breach of audi alteram partem rule. All the three Lord justice held that it was. Bankers L.J. said :

'........and in my opinion the Chancellor had no jurisdiction to make an order for payment against any of them without a special citation informing them that damages and costs were being asked against them.'

26. Scrutton L.J. also pointed out :

'In my opinion therefore, the original proceedings in the Consistory Court were without jurisdiction and prohibition consequently would lie.'

27. Atkin L.J., too said to the same effect :

'I think therefore that the Chancellor in this case had no jurisdiction to order the vicar to pay the expenses of the restoration or the costs of the proceedings.'

28. The next decision to which we refer is an important one, for it is closely akin to the present case, and that is the decision in Craig v. Kanssen 1. In this case a certain order was obtained by the plaintiff on a summons which was not served on the defendant. The defendant on coming to know of the making of the order took out a summons asking that the order should be set aside on the ground that the summons on which the order was made had not been served upon him as required by the rules of the Supreme Court. The question debated on the summons was whether the court was entitled to set aside the order in its inherent jurisdiction or it was necessary for the the defendant to prefer an appeal against it. Croom Johnson J., before whom the summons came for hearing on appeal from the Master, took the view that the procedure adopted was not correct and the only way of getting the order set aside was by an appeal from the order and he accordingly rejected the summons. The defendant thereupon preferred an appeal and a very strong Bench consisting of lord Greene M.R. and Goddard L.J. reversed the judgment of Croom Johnson J. and held that failure to serve rendered null and void the order made against the party who should have been served and the court could set aside such an order is its inherent jurisdiction and it was not necessary to appeal from tit. lord Greene M.R. pointed out:

'The second argument was more serious in its nature. It was that the order was a nullity and that, therefore, the defendant was entitled to have it set aside ex debito justitiate irrespective of Order LXX, rule 1.'

and after examining the relevant decisions on the point, the learned master of the Rolls proceeded to state :

'Those cases appear to me to establish that a person who is affected by an order which can properly be described as a nullity is entitled ex debito justitiate to have it set aside. So far as procedure is concerned, it seems to me that the court in its inherent jurisdiction can set aside its own order, and that it is not necessary to appeal from it..........it is beyond question that failure to serve process where serve of process required goes to the root of our conceptions of the proper procedure in litigation. Apart from proper ex parte proceedings the idea that an order can validly be made against a man who has had no notification of any intention to apply for it has never been adopted in this country. It cannot be maintained that an order which has been adopted in this country. It cannot be maintained that an order which has been made in those circumstances is to be treated as a mere irregularity and not as something which is affected by a fundamental vice.'

29. The Master of the Rolls accordingly held that the order was a nullity and Goddard L.J.expressed his agreement with this view.

30. Reference may also be made in this connection to the decision of the Privy Council in Marsh v. Marsh 1. It is not necessary to state the facts of this case but it would be sufficient it were refer to the following observations from th judgment of Lord Goddard. Speaking of the distinction between void and voidable acts, the learned Law Lord said :

'The practical difference between the two is that if the order is void the party to whom it purports to affect can ignore it, and he who has obtained it will proceed thereon at his peril, while if it be voidable only the party affected must get it set aside. No Court has ever attempted to lay down a decisive test for distinguishing between the two classes saying that one test that may be applied is to inquire whether the irregularity has caused a failure of natural justice.'(The underlining * is ours).

31. It therefore, the irregularity complained of involves a failure of natural justice, it would have the effect of rendering the order void and not voidable.

32. So also, in Ridge v. Baldwin 2, Lord Reid, Lord Hodson and Lord Morris of borth-y-Gest clearly took the view that breach of audi alteram partem renders the decision a nullity though Lord Evershed and Lord Devlin who, were in a minority, held that the decision given in breach of audi alteram partem would not be a nullity, but would be voidable at the discretion of the court. There was some debate before us as to what exactly was the view take by Lord Morris of Borth-y-Gest : did he agree with Lord Reid and Lord Hodson that a decision in breach of audi alteram partem would be a nullity or did he hold with Lord Evershed and Lord Devlin that such a decision would be merely voidable and not void The learned Advocate-General, relying on certain observations of the Judicial Committee of the Privy Council in Durayappah v. Fernado 3, contended that the view taken by Lord morris of borth-y-Gest was that the decision would be voidable and not a nullity and that view therefore represented the majority view as against the minority view held by Lord Reid and Lord Hodson but we do not think this contention is correct. It proceeds upon a misreading of the judgment of Lord Morris of borth-y-Gest. It is difficult to see how Lord Morris of both-y-Gest can be taken on have supported Lord Evershed and Lord Devlin when he clearly an repeatedly held that the decision against the chief constable was void in the sense of nullity and would have been so even if there had been no express contravention of the police regulations : vide the observations of Lord Morris of Borth-y-Gest in the extract from his speech quoted above. It is clear from his judgment that he argued against the contention that the decision was only voidable in the sense understood by Lord Evershed and Lord Devlin by pointing out that all that 'voidable' can mean in this context is that the issue must at some stage, if the parties are irreconcilable,be determined by the court. but 'that was only to say that the decision of the court was awaited' and in no way affected the claim that the purported decision was 'no decision'. It is therefore indisputable that the majority decision in Ridge v. Baldwin 1 was that a decision given in breach of audi alteram partem rule is void and not voidable.

33. The decision of the Judicial Committee of the Privy Council in Durayappah v. Fernado 2 also supports the same view if it is closely examined. The Jaffina Municipality was dissolved by the Minister of Local Government by virtue of power conferred or him by section 277 of the Municipal Council Ordinance which authorised such action if it appeared to the Minister that :

'.......a municipal council is not competent to perform, or persistently makes default in the performance of, any duty or duties imposed upon it.....'

34. No opportunity was given to the council to make representation to the Minister or even to the Commissioner who had investigated its affairs before making the order dissolving th council. The council did not take and action but the Mayor Sought certiorari to quash the order of the Minister on the ground that it was made in breach of audi alteram partem rule. he also sought a declaration that he was still entitled to act as Mayor, Lord Upjohn, giving the judgment of the Board held that the Minister making the order was bound to observe the audi alteram partem rule and this rule was admittedly violated by him. The learned Law Lord then proceeded to consider the effect of breach of this rule and observed :

'Apart altogether from authority their Lordships would be of opinion that this was a case where the Minister' order was voideable and not a nullity.'

35. These observations were strongly relied upon by the learned Advocate- General on behalf of the second respondent but we do not think that if they are properly read in their context, they support his contention. The learned Law Lord used two words in these observations, namely, 'voidable' and 'nullity' and it is clear from the subsequent portion of this judgment that he used the word 'voidable' in contrast t 'nullity' and by 'nullity what he meant was something absolutely void of which any person having a legitimate interest can take advantage. When the learned Law Lord used the word 'voidable' he did not use it in the sense in which Lord Evershed and Lord Evershed and Lord Devlin used it in Reidge v. Baldwin 1. According to Lord Evershed and Lord Devlin 'voidable' decision would be valid and of effect until set aside or quashed and that is the proper sense in which the word 'voidable' is ordinarily used. But Lord Upjohn made it clear that that was not the sense in which he was using that word. He pointed out:

'Their Lordships entirely agree......that if the decision is challenged by the person aggrieved on the grounds that the principle has not been obeyed, he is entitled to claim that as against him it is void ab initio and has never been of any effect. but it cannot possibly be right in the type of case which their Lordships are considering t suppose that if challenged successfully by the person entitled to avoid the order yet nevertheless it has some limited effect even against him until set aside by a court of competent jurisdiction.'

36. 'Voidable', as now conceived by the Judicial Committee, therefore, difference from 'nullity' only in that its assertion is confined to the party directly affected. This decision of the judicial Committee lays down only a limited proposition, namely that a decision given in breach of audi alteram partem rule is not absolutely void in the sense that even a third partly can set up its voidness but is only relatively void qua the party affected.

37. The same view as to the effect of audi alteram partem rule has also been consistently taken by courts in India. In Collect of Customs v. A.H.A. Rahiman 1, a Divisions Bench of the Madras High court pointed out that where the Collector of Customs passes and order of contravenes every principle of natural justice and must be held to be a nullity. So also in State of U.P. v. Mohammed Nooh2, S.R.Das C.J., speaking on behalf of the majority, observed :

'if an inferior court of tribunal of first instance acts wholly without jurisdiction or patently in excess of jurisdiction or manifestly conducts the proceedings before it in a manner which is contrary to the rules of natural justice and all accepted rules of procedure and which offends the superior court's sense of fairplay the superior court may, we think quite properly exercise its power to issue the prerogative writ of certiorari to correct the error of the court or tribunal of first instance, even if an appeal to another inferior court or tribunal was available and recourse was not had to it or if recourse we had to it, it confirmed what ex facie was a nullity for reasons aforementioned.' (Underlining * is ours).

38. These observations clearly show that, according to the Supreme Court, an order passed in breach of the principle of natural justice would be 'ex facie a nullity'. On the strength of these observations, a Division bench of this court also held in T.P.Kumaran v. R.Kothandaramand 3, that if there is violation of the principles of natural justice such as want of notice, it would render an order null and void. There the question was whether an order of removal passed against the petitioner by the Commissioner of Income-tax was liable to be quashed by this court in exercise of its certiorari jurisdiction under article 226 of the Constitution. The argument urged or behalf of the Commissioner of Income-tax was that the petitioner having preferred an appeal to the President against the order of removal and the President,as the appellate authority, having dismissed the appeal, the order of dimissal passed by the Commissioner of Income-tax had merged in the order of the President and that being so, this court had no jurisdiction to issue a writ either against the Union of India or even against the Commissioner. The argument necessitated an inquiry into the question whether the order of dismissal passed by the Commissioner of Income-tax had merged in the order of the President. If the order of dismissal passed by the Commissioner of Income-tax was a nullity then obviously it could not merge is the appellate order passed by the President and in that event, it would be competent to this court to examine whether it was a nullity and was liable to be set aside but not so otherwise. The Division Bench was therefore called upon to consider whether the order of dismissal passed by the Commissioner of Income-tax was a nullity and it was in this connection that the Division Bench, after referring to the decision of the Supreme court in Mohammed Noon's case 1, pointed out :

'It is clear, therefore, that every defect in a proceeding does not make the order of the authority of the first instance a nullity. The defect must be concerning either want of jurisdiction or excess of jurisdiction or a patent violation of the principles of natural justice, such as want of notice or inquiry. It is such a defect which would render an order null and void and which would take the case out of the principle of merger.'

39. This was also re-affirmed by the Supreme Court in State of Orissa v. binapani Det 2. Shah J., speaking on behalf of the supreme court, observed;

'if there is powers to decide and determine to the prejudice of a person, duty to act judicially is implicit in the exercise o such power. If the essentials of justice be ignored and an order to the prejudice of a persons is made, the order is a nullity. That is a basic concept of the rule of law and importance thereof transcends the significance of a decision in any particular case.' (Underlining * is ours).

40. It is impossible to accept the suggestion made on behalf of the second respondent that the word 'nullity' was used by Shah J. in these observations in a loose sense and that the by the use of this word the learned judge did not mean to convey that the order would be void ab initio.

41. These decisions clearly establish that an order or decision given a breach of audi alteram partem rule is void and not voidable. It is no doubt true that some of these case were concerned with the question of validity of orders or decision o f inferior courts of tribunals and we are not concerned here with an order or decision of an inferior court or tribunal. But the principle o which an order decision of an inferior court or tribunal in breach of audi alteram partem rule is held to void and not voidable must equally apply when we are concerned with an order decision of a superior court given in breach of audi alteram partem rule. If the breach of audi alteram partem rule renders and order or decision of an inferior court or tribunal void, it should a fortiori, have that same nullifying consequence in case of an order or decision of a superior court as well for the duty to observe the principles of natural justice must necessarily rest more heavily on courts which discharge judicial function than on inferior tribunals where the functions are often quasi-judicial in character. After all the principle governing the question is the same and if in one case it renders an order or decision void equally in the other case it should have the same effect. It decision of an inferior court or tribunal is called in question on the ground of breach of audi alteram partem rule. We may point out that Hewitson;s case craig v. Kanssen and Marsh v. Marsh were decisions relating to orders made by superior courts and in those cases it was clearly held that where there is failure of natural justice by non-observance of audi alteram partem rule the order is a nullity and the party aggrieved is entitled to have it set aside ex debito justitiate in exercise of in inherent jurisdiction of the court.

42. But quite apart from authority even on principle we do not see any reasons why breach of audi alteram partem rule should be held to render an order or decision merely voidable and not void. If it is voidable in the sense in which that term was used by Lord Evershed and Lord Devlin in Ridge v. Baldwin it would be voidable at the discretion of the court and it would be open to the court to refuse to set it aside unless in the words of Lord Evershed there was 'real substantial miscarriage of justice'. This view would introduce wider judicial discretion since only that court could say in any given case whether miscarriage of justice was substantial enough to activate the law. It would also provoke wide judicial disagreement - one has only to raid the nine judicial opinions given in Ridge v. baldwin 4 to see that there would be a deep divergence of view as to how this judicial discretion , if it existed, should be exercised. As observed buy Professor Wade in his Administrative Law, this 'would introduce dangerous uncertainty, one nugget say, palm-tree injustice'. Natural justice has for centuries been enforces as a matter of law and not of discretion and until we reach Ridge v. Baldwin d4, there has never been a single case where discretion has played any part in refusing relief in case of failure of audi alteram partem rule. In the very first of the long line of classic cases there was an exceptionally unmeritorious but successful applicant in th person of Richard Bently. the grant scholar but quarrelsome Master of Trinity College, Cambridge. The audi alteram partem rules is indeed so vital and fundamental to the basic concept of justice that where it is infringed, the courts do not pause to inquire whether there has been any miscarriage of justice which entitles the applicant to succeed.

43. One main objection which was put forward by the learned Advocate- General against the acceptance of this view that if an order or decision in breach of audi alteram partem wrier held to be avoid,. it would be a nullity for all purposes and evens third party would be entitled to set up its voidness in a collateral proceedings. If, for example, the Brighton constable were content to accept dismissal and his successor made an order regulating public processions under Public Order, 1936, the organisers would be able to attack in on the ground that he predecessor was in law the chief constable and that the successor was not. But this said the learned Advocate-General was clearly not the position and the order or decision could not therefore, be held to be void. This argument in our opinion is without force. It proceeds on an assumption that when an order is void, it must be regarded as a nullity of which any person having legitimate interest can take advantage., This assumptions plainly incorrect. When we speak of voidness, we must remember that there is no such thing as voidness in the absolute sense. Voidness, like most legal concepts is relative rather than absolute. The question always is void against whom? If an order is void only against a particular person, a third party cannot challenge its validity but the person against whom it is void can always set up its voidness in a collateral proceedings for against him it is void ab initio an has never been of any effect : it has always been a nullity so far as he is concerned : vide the decision of the privy Council in Durayappah v. Fernando 1. A decision given in breach of audi alteram partem would therefore be void as against th party affected but it would be void as against the rest of the world.

44. It was then contended that a breach of audi alteram partem - and so also a beach of the requirement of rule 139- could be waived by the party affected and therefore an order or decision given in breach of it must be held to be voidable and not void. This contention was sought to the supported by reference to certain observations in the decision of the Supreme Court in Dhirendra Nath v. Subal Chandra Nath Saha 2. Subba Rao J., speaking on behalf of the Supreme Court, pointed out in that case that a workable test fore the purpose of determining when an Act done in breach of a mandatory provision would be a nullity or an irregularity, has been down by Justice Coleridge in Holmes v. Russed 1, namely :

'.....but the safest rule to determine what is an irregularity and what is a nullity is to see whether the party can waive the objection ; if be can waive it, it amounts to an irregularity ; if he cannot it is a nullity.'

45. Now this test, as pointed out by the Supreme Court itself is merely a workable test and it would not be correct to regard it as an infallible test applicable all circumstances. This test cannot be invoked for displacing the overwhelming weight of judicial authority which has consistently taken the view that breach of audi alteram partem renders the decision a nullity. Besides, audi alteram partem does not require that the court or tribunal must give to the person an opportunity to be heard even if he does not want it and is prepared to waive it. The principle of waiver ought to be implied as part and parcel of audi alteram partem rule. Where there is a waiver on the parts of the person concerned, there is really no breach of audi alteram partem. It is only where the person concerned has not waived observance of audi alteram partem that it can be said that non- observance constitutes breach of the rule rendering the decision a nullity. Furthermore, the test adopted by Justice Coleridge proceeds on an assumption that where a breach of a mandatory provision is incapable of being waived, it would be one going to jurisdiction and, therefor, an act in breach of it would be a nullity and, conversely, where the breach is capable of being waived, it cannot be one affecting jurisdiction and must consequently result only in irregularity and not nullity. This assumption is not well-founded. It is not correct to say that a defect cannot be waived if it goes to jurisdiction. It is undoubtedly true that where there is total lack of jurisdiction, waiver cannot held, for jurisdiction cannot be conferred by consent. But the fact that jurisdiction cannot be extended in one direction by consent does not necessarily mean that consent cannot extend jurisdiction in other directions. Many requirements have to be fulfilled before a tribunal has jurisdiction and there is no logical reason why consent should not be able to cure absence of some of those requirements even though it cannot cure absence of others. there may be contingent defects of jurisdiction which can be waived. Consequently, the fact that audi alteram partem can be waived does not automatically prove that breach of it does not go to jurisdiction. Moreover, in questions of those kind, we must adopt a functional approach and we do not see why nullity should be made to depend on total lack of jurisdiction. When can the law not regard a decision as nullity if it is arrived at in breach of a vital and basic principle of justice? The question of waiver has no relevance to the question of nullity. A nullity may be capable of waiver : it would be, where the rule viovated is on laid down in the interest off the parties but not, where it is laid down in the interest of public policy. The circumstance that breach of Audi alteram partem is capable of being waived cannot therefore deflect us from the vivid we are taking. To hold that breach of audi alteram partem is a mere irregularity like any other defect in procedure, rendering an order or decision merely voidable by the court in a properly constituted proceeding would be to ignore the great importance and sanctity which is attached to this principle. Such an attempt to pull down this vital and basic principle from the high pedestal which several generations of English judges have assigned to it cannot meet with our approval and we must refuse to give our assent to it.

46. Before we part with this point, we must refer to one other contention of the learned Advocate-General, namely, that in any event the appellant had by his conduct waived the breach of rule 139 and the orders of Divan J. ware therefore not null and void. But we do not think there is any factual foundation for this contention. The appellant, according to the statement made by him in his affidavit, did not know about the orders of Divan J. until some time in May or June, 1968, but at that time the appeal preferred by Manharlal Shah was pending and he was therefor justified in considering it unnecessary to take any proceeding for quashing those orders. After the appeal of Manharlal Shan was dismissed and leave granted to him to appeal to the Supreme Court was revoked, the appellant, without any unreasonable delay, took out a summons for directions for setting aside the orders of Divan J. and the subsequent directions. This summons was undoubtedly withdrawn by him on 12th December, 1968, bust the order allowing the summons to be withdrawn clearly shows that the withdrawal was without prejudice to the rights and contentions of the parties. The appellant, it is true, did not thereafter adopt any fresh proceedings for quashing the orders of Divan J. but it is apparent that he did not do so because the official liquidator was going to take out the first summons for directions. As soon as the first summons for directions was taken out, the appellant immediately appeared in answer to the summons and took up the contention that, by reason of breach of rule 139, the orders of Divan J. were a nullity. It is difficult to imagine how, in these circumstances, the appellant could be said to have waived the breach of rule 139.

47. Now, if the orders of Divan J. were a nullity, it can hardly be disputed that their voidness could be set up by the appellant in any collateral proceeding. the appellant was, as pointed out in Hewitson and Milner v. Fabre Craig v. Kanssen and Marsh v. March, entitled to have these order set aside in exercise of inherent jurisdiction of this court and, for this purpose, it was not necessary that the appellant should make a separate application to the court. It was sufficient for the appellant to assert the voidness of these orders when the official liquidator took out the two summonses for directions. D.A. Desai J. was, therefore, with the greatest respect to him, not right in holding that these orders could not be disregarded or ignored by him as nullity in disposing of the two summonses for directions before him. It these orders were void as held by us, then obviously, the proposed sale in favour of the second respondent could not be confirmed and, in that event, fresh directions should have been given by the learned judge to the official liquidator in connection with sale of the textile mill of the company.

48. This view taken by us renders it unnecessary to consider whether, on merits, D.A.Desai J. was right in confirming the proposed sale in favour of the second respondent. But since the question was debated before, us we would briefly express our opinion upon it. The only ground on which the appellant contended that the proposed sale in favour of the second respondent should not be confirmed was that t the price at which the textile mill was proposed to be sold was unduly low and, in support of this contention, reliance was placed on the estimated value of the assets of the company which was given in the statement of affairs at the figure of about rupees sixty-six lakhs. Now it is not doubt true that in the statement of affairs the directors gave the estimated value of the assets of the company at about rupees sixty-six lakhs but we do not think any reliance could be placed by the learned judge on this estimated value given in the statement of affairs. It is significant to note that the textile mill of the company was a very old mill. As appears from the figures of depreciation given in the balance-sheet of the company during the last few years, the machinery of the textile mill was also quite old. The estimated value given in the statement of affairs was therefore evidently exaggerated. This is clearly borne out by the fact that Vrajeshkumar A. Parekh, who was one of the signatories to the statement of affairs and who estimated the value of the assets of the company at about sixty-six lakhs, himself did not make an offer of more than Rs. 11,12,111 when offers were invited by the official liquidator. It is impossible to believe that if the value of the assets of the company was anywhere in the neighbourhood of rupees sixty-six lakhs, Vrajeshkumar A. Parekh would have made an offer of Rs. 11,12,111, unless of course he wanted to indulge in frivolity in making the offer. There is also one further circumstance which shows that the estimated value given by the directors in the statement of affairs was wholly unreal. Barring one, all the offers received by the official liquidator were in the range of Rs. 10,00,000 to Rs. 12,50,001 and the three genuine offers which were accompanied by the earnest money of rupees twenty-five thousand showed very little variation, the lowest being Rs. 11,12,111 and the highest being Rs. 12,50,001. This shows that the value of the assets of the company could not be far removed from the figure of about Rs. 12,50,001. It the value was anywhere in the neigbourhood of rupees sixty-six lakhs or even very much than Rs. 12,50, 001. it is difficult to imaging how all these three offers happened to make offers for amounts varying only between Rs. 11,00,000 and Rs. 12,50,001. The learned judge was therefore justified in ignoring th estimated value of the assets of the company given in the statement of affairs and, if that be excluded, there was no material placed before the learned judge by the appellant to show that the offer of Rs. 12,50,001 made by the second respondent to show that the offer of contrary, the balance-sheet showed that the written down value of the assets was about rupees 12,00,000 and in comparison to this written down value, the offer of Rs. 12,50,001 was not at all low. It may also be noted - and this is a notorious fact- that at the time when Divan J. sanctioned acceptance of the offer of the second respondent, there was heavy recession in the textile industry and it was difficult to find purchasers for textile mills. Moreover, any person who purchased a textile mil such as the one in the present case would has to sink a very large amount , running into several lakhs of rupees, in running the mill and that also had an adverse effect on the price realisable for the textile mill. It may also be pointed out that, at the hearing of the summons for directions the learned judge suggested to the appellant that in the interests of the creditors he would suggested to the appellant that in case a smaller price was realised as a result of re-sale of the textile mill, the appellant would make good the deficit. This suggestion was obviously made by the learned judge in order to test the bona fides of the appellant but the appellant did not accept the suggestion., if the appellant was certain that the price offered by the second respondent was unduly low, we fail to see why the appellant should have refused to take advantage of the suggestion made by the learned judge. For these reasons, we are of the view that if the orders dated 5th March, 1968, and 25th April, 1968, were valid, the sale in favour of the second respondent should have been confirmed.

49. We, therefore, allow these appeals and make an order rejecting the second summons for directions and remand the first summons for directions to the learned company judge for giving directions on it in accordance with law. The order of costs passed by the learned judge will be vacated and each party will bear and pay his own costs of the official liquidator will come out of the assets of the company. The learned Advocate-General, appearing on behalf of the second respondent applies for leave to appeal to the Supreme court under article 133(1) of Constitution. Since this is obviously a fit case for appeal to the Supreme Court, we grant leave to appeal under article 133(1)(c) of the Constitution. The first summons of directions which has been remained to the learned company judge shall not be heard by him for a period of two until after the certified copy of the judgment is ready for delivery. The second respondent undertakes to apply for a certified copy of the judgment on or before 26th June, 1969.


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