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Indian Oil and Produce Exporters' Association Vs. Velji Shamji and Co. and Ors. (19.01.1977 - GUJHC) - Court Judgment

LegalCrystal Citation
SubjectCompany
CourtGujarat High Court
Decided On
Case NumberO.J. Appeal No. 10 of 1976 in Company Application Nos. 177 of 1956 and Company Petition Nos. 57 and
Judge
Reported in(1977)0GLR1009
ActsCompanies Act, 1956 - Sections 3, 391, 466, 481 and 559
AppellantIndian Oil and Produce Exporters' Association
RespondentVelji Shamji and Co. and Ors.
Appellant Advocate J.C. Bhatt, Adv.
Respondent Advocate B.J. Shelat and; B.R. Shah, Advs. and; H.V. Chhatrapati
Cases ReferredDaya v. Joint Chief Controller of Imports and Exports
Excerpt:
company - groundnuts quota - sections 3, 391, 466, 481 and 559 of companies act, 1956 - petition to grant quota to company in liquidation on basis of past performance - petitioner-company had exported groundnuts - as per its past performance it was eligible for groundnuts quota - single judge decided that company's membership continued and association could not change eligibility conditions of past performance of established exporter - appeal against such order - company had continued as member - association agrees to release quota as per condition mentioned by single judge. - - this letter is so categorical that the association never treated such default of the company as ipso facto termination of the membership under rule 8(e) but the matter was after november 1, 1976, to be put up.....j.b. mehta, j.1. the indian oil and products exporters' association, hereinafter referred to as 'the association' has come in this appeal as the learned single judge has on the summons taken out before him passed an order directing the association to grant a quota to this company in liquidation, hereinafter referred to as 'the company', on the basis of the past performance figures submitted by the company along with the other applications for the quota and simultaneously with them along with other incidental directions. 2. the short facts which have given rise to this appeal are as under : 3. the petitioning creditor had his dues regarding the brokerage which had remained unpaid even after the statutory notice. therefore, a winding-up petition was presented on january 15, 1976, and a.....
Judgment:

J.B. Mehta, J.

1. The Indian Oil and Products Exporters' Association, hereinafter referred to as 'the Association' has come in this appeal as the learned single judge has on the summons taken out before him passed an order directing the Association to grant a quota to this company in liquidation, hereinafter referred to as 'the company', on the basis of the past performance figures submitted by the company along with the other applications for the quota and simultaneously with them along with other incidental directions.

2. The short facts which have given rise to this appeal are as under :

3. The petitioning creditor had his dues regarding the brokerage which had remained unpaid even after the statutory notice. Therefore, a winding-up petition was presented on January 15, 1976, and a provisional liquidator was appointed on March 8, 1976. The winding-up order was made by the learned single judge on September 15, 1976, against which an appeal is pending, although the stay order which had been granted against the winding-up order has been vacated. A scheme also has been proposed for reconstruction in the application under section 391 which is also pending at this stage.

4. The facts which have given rise to the present summons are as under :

5. The petitioner-company had exported groundnuts and as per its past performance it was eligible for the groundnuts quota. The export of groundnuts was banned from July 14, 1976, and by the notifications which were issued as per the trade notices on November 9, 1976, and November 11, 1976, while deciding to lift the ban, exports of HPS groundnuts in shell and kernel were permitted within a limited ceiling. Exports have been canalised through the Association. The limited ceiling is during the current licensing period of April, 1976, to March, 1977. The canalising agency is made responsible for monitoring the ceiling and it has to distribute this quota of 50,000 tonnes released to the Association to its members on the basis of past performance. It is clarified that the ceiling would not be used on first come first served basis. Advance intimation for this policy was given as per the Joint Secretary's letter dated November 4, 1976, while communicating the Cabinet decision issuing instructions to the Chief Controller to release the quota of 50,000 tonnes to HPS groundnuts for export. In that letter it has been mentioned that the Chief Controller and the Joint Controller had been advised to issue necessary instructions. In para 2 it is stated that the export quota should be divided among the exports of the Association on the principle of their past exports. It was clarified that quota would not be allowed on the basis of the first-come-first-served, and that assurance was given to the Government that the minimum realisation on exports would be at least $600 per tonne. Therefore, the fixation of the minimum price was left to the Association but that should be done in a fashion which should ensure that the average realisation was not less than $600 per tone for this released quota of 50,000 tonnes. The Association membership subscription of Rs. 1,000 was becoming due for the ordinary members on January 31, 1976. There is no dispute that the company was an ordinary member of the Association. The general circular of January 1, 1976, was issued to the member to pay up their dues. The letter was addressed by the Association to the company on August 13, 1976, that its subscription of Rs. 1,000 which was still due should be remitted by a cheque. Even after the winding-up order of the learned single judge, dated September 15, 1976, had been published in the Gazette, the Association had written a letter on October 26, 1976, to the company making a demand of these arrears of subscription of Rs. 1,000 which through oversight had remained unpaid towards membership fees for renewal of membership for the period from January 1, 1976, to December 31, 1976. It was further intimated that that was the last reminder and members were requested to note that the application for export authorisation certificate for HPS groundnuts may not be considered if the membership was not renewed for the said period. Further intimation was given that no fees would be accepted after November 1, 1976, and the names of such members would be placed before the managing committee of the Association for necessary action, and the decision of the managing committee shall be final and would be biding as per the rules of the Association. Even another circular was issued after this export quota had been released on November 10, 1976 to all members intimating that this released quota of 50,000 tonnes of HPS groundnuts of the year 1976-77 would be distributed to the members on the basis of their performance during the last three years. Even in that circular it was in terms mentioned that it been decided that if any amount from the members was out standing and payable to the Association, such members would not be issued any quota till the dues were cleared by them. Admittedly, there are no other dues so far as the company is company is concerned except the aforesaid membership fee of Rs. 1,000. The liquidator by the letter dated November 16, 1976, informed the Association that the winding-up petition had bee presented in respect of the company on March 8, 1976, and the official liquidator has been appointed as provisional liquidator by the court. He had also intimated that he company faces financial difficulties which resulted in the company that the company faces financial difficulties which resulted in the company not paying membership fees in time but as a scheme of compromise and arrangement has been presented and the future was brightening, the company was interested in continuing its membership and, therefore a bank draft for Rs. 1,000 was enclosed so that its membership could be continued in the Association. He confirmed the telegram sent earlier by him that he was sending a bank draft. Another letter was addressed on November 18, 1976, to the Association intimating that the membership fee was sent by a bank draft payable at Bombay and there was no other outstanding dues. He also sent the relevant statement showing past performance in the relevant wears of much sizeable export. The Association, however, took no action on the aforesaid two letter of the liquidator and so the liquidator wrote a third letter on November 27, 1976, to the Association seeking certain information from them. It was only on November 29, 1976, that the Association sent a combined reply to these three letters. The Association asked for certain information from the liquidator as to whether he was authorised as provisional liquidator to carry on business and whether he had sufficient finances for the purpose. It was further stated that the Association had received information by the letter of November 27, 1976, that the company was ordered to be wound-up and, therefore the company had ceased to be a member and as such may not be entitled to another quota rights and accordingly the draft was returned. That is how the present summons was taken out by the petitioning company which has been granted by the aforesaid order by the learned single judge and against which the Association has one in the present appeal.

6. The learned single judge has held on a true interpretation of relevant rules 8(c) and 8(e) along with the conduct of waifer of the Association that the company's membership continued and, therefore, it was entitled to the quota on the basis of its past performance. He was also of the view that the Association being only canalising agency and as the Joint Controller was a subordinate officer to the Chief Controller, he could not change the eligibility conditions of past performance of the established exporter by adding a further condition of them membership of the Association and, therefore, even non-members would be entitled to the quota. It is this second finding which has really disturbed the Association and that is why the Association has come in this appeal to challenge the learned judge's order.

7. The relevant rules 8(c) and 8(e) provide as under :

'8. A member shall ipso facto ceased to be a member of the association :- ....

(c) in the case of a member being a joint stock company, corporation or association, an effective resolution is passed or an order made by the competent court for winding up or amalgamation; ......

(e) it such member fails to pay subscription within one month from the date of the same becoming due and if the same is not paid within one month after the receipt of a written notice requiring the members to make payment of the same; provided that the committee may on an application made by any person ceasing to a member under this clause readmit such person on such conditions as they think fit.'

8. The Explanation further provides that the decision of the committee as to whether the member has ceased to be a member of the Association or not under this rule shall be final and conclusive. The membership of the Association is regulated by the rules of the Association which would be the contract being in the members. Such a contract would have to be interpreted in a manner as intended by these parties so that it is properly given effect to as it has been understood by the parties. It is true that the term 'ipso facto' has been used in this rule so that for such small default of non-payment of even membership fees, such valuable quota rights which would accrue to the Association would be lost to the members. That is why ample provision has been made in this relevant rule to treat this obligation as only directory and not a mandatory one. That is why in cause (e) a specific proviso is kept that the managing committee may on the application made by any person ceasing to be a member under that clause re-admit such person on such condition as they though fit and a safeguard of a written notice of one month is provided. Under rule 5(a) as regards these ordinary members it is provided for judging eligibility of members that the committee shall be the sole judge as to the eligibility or otherwise of the applicant for membership of the Association under that rule and they shall not be bound to assign any reason for their decision which shall be final and conclusive. That is why this explanation is annexed even to rule 8 when the question of cessation arises by providing that the decision of the committee as to whether the member has ceased to be a member of the Association or not under rule 8 shall be final conclusive. The foundation contract between the Association member has been so carefully worded so that the membership rights would not get automatically ceased but this provision has been kept as a directory provision so that the provision would not for, as a penalty on the members. That is why the Association itself has interpreted the rule in the same directory manner as is apparent from the various steps taken by it when this quota was released. The circular which was issued to all the members mentioned canalisation rules which would be strictly adhered to. Under rule 1 of this Canalisation rules it is mentioned that under the canalisation scheme, shippers will be able to export HPS groundnut kernels in shell only if they are ordinary or associate members of the Association. Rule 2 which is material provides under :

'2. Any two of the four office bearers of the Association, viz., chairman vice-chairman, hon. secretary and hon. treasurer, are authorised to enroll members in receipt of application for membership along with full fees subject to subsequent ratification of enrollment by the managing committee of the Association.'

9. Rule 3 provides that only such applicants whose export turnover for oil seeds, and/or vegetables oil amounts to Rs. 25 lakhs or more during any one of the last three calendar ears, will be eligible to become ordinary members of the Association. All other applicants will be enrolled as associate members. Therefore, this special rule was devised so that his quota benefit may not be lost by the members who had to become eligible by renewing their membership. To deal with this special contingency which has arise, power was left to two of the four of the office bearers of the Association to enroll members on receipt of the application along with the full fees subject to subsequent rectification by managing committee. That is why the Association never insisted on this 'ipso facto' cessation clause of rule 8 for defaulting members. The letter dated August 13, 1976, to the company makes it clear that it was asked to remit the subscription amount of Rs. 1,000 which was still due. By the next letter dated October 2, 1976, the company was further informed by way of a reminder that its application for export authorisation certificate for HPS groundnuts for the current season might not be considered if the membership was not renewed by paying up dues and a specific intimation was given that no fees would be accepted after November 1, 1976, and the names of such members would be placed before the managing committee of the Association, for necessary action and the decision of the managing committee would be final and wound be biding as per the rues of the Association. This letter is so categorical that the Association never treated such default of the company as ipso facto termination of the membership under rule 8(e) but the matter was after November 1, 1976, to be put up before the managing committee for final decision as per the Explanation provided to this salutary rule 8. The Association clearly knew that this was a clause only to give threat to the members for prompt payment of the membership dues but they never intended to work it out as a penal clause and that is why the Association was so violent to allow members even to be enrolled at the last minute by paying up their dues as per the canalisation rules and even when a default was committed as intimated in its salutary letter of October 26, 1976, the membership was not to cease automatically till the final decision was taken by the managing committee. Even in the last letter of November 10, 1976, the Association has finally intimated that if any amount from the members was outstanding and payable to the Association, such member's would not be issued any quota till the dues were cleared by them. Of course the dues would cover membership dues, when membership was one of the eligibility conditions in the canalisation rules of the Association. In the light of these two relevant letters of the Association (sic). The learned single judge was, therefore, perfectly justified in holding that even the conduct of the Association was so eloquent to treat these rules as merely directory, and, therefore, when the liquidator had made full payment of the dues as per its letter with the bank draft of Rs. 1,000 on November 18, 1976, no question could have arisen of deciding the case of the company as a defaulter. That is why, admittedly, the managing committee has not taken any other action as intimated in those letters. Even to the three letters of the official liquidator a reply was sent on November 27, 1976, which mentions cessation not on the ground of default of the membership fees but on the ground that the company had been wound up and as such it had ceased to be a member any may not entitled to the quota rights and so that draft was returned. Therefore, on this first ground the learned single judge was perfectly justified in coming to the conclusion that the Association by its condition had waived or, in any event was precluded from taking up a plea that the membership had not continued, especially as no further action was taken by the managing committee.

10. Even as regards the second question of the effect of the order of winding up, the explanation would have the same effect and as admittedly the managing committee has not taken any decision in this matter, the company's membership remained unaffected. The reason of the managing committee taking no action is obvious because the Association wanted to be fair and just to its members. The winding-up order was still under appeal and had not become final. There is elaborate scheme under the company law for exploring the alternative to the winding up by sanctioning such reconstruction scheme under section 391 so that the company can continue as going concern. That is why even when the winding-up order is made section 466 provides for stay order. It is only when the company is dissolved finally under section 481 and if no action is taken under section 559 to declare dissolution void that the company would ease to exist. The whole attempt of our company law is to see that such going concern is not killed but is made a live concern and that is why wide powers are conferred on the court with that end in mind. The learned single judge has also pointed out how every beneficial contract with the company would never come to an end merely as a result of the winding-up order because then the company as a shareholders of the other company would have its membership terminated. By such literal interpretation the company's assets would get destroyed. The business of the company is one of the most valuable assets when the business carried such valuable quota rights. To interpret the wholesome provisions in this literal, penal manner, would be to defeat the salutary provisions of the company law. The learned singe judge has elaborately examined this issue even in the earlier decision in Panchamahals Steel Ltd. v. Universal Steel Traders [1976] 46 Comp Cas 706 (Guj) and we are in agreement with him that by the fact of a simple winding-up order which was still in appeal and when this scheme of reconstruction was pending consideration and there was every possibility of this temporarily stopped business being continued there would be no question under the relevant rule 8(c) of any ipso facto termination of membership of the company, when the membership carried such valuable quota rights. Financial difficulties once in a while may create temporary stoppage but now after help following from the banks and the State, such financial difficulties may not offer insurmountable obstacles. That is why the learned single judge was right in the view that his was not a case of a new business being started. It is the same business of the company which has made it eligible by reason of its past performance to bet the quota rights from its own Association on the basis of its past performance. Even the Association had justly continued membership by refusing to take any action through its managing committee. In that view of the mater when the business only temporarily stopped due to financial difficulties and where there was every possibility of the company emerging as a live concern, we cannot literally and in a penal manner interpret this provision as denuding the company of its valuable assets. Therefore, even the second contention that, on the score of the winding-up order, the company's membership had ceased can never be upheld.

11. That leads us to the most material question which has been seriously urged by Mr. Bhatt for this Association. The whole quota systems had been introduced under the relevant Exports (control) Order, 1968. Under clause 3(1) save as the otherwise provided in that Order, no person shall export any goods of the description specified in Schedule, except under and in accordance with a license granted by the Central Government or by an officer specified in Schedule II. Clause 6(e) provides that the licensing authority may refuse to grant a licence, if the licensing authority decides to canalise the export through special or specialized agencies or channels. The Chief Controller and the Joint Controller are the licensing authorities. The relevant guidelines which have been issued while constituting this canalising agency of the Association are to be found in the relevant Government notification of November 9, 1976, and November 11, 1976. Before that, advance intimation on November 4, 1976, makes it abundantly clear that the Cabinet decision had been taken to release 50,000 tonnes quota of HPS groundnuts for export and for that purpose of the Chief Controller and the Joint Controller were advised to issue necessary instruction by the Government. Para 2 of this letter of the Joint Secretary makes it also clear that the export quota was to be divided among the exporters of the Association on the principle of their past exports. Exporters of the Association were obviously members of the Association, who had to export as per the relevant rules, which in clause 7 provided export being done by mentioning in the shipping bill only the Association as the exporter, taking out all export documents in the name of the membershiper. The clarification which was given was that the quota would not be allowed on the basis of first come first served. The assurance given to the Government was to be of minimum realisation of $600 per tonne and on that basis the minimum price fixation was left to the Association to ensure that the average realisation would not be less than $600 per tonne for this quota of 50,000 tonnes. This Cabinet decision makes it abundantly clear that the association was selected a as special canalising agency by the Government because the Government has confidence in that responsible agent that it would serve national interest by attaining the target of the foreign exchange. If in the light of the Cabinet decision the relevant Government notifications in these two relevant trade notices are read, there is no doubt left that the Government had constituted this sole canalising agency for export, which had to work on the basis of the guidelines prescribed by them. The Chief Controller and the Joint Controller were not acting on their own but under Government instructions as mentioned by the Government Secretary in the letter of November 4, 1976, as per the decision taken by the Cabinet. That is why these relevant notifications are the notification issued by the Government of India as per instructions given to the Chief Controller and the Joint Controller's power to modify any direction given by the Chief Controller as assumed, with great respect, by the learned single judge, (sic). The Chief Controller had merely mentioned in the earlier letter of November 9, 1976, that it had been decided to lift the ban and allow exports of HPS groundnuts both in shell and kernels within a limited ceiling. Exports would be canalised only through the Association. This is only appointing a canalising agency for the released quota to the Association. The guidelines are in the next letter of November 11, 1976, which the Association earlier issued as per the instructions given by the Cabinet decision and that is why this second order of the Chief Controller in terms states that in suppression of the ban imposed on export of HPS groundnuts both in shell and kernels, it had been decided to allow export of HPS groundnuts within a limited ceiling during the current licensing period viz., April, 1976, to March, 1977. The export of HPS groundnuts as before would be canalised through the Association. The canalising agency shall be responsible for monitoring the ceiling and would be distributing it to its member not the basis of past performance. The ceiling shall not be used on 'first come first served' basis. Even Mr. Shah could not argue that this order did not lay down necessary guidelines of past performance. He, however, picked up one guideline of past performance as binding guideline so that except the established shippers others do not get quota, but ignored the other guideline which is in the same directioned which also is issued as per the Government decision as mentioned in Para. 2. That the Canalisation agency had to distribute this quota only to its member on the basis of past performance. Therefore, canalisation had been done by export through the association, i.e., its members-shippers alone, as intimated even in the guidelines issued by these licensing authorities as per the Government orders. Therefore, there was on question of the Joint Chief Controller modifying the directions of the Chief Controller, and these guidelines which have been issued would be completely binding on the Association and it would not be open to the court to ignore or sever the guidelines. The Association has distributed the released quota to the members on the basis of past performance. The Association cannot look to the past performance forgetting the fact that the persons is not a member. The criterion's that the members only will be entitled to the quota on the basis of past performance. It is on when the membership is there that the Association can keep a proper disciplinary control as envisaged in the various canalisation scheme rules. The Government of India was looking to this Association as an exporter so that the nation realises the target of the foreign exchange by these export transactions through its member-shippers. And that is why, even minimum price fixation was left to the Association. Therefore, the Association was looked upon by the Government as a special canalising agency which was competent enough to realise the target intended for it and which was made, responsible for successfully implementing this special export scheme. The Government thereby never created any monopoly, but only appointed such special canalising agency under the relevant rule 6(1). In Glass Chatons Importer and Users Association v. Union of India AIR 1961 Sc 1514 at page 1516, their Lordships pointed out that if a decision had been made that imports shall be by particular agencies of channels, the granting of licence to any applicant outside the agency of channels would frustrate the implementation of that decision. It is in the interest of general public that such canalising agencies are appointed. Even in the decision of Daya v. Joint Chief Controller of Imports and Exports AIR 1962 SC 1976, their Lordships had pointed out that if the quantum of the export in commodity could be restricted, the control that would effectuate this must necessarily extend to the person engaged in or desirous of engaging in the export of that commodity and that would a fortiori be so, if the restriction took the form of a prohibition of exports in a commodity altogether. As a logical step such restrictions might take the form of classifying the persons who might participate in the trade and the conditions subject to which any particular class might be permitted to do so. It would be a matter of policy for the Government to determine, having regard to the nature of the commodity and the circumstances attending the export trade in it to lay down the basis for the classification between the group and fix their relative priorities. When the relevant clause permitted 'canalising' or 'channelling' of exports through selected agencies, it did not more than making provision for the classification into groups, etc., which was but one of the modes which the control under section 3 of the Act might assume. When the Association was selected as a canalising agency, the form of control was obvious that the classification which as adopted by the Government was that the exports shall be through the Association by the members only, i.e., by the exporters of the Association, because it is only in that agent that the Central Government had confidence and not in an individual shipper or exporter. Therefore, the settled concept of this canalising agency runs counter to the assumption made by the learned single judge that the Association was bound to give quota to non-members. It was only because of this fact that the Association had kept is membership condition so relatable and worked them in the same liberal spirit so that the members' right of quota would not be prejudiced because their dues were not paid in time or because of any of the contingencies mentioned in rule 8. That is why the Association left if to the managing committee ultimately and finally to decide the question whether any member had ceased Association membership, and the Association had taken a further step of canalisation scheme under rule 2 for enrolling such members at the last minute so that whichever member paid even till the last opportunity the dues, could obtain, the quota. This court therefore, in the teeth of the relevant guidelines could never hold that the Association could give quota eve to a non-member, especially when that was never the case pleaded or made out on the record of the case. Therefore, that alternative stand, which was so vehemently relied upon by Mr. Shah could never be relied upon to support the order of the learned single judge. The learned single judge has, however, been very careful to annex just conditions to meet all the objections and difficulties which were envisaged by the Association and even Mr. Bhatt rightly stated that he is satisfied with those conditions and he does

12. not challenge these conditions and he wants them to be maintained in the order. As, now, time-limits prescribed in the order have expired, it would be proper to extend the time limit up to January 24, 1977, for coupling with the various conditions envisaged by the learned single judge.

13. We are happy to not that Mr. Bhatt has on the authority of the Association made a statement to be recorded by us in the order. The Association has taken up a very fair attitude by stating that in view of the findings of this court that the company had continued as a member, the Association now agrees to release the aforesaid quota as per the conditions maintained by the learned single judge. Accordingly, this appeal false except for the aforesaid clarification and is accordingly dismissed with no order as to costs.


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