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In Re: Shri Ambica Mills Ltd., Ex Parte Jaykrishna Harivallabhdas and ors. - Court Judgment

LegalCrystal Citation
SubjectCompany
CourtGujarat High Court
Decided On
Case NumberMiscellaneous Civil Application No. 6 of 1983 and Company Petition No. 49 of 1978
Judge
Reported in[1986]59CompCas368(Guj)
ActsCompanies Act, 1956 - Sections 101; Indian Companies Act, 1913; Companies (Court) Rules, 1959 - Rule 9; Code of Civil Procedure (CPC), 1908 - Sections 151
AppellantIn Re: Shri Ambica Mills Ltd., Ex Parte Jaykrishna Harivallabhdas and ors.
Appellant Advocate G.A. Thakkar, Adv.
Respondent Advocate S.B. Vakil,; S.I. Nanavati,; V.P. Shah,;
Cases ReferredIn Roshan Lal Mehra v. Ishwar Dass
Excerpt:
company - reduction of capital - sections 101 of companies act, 1956, indian companies act, 1913, rule 9 of companies (court) rules, 1959 and section 151 of code of civil procedure, 1908 - petitioner company moved court seeking order of confirmation regarding reduction of its equity share capital - contention raised that applicant (managing directors) wanted to achieve their private purpose by reduction of capital - further contention raised that applicants were not necessary parties before court - applicants were parties to proceedings though their names not expressly mentioned - applicants interested to get family arrangement scheme fructified - intentionally kept themselves away from court - held, applicants not entitled to any relief. - - 3. relevant facts, undisputed and/or.....s.b. majmudar, j.1. this is an application under section 151 of the code of civil procedure read with rule 9 of the companies (court) rules, 1959, invoking the inherent powers of this court with a view to enabling applicants to get certain remarks made by me in my judgment dated november 19, 1981, in company petition no. 49 of 1978 with company application no. 115 of 1981, expunged. 2. in order to appreciate the grievance of the applicants in the present application, it is necessary to note a few relevant facts leading to the aforesaid company petition which came to be disposed of by me by the aforesaid judgment. 3. relevant facts, undisputed and/or well-established facts on record. - the present three applicants are the managing director of shri ambica mills ltd., a public limited.....
Judgment:

S.B. Majmudar, J.

1. This is an application under section 151 of the Code of Civil Procedure read with rule 9 of the Companies (Court) Rules, 1959, invoking the inherent powers of this court with a view to enabling applicants to get certain remarks made by me in my judgment dated November 19, 1981, in Company Petition No. 49 of 1978 with Company Application No. 115 of 1981, expunged.

2. In order to appreciate the grievance of the applicants in the present application, it is necessary to note a few relevant facts leading to the aforesaid company petition which came to be disposed of by me by the aforesaid judgment.

3. Relevant facts, undisputed and/or well-established facts on record. - The present three applicants are the managing director of Shri Ambica Mills Ltd., a public limited company earlier registered under the Indian Companies Act, 1913, and then governed by the provisions of the Companies will mention Ambica Mills Ltd. as petitioning company which had filed Company Petition No. 49 of 1978 before this court; while the three applicants will be referred to as the managing directors of the company or managing directors for short.

4. By way of Company Petition No. 49 of 1978, the petitioning company moved this court under section 101 of the Companies Act, 1956, for getting an order of confirmation regarding reduction its equity share capital. The grounds sought to be made out in the said company petition were to the effect that the paid-up share capital of the company was in excess of its wants and that the company had decided to reduce its equity share capital. That with end in view, the company had passed a special resolution dated June 1, 1978, to return to the holders of the equity shares paid-up capital to the extent of Rs. 13 per share by reducing the nominal value of the said equity shares from Rs. 100 to Rs. 87 per share by repayment of a sum of Rs. 8.11 in cash against each equity share and by distribution to the shareholders of 41,851 equity shares of Shri Arbuda as mentioned in the said special resolution. The company's case was that the requisite resolution was passed by three-fourths majority in the meeting of equity shareholders of the company. The company application before this court under section 101(2) was filed on June 29, 1978, which was registered as Company Petition No. 49 of 1978.

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5. This petition originally was placed before me for final hearing in the last week of December, 1980. At that time Mr. J. M. Thakore, learned Advocate-General with Mr. I. M. Nanavati, appearing for the petitioning company raised a preliminary objection about the locus standi of the equity shareholders to address this court and to oppose the petition, while the learned advocates of the respective objectors on the other hand contended that they had sufficient locus standi to object to the petition and to have their say before the court. Accordingly, I heard the learned concerned advocates on the preliminary point about the nature of the jurisdiction of this court under section 101 of the Companies Act. Hearing on the preliminary objection lasted for about two weeks and thereafter by my order dated 18, 19, 22-12- 1980, I gave a preliminary judgment laying down the scope and ambit the scope and ambit of the proceedings for reduction of share capital that may be taken out by the company before the court and I indicated various issues which would arise for decision of the court in the facts and circumstances of the case and on the basis of rival contentions of the parties on diverse points on which they were at variance. It would be sufficient for the present purpose to note that the main thrust of the objecting shareholders and creditors was that the entire scheme was a camouflage and that it was a fraud on the statute. That the managing directors, viz., three brothers, were interested in effecting a family arrangement of their properties inter se the family branches of these three brothers and, therefore, under the pretext of having a scheme of reduction of share capital, they wanted to achieve their private purpose and that they had misled not only the board of directors but also the general body by keep in back relevant fats and by representing false facts to achieve their private purpose and, consequently, the company petition could not be granted. There were various other contentions raised on merits regarding the viability of the scheme with which I am not concerned at present.

6. After the aforesaid preliminary judgment was given by me, the company petition lingered on on the file of this court for couple of months. Thereafter, as in the meanwhile, Mr. I. M. Nanavati, learned advocate appearing for the petitioner company, unfortunately expired. Ultimately, the company petition reached final hearing before me in the later half of the year 1981 and the final hearing of the petition lasted before me for about three months. It was started by the end of July and it was completed in the final week of October, 1981. It is thereafter that I disposed of the company petition by my C.A.V. judgment which was delivered on November 19, 1981. In view of various finding arrived at by me on diverse issues, I came to the conclusion that the petitioning company was not entitled to succeed and, consequently, I dismissed the company petition granting special costs of Rs. 500 to Mr. Narendra Shodhan, party in person. A little later I will refer to the various findings arrived at by me on the main issues in controversy between the parties in the said company petition. It is an undisputed position between the parties that against my judgment dated November 19, 1981, whereby Company Petition No. 49 of 1978was dismissed by me, the petitioning company has already filed O.J. Appeal No. 6 of 1982 before this court and the same has been admitted by a Division Bench of this court consisting of P. D. Desai J. (as he then was) and R. C. Mankad J. on February 24, 1982. It is not in dispute that the present three applicants who are managing directors of the petitioning company have filed Civil Application No. 6 of 1983 in O.J. Appeal No. 5 of 1982 seeking to get stay of operation of my order in the main company petition under appeal on diverse grounds which are on the same lines as the grounds put forward by the applicants- managing directors before me in the present miscellaneous civil application. The said Civil Application No. 6 of 1982 is pending for disposal before the Division Bench.

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7. Rival contentions. - Mr. Thakkar, learned advocate appearing for the applicants, submitted that the petition for reduction of share capital was filed by Ambica Mills. That the applicants being the managing directors of the company were not before the court as parties. Therefore, they had no opportunity to meet various charges levelled against them by the concerned objectors. Consequently, certain remarks made by me against their conduct in the judgment are required to be expunged in exercise of my inherent powers, as they were vitiated on the ground of failure of natural justice. He submitted that the impugned remarks which have been tabulated at annexure 'A' to the application and which consist in all of 9 paras are too wide of the mark, they are sweeping in nature and are totally irrelevant and based on no evidence and, consequently, they are required to be expunged in the interests of justice.

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8. Question of maintainability of the present application. - It is to be appreciated that the present application is filed under section 151, Civil Procedure Code, read with rule 9 of the Companies (Court) Rules, 1959. Rule 9 of the said Rules is in pari materia with section 151 of the Code of Civil Procedure. It is now well settled that the inherent power of the court is not a substantive power but is merely a procedural power and it cannot be exercised if it conflicts with what is expressly provided by the Code (vide Padam Sen v. State of U.P. 0065/1960 : 1961CriLJ322 . In Manohar Lal Chopra v. Rai Bahadur Rao Raja Seth Hiralal : AIR1962SC527 , the majority of the Supreme Court, placing reliance on the aforesaid decision reported in 0065/1960 : 1961CriLJ322 , made the following pertinent observations on the powers of the court under section 151, Civil Procedure Code (at p. 533) :

'These observations clearly mean that the inherent powers are not in any way controlled by the provisions of the Code as has been specifically stated in section 151 itself. But those powers are not to be exercised when their exercise may be in conflict with what had been expressly provided in the Code or against the intentions of the Legislature. This restriction, for practical purposes, on the exercise of those powers is not because those powers are controlled by the provisions of the Code, but because it should be presumed that the procedure specifically provided by the Legislature for orders in certain circumstances is dictated by the interests of justice.'

9. At this stage, it would be profitable to have a look at Order 20, rule 3, Civil procedure Code. It provided that the judgment shall be dated and signed by the judge in open court at time of pronouncing it and, when once signed, shall not afterwards be altered or added to, save as provided by section 152 or on review. Mr. Thakkar made it very clear that he was not seeking to invoke review jurisdiction of this court to get expunged the concerned remarks. He also stated that he did not intend the judgment to be altered or added to. If that is so, it must be held that the only alternative left for him to get the judgment modified by deletion of passages in question would be under section 152 of the Code read with section 151. It is obvious that section 152 is out of picture as it talks of clerical or arithmetical mistakes in judgments, decree or orders or errors arising therein from any accidental slip or omission which may be corrected by the court concerned either of its own motion or on application of any of the parties. It is not the case of Mr. Thakkar that there was any accidental, clerical or arithmetical mistake in my judgment or any accidental slip or omission. On the contrary, the remarks have been made by me regarding the conduct of the managing directors, after full deliberations and conscious consideration of the relevant evidence on record and in the light of the rival contentions put forward by the learned advocates of the respective parties including the learned advocate for the petitioning company, Mr. Vakil, who also tried to justify the conduct of the managing directors and put forward his explanation regarding their conduct as Mr. Vakil thought it fit in the interests of the concerned managing directors. It is, therefore, obvious that I cannot grant the prayer of the applicants under section 151, Civil Procedure Code, simpliciter to delete the 9 paras from my judgment as mentioned in annexure 'A' to the application simply on the ground that the managing directors had allegedly no opportunity to meet the charge of fraud levelled against them and, therefore, the remarks have been passed contrary to the principles of natural justice and that the managing directors were condemned unheard. In order to judge the maintainability of the present application, I will assume for the time being that the remarks were made without giving any real opportunity to the concerned managing directors to have their say in the matter though I must hasten to add that this assumption, as I will later on show, is totally uncalled for and on the contrary, the applicants had ample opportunity to have their say in the matter and they deliberately avoided to avail of that opportunity. But, for the time being, I proceed on the assumption that they got no real opportunity to controvert the charge of fraud against them. Even then, the question is whether on such an allegation itself without anything more, the alleged offending remarks in the 9 paras of my judgment as mentioned in annexure 'A' and which comprise of 75 lines approximately can be deleted from my judgment at this stage. Now, it is well settled that alteration in the judgment cannot be done by the same court, save and except by way of review of within permissible limits of section 152 of the Code of Civil Procedure. A little later, I will refer to a judgment of the Supreme Court rendered under section 561 of the Criminal Procedure Code, which also represents a scheme parallel to the one under section 151 of the Code of Civil Procedure, to show that under certain exceptional circumstances, the High Court not by way of review, but only on the ground of propriety of the concerned sweeping observations, may be able to delete the impugned remarks from the judgments. But even in such a contingency, it has to be shown that the concerned remarks were totally irrelevant, uncalled for and were not based on evidence, meaning thereby, that they were as good as accidental slip and represented errors in the judgment which were in the nature of creases in the judgment which could be ironed out without affecting the main texture of the judgment. If, however, the offending remarks were an integral part of the judgment and if they formed a vital link in the chain of reasoning or if they reflected ultimate findings logically flowing from the earlier penultimate findings based on evidence on record, even if such remarks were found to have been made against persons who had no real opportunity to meet them, they cannot have any remedy under section 151, Civil Procedure Code, and the only remedy in such a case for innocent strangers who are accidentally or unwittingly injured by the court's remarks would be to go in review. The aforesaid legal position is well borne out by a series of judgments of various courts including the Supreme Court. In Shivdeo Singh v. State of Punjab, AIR 1963 SC 1909, it was held by the Supreme Court that if the High Court on an earlier occasion in breach of the principles of natural justice had passed an adverse order against a stranger, such stranger,aggrieved by the order of the High Court can file a writ petition under article 226 of the Constitution which in its very nature would be by way of review of the earlier ex parte order of the High Court against such aggrieved party. Mudholkar J., speaking for the Supreme Court in the aforesaid decision, has made the following pertinent observations in this connection (p. 1911) :

'Learned counsel contends that article 226 of the Constitution does not confer any power on the High Court to review its own order and, therefore, the second order of Khosla J. was without jurisdiction. It is sufficient to say that there is nothing in article 226 of the Constitution to preclude a High Court from exercising the power of review which inheres in every court of plenary jurisdiction to prevent miscarriage of justice or to correct grave and palpable errors committed by it. Here the previous order of Khosla J. affected the interests of persons who were not made parties to the proceeding before him. It was at their instance and for giving them a hearing that Khosla J. entertained the second petition. In doing so, he merely did what the principles of natural justice required him to do. It is said that the respondents before us had no right to apply for review because they were not parties to the previous proceedings. As we have already pointed out, it is precisely because they were not made parties to the previous proceedings, though their interests were sought to be affected by the decision of the High Court, that the second application was entertained by Khosla J.'

10. The aforesaid decision, therefore, clearly lays down that it is not as if the party against whom an ex parte order is passed is without remedy. It can file substantive petition under article 226 as in the case before the Supreme Court which would in its turn be an exercise of inherent review jurisdiction of the concerned court and in exercise of that power, the same court can correct its own error and can put the record straight and do justice to the really aggrieved party against whom the earlier decision was rendered ex parte without giving any opportunity of hearing. It is interesting to note that even in the aforesaid decision, second application by way of review was moved as a substantive petition under article 226. Save and except in a substantive application like review petition under Order 47, rule 1, read with section 151, Civil Procedure Code, or a petition under article 226, if at all it lies, the entire judgment or main texture of the judgment cannot be altered by the same court at the instance of any party or even a stranger who is aggrieved by a decision of the court rendered in breach of the principles of natural justice. In the present case, Mr. Thakkar has not invoked the review powers of this court and has relied on section 151, Civil Procedure Code, read with rule 9 of the Companies (Court) Rules, simpliciter. In my view, Mr. Thakkar has rightly not invoked the review power of this court for two obvious reasons. Firstly, because under article 124 of the Indian Limitation Act, 1963, the period of limitation of 30 days from the date of the judgment for filing a review petition has expired long back. More than 1(1/2) years have elapsed since I gave my judgment in Company Petition No. 49 of 1978. It is not the case of the applicants that they were not alive to this judgment and were not in the know of this judgment which contained the aforesaid alleged adverse remarks against them. Thus, the hurdle of limitation would stare in the face of the applicants. Even otherwise, the second hurdle would be that as per Order 47, rule 1, it has been clearly laid down that any person considering himself aggrieved - (a) by a decree or order from which an appeal is allowed, but from which no appeal has been preferred, may apply for a review of the judgment to the court which passed the decree or made the order. The Explanation which is added in 1976 to Order 47, rule 1, provides that the fact that the decision on a question of law on which the judgment of the court is based has been reversed or modified by the subsequent decision of a superior Court in any other case, shall not be a ground for the review of such judgment. Sub-clause (2) of rule 1 of Order 47 can obviously not apply, as according to Mr. Thakkar, the present applicants were not parties to the company petition and only the company was party and the company has already filed an appeal before the Division Bench. If that is so, Mr. Thakkar's case would fall only under Order 47, rule 1(a), wherein, any person considering himself aggrieved by a decree or order from which an appeal is allowed but from which no appeal has been preferred has a right to file a review application. It is interesting to note that the Legislature has advisedly made a difference between 'any person aggrieved' for the purpose of application for review under Order 47, rule 1, wherein non-appealing party is permitted to come by way of review to the same court even though appeal by some other party is pending before the higher court. In the present case, the three applicants can certainly be said to be persons who fell aggrieved by certain observations made by me against them. Still, however, they are precluded from coming in review on account of the fact that an appeal is already pending against my judgment in the company petition. If that is so, no review can be filed by the applicants and hence they have rightly not filed any review application. However, that does not mean that they have no remedy whatsoever. If no appeal would have been filed against the judgment in the company petition, the review could have been held maintainable within the permissible time allowed by the Legislature. But in the present case, an appeal is already filed against my judgment and it is admitted and expedited for final hearing. Consequently, no review would lie at the instance of the applicants even though they might be person feeling aggrieved by certain observations against them in my judgment. But if that is so, they have an alternative remedy of requesting the appellate court to grant them permission to prefer an appeal against may judgment with permission of the court. Consequently, even on the ground that the applicants were allegedly not given any opportunity of having their say in the matter and that my remarks are in a way passed ex parte against them and they are contrary to the principles of natural justice, the applicants have adequate remedy by way of going in appeal as aggrieved persons with leave of he appellate court. By shortcircuiting this legal procedure, they cannot invoke by application under section 151, Civil Procedure Code, simpliciter, my powers to delete 75 lines from various paras of my judgment which would in turn substantially alter my judgment. That can be done only if a review application is filed and is entertained on merits or alternatively if in this application it is shown that these remarks are totally dehors the record and they are like accidental errors in my judgment. The present application does not represent either of these fact-situations. It is admittedly not a review application nor is it an application for correcting inadvertent clerical or accidental errors. On the other hand, the remarks which I have made have been made after full consideration of the rival contentions of the parties and they are an integral part of the entire process of reasoning and are irretrievably intertwined and embedded in the main body fabric of the judgment spread over a number of pages. It is not as if these remarks are entirely extraneous or accidental in nature or that they represent inadvertent errors. In the facts of the present case and in the light of the derailed analysis which I have already made of my preliminary as well as final judgment, it is impossible to take the view that the remarks made against the concerned managing directors are totally extraneous or irrelevant or that they are based on no evidence whatsoever. In my view, these remarks logically flow from the voluminous evidence on record and are a logical corollary to the various findings reached by me on the main points in controversy between the parties. I cannot sit in appeal over my own findings and reverse the same, notwithstanding the nature of the grievance that the applicants might harbour on the alleged grounds of breach of principles of natural justice. If they have any such grievance, this is not the forum where they can vindicate the same and they may divert their attention and action to a different and more appropriate forum, that is, the appellate court, which is already seized of the main appeal against this judgment. I accordingly hold that this application is not maintainable on merits in the backdrop of the peculiar facts of this case and has to be rejected.

11. I may now briefly refer to the decided cases on which strong reliance was placed by Mr. Thakkar in support of the present application. In L. Janakirama Iyer v. P. M. Nilakanta Iyer : AIR1962SC633 , the Supreme Court had an occasion to consider the jurisdiction of the High Court under section 151 read with section 152, Civil Procedure Code, to correct an inadvertent error in the decretal order of the High Court even if an appeal to the Supreme Court had been admitted against the High Court's main judgment. The inadvertent error which had crept in the High Court's judgment in that case was that instead of the words 'net profit', the words 'mesne profits' were employed in the judgment. It is obvious that on the facts of the aforesaid Supreme Court case, the concerned error squarely fell in the scope and ambit of section 152, Civil Procedure Code, read with section 151 thereof. That error was not a deliberate one but was an accidental or unintended one. Such an error could be legitimately corrected in exercise of the powers under section 151 read with section 152, Civil Procedure Code. Such an error had nothing to do with the main texture of the judgment and its correction could not in the very nature of things affect the reasoning or the main part of the judgment. The aforesaid decision cannot be of any assistance to Mr. Thakkar. It is obvious that clerical errors or accidental errors in a judgment can be corrected by the same court at any time even though appeal against the said judgment is pending. But if it is not a case of any accidental error and if the alleged error is interwoven with the main reasoning in the judgment as is the fact-situation in the present case as was seen earlier, such an error can be corrected only in exercise would amount to altering or changing the basic texture of the judgment and even for having recourse to that remedy, the Legislature has advisedly put a restriction on review powers to the effect that if an appeal is pending, no exercise by way of review should be undertaken by the same court. In the present case, as noted earlier, a regular appeal on facts and law is already pending against may final judgment in the main company petition. Hence, the applicants cannot be permitted to indirectly achieve that which they are directly prohibited from obtaining as no review application is permissible to them at this stage. Mr. Thakkar then invited my attention to the decision in Samarendra Nath Sinha v. Krishna Kumar Nag : [1967]2SCR18 . In the aforesaid case, the Supreme Court was concerned with a question regarding correction of an accidental slip in the judgment of the court,even after the judgment was pronounced and signed by the court. In para 11 of the report, it has been observed by Shelat J. for Supreme Court as under (at p. 1443);

'Now, it is will settled that there is an inherent power in the court which passed the judgment to correct a clerical mistake or an error arising from an accidental slip or omission and to vary judgment so as to give effect to its meaning and intention.'

12. Considering Order 20, rule 3, Civil Procedure Code, Shelat J. made the following observations (at p. 1443) :

'The rule does not also affect the court's inherent power under section 151. Under section 152, clerical or arithmetical mistakes in judgments, decrees or orders, or errors arising therein from any accidental slip or omission may at anytime be corrected by the court either on its own motion or on an application by any of the parties.'

13. It is difficult to appreciate how this judgment can advance the case of Mr. Thakkar. It is not the case of the applicants that the observations made by me are accidentally made or inadvertently made. Their case is that these observations have been made against the managing directors who had no opportunity to have their say in their defence as they were not parties to the proceedings. Therefore, their contention is that, on merits, such observations are not justified and whatever may be the texture of the judgment, it has to be altered as principles of natural justice and fair play have not been complied with. This objection touches the merits of the void. The contention of the applicants is not that there was some arithmetic or accidental error in may judgment. Consequently, applicability of section 152, read with section 151, Civil Procedure Code, is out of the picture. It is now well settled that the inherent powers cannot be exercised to cut across or to circumvent the statutory provisions of the Code (vide Arjun Singh v. Mohindra Kumar : [1964]5SCR946 . In this case, it was observed as under (headnote) :

'The inherent power of the court cannot override the express provisions of the law. If there are specific provisions of the Code dealing with a particular topic and they expressly or by necessary implication exhaust the scope of the powers of the court or the jurisdiction that may be exercised in relation to a matter the inherent power the court cannot be invoked in order to cut across the powers conferred by the Code. The prohibition contained in the Code need not be express but may be implied or be implicit from the very nature of the provisions that it makes for covering the contingencies to which it relates.'

14. Similarly, in the case of Nain Singh v. Koonwarjee : [1971]1SCR207 , J. C. Shah J., speaking for the Supreme Court, held that under the inherent powers of courts recognized by section 151, Civil Procedure Code, a court has no power to do that which is prohibited by the Code. Inherent jurisdiction of the court must be exercised subject to the rule that if the Code does contain specific provisions which would meet the necessities of the case, such provisions should not be invoked. In other words, the court cannot make use of the special provisions of section 151 of the Code where a party had his remedy provided elsewhere in the Code and he neglected to avail himself of the same. Further, the power under section 151 of the Code cannot be exercised as an appellate power. The present application seeks precisely to do what is held legally impermissible by the aforesaid decisions of the Supreme Court.

15. By way of this application, the applicants in effect are attempting to circumvent the provision of Order 47, rule 1, Civil Procedure Code, and are trying to circuitously achieve that which is expressly prohibited by Order 47, rule 1, Civil Procedure Code. Mr. Thakkar then placed reliance on Bachan v. Raghunath : AIR1926All304 . A learned single Judge of the Allahabad High Court had occasion to consider the question whether a trial court had jurisdiction to carry out an amendment in the judgment during the pendency of the appeal. In that connection,it was observed that merely because an appeal is pending, it cannot be said that the decree of the trail court had not remained in force and it can be rectified or amended by the court which passed it. It is only when the appeal has been decided and a decree has been passed in appeal confirming, amending or reversing it, that the appellate decree operates to supersede the decree of the trial court. In the aforesaid Allahabad case, it was found that there was an apparent accidental error in the decree which was not properly drawn up in accordance with judgment. The said mistake was sought to be rectified. It was observed that for correcting any accidental and unintended error in a decree which did not conform with the judgment, the court can exercise its amending power not withstanding pendency of the appeal. It was not a case in which the error in question went to the root of the matter and its removal was likely to destroy or displace the main basis of the findings as is the case before me. Consequently, the said judgment of the Allahabad High Court cannot be of any assistance to Mr. Thakkar.

16. Mr. Thakkar then invited my attentian to Shyamal Bihari Mishra v. Girish Narain Missir : AIR1962Pat116 . A learned single judge of the Patna High Court has held therein that where the court would otherwise have the authority to amend its decree, it may do so even after an appeal has been taken against the said decree and is pending and has not yet been disposed of. Even in the Patna case, there was an inadvertent error in the decree. The decree was not in accordance with the judgment. Such an error was corrected by the court in exercise of its power under section 152 read with section 151, Civil Procedure Code, during the pendency of appeal against the decree. It is obvious that such an accidental error can always be corrected till the decree gets merged in the appellate decree after the disposal of the appeal. However, the entire operation-correction still remains in the domain of rectification of only inadvertent or accidental errors either in the judgment or in the decree, as the case may be. As seen earlier, the present is not one such case.

17. Mr. Thakkar then invited my attention to a decision of the Supreme Court rendered under section 561A of the Code of Criminal Procedure directly touching on the question of the power of the court regarding expunging of remarks in the judgment. In Dr. Raghubir Saran v. State of Bihar : 1964CriLJ1 , the Supreme Court was concerned with the case in which certain remarks were passed in the judgment of the subordinate court against a stranger. The said judgment had become final. The question whether these objectionable remarks could be expunged from the judgment of the subordinate criminal court by the Code of Criminal Procedure, 1898, or not came up for consideration before the Supreme Court in the aforesaid decision. Raghubar Dayal J., speaking for the majority of the Supreme Court, made the following pertinent observations in this connection (headnote) :

'Every High Court as the highest court exercising criminal jurisdiction in a State has inherent power to make any order for the purpose of securing the ends of justice. This power extends to expunction or ordering expunction of irrelevant remarks made against a person who is neither a party nor a witness to the proceeding, from a judgment or order of a sub-ordinare court, although the matter has not been brought before it in regular appeal or revision, and would be exercised by it in appropriate case for securing the ends of justice. Being an extraordinary power, it will, however, not be pressed in aid except for remedying a flagrant abuse by a subordinate court of its powers such as by passing comment upon a matter not relevant to the controversy before it and which is unwarranted or is likely to harm or prejudice another.'

18. In para 29 (at p. 11) of the report, it has been observed as under :

'When the question arises before the High Court in any specific case whether to resort to such undefined power, it is essential for it to exercise great caution and circumspection. Thus, when it is moved by an aggrieved party to expunge any passage from the order or judgment of a subordinate court, it must be fully satisfied that the passage complained of is wholly irrelevant and unjustifiable, that its retention on the records will causes serious harm to the person to whom it refers and that its expunction will not affect the reasons for the judgment or order.'

19. I fail to appreciate how the aforesaid judgment of the Supreme Court can be of any assistance to Mr. Thakkar. Unless it is shown by the applicants that the observations made by me in diverse paras of my judgment against the managing directors were wholly irrelevant and unjustified and that their expunction will not affect the reasons for the judgment or order, the power of expunction of the remarks cannot be exercised by me in the present proceedings. I have already X-rayed various steps taken by me for reaching various penultimate and final findings on different questions in controversy between the parties which were debated before me for upwards of two months in the light of relevant evidence on record. The objectionable remarks are an integral part of the entire process of my reasoning and their expunction is bound to affect the entire web and texture of the penultimate conclusion and ultimate findings based thereon. Such an exercise also would make the ultimate findings inconsistent and would totally denude them of their efficacy and potency. Consequently, even on the basis of the aforesaid Supreme Court judgment in Dr. Raghubir Saran's case : 1964CriLJ1 , this would not be a fit case for exercise of my inherent powers for expunging those remarks which are neither irrelevant nor unjustifiable. On the contrary, as the evidence stands and as I have found on various disputed points in controversy between the parties, these observations are wholly relevant and justified on the evidence on record. May be, on merits, the applicants may not find them palatable and they may have grievance that they were not justified on merits or on the basis of the evidence. But certainly, in that eventuality, this is not the forum where they can agitate their grievance. By way of present proceedings, they cannot ask me to sit in appeal over my judgment and reappreciate the evidence and remove these adverse findings against the applicants. Their remedy obviously lies elsewhere.

20. Mr. Thakkar then invited my attention to another judgment in the same volume in the case of State of U.P. v. Mohammad Naim : [1964]2SCR363 , wherein the Supreme Court was concerned with expunging of certain remarks in the judgment of the Allahabad High Court on the criminal side wherein Mr. Justice Mulla while considering the question whether a complaint for an offence under section 196, Indian Penal Code, should be launched against a police officer, viz., one Mr. Mohammad Naim, made certain observations not only against him but against the entire police force of Uttar Pradesh and on the application by the State of Uttar Pradesh under section 561A, Criminal Procedure Code, the learned judge refused to exercise his inherent powers for expunging the said remarks. In the special leave petition against the said order of the learned judge, the Supreme Court, speaking through S. K. Das J., made the following observations (p. 706) :

'The second point for consideration is this, has the High Court inherent power to expunge remarks made by itself or by a lower court or otherwise to secure the ends of justice There was at one time some conflict of judicial opinion on this question. The position as to case-law now seems to be that except for a somewhat restricted view taken by the Bombay High Court, the other High Courts have taken the view that though the jurisdiction is of an exceptional nature and is to be exercised in most exceptional cases only, it is undoubtedly open to the High Court to expunge remarks from a judgment in order to secure the ends of justice and prevent abuse of the process of the court ..... The view taken in the Bombay High Court is that the High Court has no jurisdiction to expunge passages from the judgment of an inferior court which has not been brought before it in regular appeal or revision; but an application under section 561A, Criminal Procedure Code, is maintainable and in a proper case, the High Court has inherent jurisdiction even though no appeal or revision is preferred to it, to correct judicially the observations made by pointing out that they were not justified, or were without foundation, or were wholly wrong or improper ... In State of U.P. v. J. N. Begga, Cr. A. No. 122 of 1959 D/16-1-1961 (SC), this court made an order expunging certain remarks made against the State Government by a learned judge the High Court of Allahabad. The order was made in an appeal brought to this court from the appellate judgment and order of the Allahabad High Court. In State of U.P. v. Ibrar Hussain, Cr. App. Nos. 148 of 1957 and 4 of 1958, D/28-4-1959 (SC), this court observed that it was not necessary to make certain remarks which the High Court made in its judgment. Here again the observation was made in an appeal from the judgment and order of the High Court. We think that the view taken in the High Courts other than the High Court of Bombay is correct and the High Court can in the exercise of its inherent jurisdiction expunge remarks made by it or by a lower court if it be necessary to do so to prevent abuse of the process of the court or otherwise to secure the ends of justice; the jurisdiction is, however, of an exceptional nature and has to be exercised in exceptional cases only. In fairness to learned counsel for the appellant, we may state here that he has submitted before us that the State Government will be satisfied if we either expunge the remarks or hold them to be wholly unwarranted on the facts of the case. He has submitted that the real purpose of the appeal is to remove the stigma which has been put on the police force of the entire State by those remarks the truth of which it had no opportunity to challenge.

The last question is, is the present case a case of an exceptional nature in which the learned judge should have exercised his inherent jurisdiction under section 561A, Criminal Procedure Code, in respect of the observations complained of by the State Government If there is one principle of cardinal importance in the administration of justice, it is this : the proper freedom and independence of Judge and MAgistrates must be maintained and they must be allowed to perform their functions freely and fearlessly and without undue interference by anybody, even by this court. At the same time it is equally necessary that in expressing their opinions, Judges and Magistrates must be guided by considerations of justice, fair-play and restraint. It is not infrequent that sweeping generalisations defeat the very purpose for which they are made. It has been judicially recognised that in the matter of making disparaging remarks against persons or authorities whose conduct comes into consideration before courts of law in cases to be decided by them, it is relevant to consider (a) whether the party whose conduct is in before the court or has an opportunity of explaining or defending himself; (b) whether there is evidence on record bearing on that conduct justifying the remarks; and (c) whether it is necessary for the decision of the case, as an integral part thereof, to animadvert on that conduct. It has also been recognised that judicial pronouncements must be judicial in nature, and should not normally depart from sobriety, moderation and reserve.'

21. A mere look at the aforesaid decision shows that a the remarks made by judicial authorities against persons or authorities will have to be judged in the light of certain relevant considerations as to whether the parties whose conduct is in question before the court had an opportunity of explaining or defending themselves and whether there was evidence on record bearing on that conduct and whether it was necessary for the decision of the case as an integral part thereof to animadvert on that conduct. On facts, it was found by the Supreme Court that the sweeping and general observations were made by the High Court against the entire police force of the State though the case related to only one police officer. It is in these circumstances that the Supreme Court held that those general remarks were not justified on the record of the case and that the remarks were not necessary for the disposal of the case before the learned judge. Thus, those observations were sweeping and general in nature and were not based on record and hence they were quashed by the Supreme Court in appeal before them. Even this decision cannot advance the case of the applicants any further. The remarks in the present case are not too sweeping or general or dehors the record nor are they based on no evidence whatsoever as Mr. Thakkar would like to have it. I have already shown how from the voluminous evidence on record, various inferences have been drawn by me, penultimate findings have been arrived at and final findings have been reached on various points in controversy between the parties. The remarks made against the managing directors logically flow from the salient features of the case which have emerged on record. Not only these remarks are based on evidence, but they have a direct bearing on the conduct of the applicants justifying these remarks and they are very much necessary for the decision of the case and they are an integral part of the final judgment thereof. Consequently, even, according to the aforesaid decision, the present application cannot be granted.

22. Mr. Thakkar then invited my attention to a Full Bench decision of the Punjab and Haryana High Court in Guru Nanak University v. Dr. Mrs. Iqbal Kaur Sandhu . In this case, certain adverse remarks against the Vice-Chancellor of Guru Nanak University were made without giving any opportunity to him to have his say. In that case, certain remarks were made against the Vice-Chancellor in a writ petition filed by an employee of the University against the University. In the said proceedings, the Vice-Chancellor was earlier joined as a party against whom allegations of mala fide were made. But the petitioner later on deleted the allegations and thereafter the name of the Vice-Chancellor was struck off from the array of the respondents. The learned single judge disallowed the civil miscellaneous application of the petitioner for reagitating the allegations of mala fide against the Vice-Chancellor a second time. It is in these circumstances that there were no allegations of mala fide against the Vice-Chancellor who was also no longer thought to be a proper party and he was deleted from the record. It is thereafter that in the final judgment, some observations came to be made by the learned single judge against the Vice-Chanecellor. It is in the aforesaid factual context that the question arose whether the remarks were required to be expunged in exercise of the inherent powers of the court. In this connection, it was observed by the Full Bench as under (headnote) :

'Prejudicial observations should not be made against a person who is neither a party nor a witness in the proceedings before a court. It would amount to a denial of justice to allow adverse reflections upon the character of such a person to stand intact in a judgment. No such remarks should be made unless they are based on legal material properly placed on the record and further an opportunity has been afforded to the person concerned to furnish an explanation thereto.'

23. It has been further noted that the Vice-Chancellor personally was neither a party to the writ petition nor was there any allegation of mala fides or bad faith against him on record. Hence, there was no factual foundation upon which strictures could be passed against the Vice-Chancellor. It is difficult to appreciate how the ratio of this judgment can be of any real assistance to Mr. Thakkar. In the case before the Punjab and Haryana High Court, no allegations of mala fides against the Vice-Chancellor survived on the record of the case at a later stage and they were all withdrawn. The name of the Vice-Chancellor was also deleted as a party. Therefore, he became a total stranger against whom, in the absence of any material whatsoever, strictures were passed by the learned single judge. In such a case, inherent powers for expunging such remarks which will clearly partake of the character of inadvertent and accidental errors could be exercised.

24. Mr. Thakkar also invited my attention to a decision of Tek Chand J. in the matter of H. Daly, AIR 1928 Lahore 740, to support his contention that the court should not make remarks against a person who has no chance to explain his conduct. Relevant observations of Tek Chand J. on which reliance was placed by Mr. Thakkar read as under (headnote) :

'The High Court has power to expunge passages from judgments delivered by itself or by a subordinate court but this jurisdiction is of an extraordinary nature and has to be exercised with great care and caution. On the one hand, it has to be borne in mind that in weighting evidence and arriving at conclusions on questions of fact, lower courts have to review the conduct of witnesses with reference to particular incidents and at times have to adjudge generally on the veracity or otherwise of such persons and in doing so they have often to make remarks which reflect adversely on their character. It is of the utmost importance to the administration of justice that court should be allowed to perform their functions freely and fearlessly and without undue interference by the High Court. At the same time, it is equally necessary that the right of Magistrates to make disparaging remarks on persons who appear, or are named, in the course of a trial, is one that should be exercised with great reserve and moderation, especially where the person disparaged has had little or no opportunity of explaining or defending himself. If the conduct of the witness appears to the judge to be suspicious or otherwise not above board, he has the right and the duty to test his evidence by putting questions to him. But before he is justified in commenting adversely upon his evidence, he must establish the particular fact warranting such criticism by proper evidence in court and not on conjectures or by reference to materials which are not properly on the record. Again, a Magistrate should not in his judgment make observations prejudicial to the character of a person, who is neither a witness nor a party to the proceedings and who has no opportunity of being heard.'

25. The afore said decision of Tek Chand J. has been referred to by the Supreme Court with approval in Dr. Raghubir's case : 1964CriLJ1 . The aforesaid decision of the Lahore High Court cannot be of any assistance to the applicants for the simple reason that all it lays down in that disparaging remarks based on no evidence against a total stranger may in proper cases be expunged. But so far as the present case is concerned, as I have shown earlier and as will also be demonstrated later on, there was sufficient evidence on record for supporting the impugned remarks, the present applicants were as good as parties and/or witnesses and they had ample opportunity to meet the charge and still they did not think it proper to file their affidavit or to come openly in the arena and boldly face the proceedings. In the process, the remarks came to be passed against them on the basis of the evidence on record. Consequently, the ratio of the judgment of Tek Chand J. in the aforesaid case cannot advance their case any further.

26. I may now turn to the decision of the Supreme Court in State of Assam v. Ranga Muhammad : (1968)ILLJ282SC . The Supreme Court had an occasion to consider the powers of the High Court under section 151, Civil Procedure Code, to expunge remarks made against the concerned parties. Mr. Justice Dutta of the Assam High Court had made certain remarks against the State of Assam and Nagaland. He described the action of the State Government as mala fide and actuated by ulterior motive. While considering the question, whether these remarks were required to be removed by the Supreme Court in appeal or not, the following pertinent observations have been made by Hidayatullah J. (p. 907) :

'We have considered very carefully the question of expunging Mr. Justice Dutta's remarks. The power to expunge is an extraordinary power and can be exercised only when a clear case is made out. That another judge in Mr. Justice Dutta's place would not have made those comments is not the right criterion. The question is whether Mr. Justice Dutta can be said to have acted with impropriety. Although we think that Mr. Justice Dutta need not have made the remarks we cannot say that in making them he acted with such impropriety that the extraordinary powers should be exercised in this case.'

27. The aforesaid decision clearly lays down that unless the remarks can be said to be made with impropriety, they cannot be expunged. Mr. Thakkar then submitted that these observations of the Supreme Court are confined to the powers of the appellate court to expunge remarks or the lower court. But so far as I am concerned, I have to decide whether I would like to expunge my own remarks in exercise of my inherent powers, being the author thereof. Nevertheless, it must be observed that the Supreme Court has treated the inherent power to expunge remarks from a judgment to be an extraordinary power which can be exercised only when a clear case is made out. In my view, no such clear case has been made out by the applicants nor can I say that the remarks made were in any way improper in the state of the evidence on record and it is not open to me to attempt to find out whether they were not called for on merits as it would be an exercise of the appellate jurisdiction against my own judgment which obviously does not inhere in me. However, it is made clear that, in my view, the impugned remarks are fully justified in the light of evidence on record and are not improper from any point of view.

28. It is now time for me to take stock of the situation. As it is well- settled, inadvertent remarks in the judgment which are of sweeping nature and which are not supported by evidence on record can be expunged in exercise of the inherent powers of the court. I have already discussed in detail and have fully analysed various parts of my judgments, both preliminary and final, to show that the impugned remarks made by me in various parts of my judgments are neither sweeping nor irrelevant nor based on no evidence. On the contrary, they are based on sufficient evidence and they form an integral part of the entire texture of the judgment. Any attempt to weed them out would destroy the basis fabric of the judgment and its internal homogeneity and would render the findings on various points for determination vulnerable and in sense inconsistent and, consequently, this is not a fit case in which I can exercise my inherent powers as prayed for by the applicants.

* * * * *

29. I will now proceed to consider the case of the applicants on merits. Mr. Thakkar is right when he contends that the company has a separate personality. The managing directors being officers of the company are also having their own individual and separate personalities. However, it cannot be gainsaid that the managing directors are officers or the company. Section 2(26) of the Companies Act, 1956, defines 'managing directors' to mean -

'A director who, by virtue of an agreement with company or of a resolution passed by the company in general meeting or by its board of directors, or, by virtue of its memorandum or article of association, is entrusted with substantial powers of management which would not otherwise be exercisable by him, and includes a director occupying the position of a managing director, by whatever name called.'

30. Section 2(30) defines 'Officer' to mean :

'Any director, managing agent, secretaries and treasurers, manager or secretary or any person in accordance with whose directions or instructions the board of directors or any one or more of the directors is or are accustomed to act and also includes - ....'

31. Consequently, the managing directors, being directors, are officers of the company. Section 51 of the Act lays down the mode of service of documents on a company and states that a document may be served on a company or an officer thereof by sending it to the company or officer at the registered office of the company by post under a certificate of posting or by registered post, or by leaving it at its registered office. Thus, an officer of the company is a duly authorised agent for receiving service of any document on behalf of the company. Section 100 read with section 101 of the Act lays down the contingencies in which the company may apply for sanction of the court for reduction of its share capital. As per section 105, penalties are provided for concealing name of any creditor and it has been laid down that if any officer of the company knowingly conceals the name of any creditor entitled to object to the reduction or knowingly misrepresents the nature or amount of the debt or claim of any creditor or abets or is privy to any such concealment or misrepresentation aforesaid, he shall he punishable with imprisonment for a term which may extend to one year or with fine or with both. Section 252 deals with constitution of board of directors and lays down minimum number of directors for each company. Under section 291, general powers of the board have been dealt with and it has been provided that :

'(1) Subject to the provisions of this Act, the board of directors of company shall be entitled to exercise all such be entitled to exercise all such powers, and to do all such acts and things, as the company is authorised to exercise and do :

Provided that the board shall not exercise any power or do any act or thing which is directed or required, whether by this or any other Act or by the memorandum or articles of the company or otherwise, to be exercised or done by the company is general meeting.'

32. Thus, the board of directors and managing directors are fully authorised to act on behalf of the company. My attention was also invited to the articles of association of the petitioning company, especially articles 115, 128 and 129(1) of point out that the managing directors can take all steps on behalf of the company in any court of law by filing proceedings and/or by defending them. The Companies (Court) Rules, 1959, also throw lot of light on this question. As per rule 46, a petition to confirm a reduction of the share capital of a company is required to be filed in Form No. 18 and shall be accompanied by a summons for directions in Form No. 19. Rule 49 lays down that the company shall, within the time allowed by the judge, file a list in Form No. 21 containing names and addresses of the creditors, etc., while rule 50 deals with affidavit verifying list of creditors and states that such list shall be verified by an affidavit made by an officer of the company competent to make the same, who, in such affidavit, shall state his belief that the list verified by such affidavit is correct. Rule 53 states that notice of the presentation of the petition and of the list of creditors under rule 49, shall within seven days after the filing of the said list of such further or other times as the judge may allow, be advertised by the company in such manner as the judge shall direct. Rule 55 days down that the company shall file a statement signed and verified by the advocate of the company stating the result of the notices mentioned in rules 52 and 53, respectively, and verifying a list containing the names and addresses of the persons, if any, who shall have sent in the particulars of their debts, etc. If we turn to Form No. 21 which prescribes the statutory form of list under rule 49, it is found that the said list can be signed by the director, secretary or other competent officer of the company. Statutory form of affidavit as per rule 55 as provided by Form No. 26. If we look at the same, it is found that an affidavit as to the result of the notice issued as required by rule 55 has to be made by an advocate of the company and has to be supported by an affidavit of the managing director of the company. Form No. 29, as per rule 59 of the Companies (Court) Rules deals with hearing of petition. Rule 59 provides that after the expiry of not less than fourteen days from the filing of the filing of the certificate mentioned in the preceding rule, the petition shall be set down for hearing. Notice of the date fixed for the hearing of the petition shall be advertised within such time and in such newspapers as the judge may direct and shall be in Form No. 29. Form No. 29 is the form of advertisement of hearing of petition. It is further pertinent to note that as per rule 11(a)(3), applications under section 101 to confirm reduction of share capital has to be by way of a petition. As per rule 12, petitions are to be heard in open court and as per rule 21, such petitions are to be verified by affidavit made by the petitioner or by one of the petitioners, where there are more than one, and in the case of a petition presented by a body corporate, by a director, secretary or other principal officer thereof. Such affidavit is to be filed along with the petition and has to be in Form No. 3. Rule 24 lays down that where any petition is required to be advertised, it shall be done not less than 14 days before the date fixed for hearing. Rule 34 deals with notice to be given by persons intending to appear at the hearing of petition. As per rule 35, the petitioner or his advocate has to prepare a list of the names and addresses of the persons who have given notices of their intention to appear at the hearing of the petition. Such list shall be in Form No. 10 and shall be filed in court before the hearing of the petition. The aforesaid Rules clearly show that petitions under the Companies Act have to be advertised widely so that any one desirous of having his say in the matter can come before the company court and put forward his submissions either in support of, or in opposition to, the petition. The managing directors, therefore, cannot be said to be total strangers to the company petition. Mr. Thakkar is right to the limited extent that merely because a company files proceedings before the court, straightway, an equation cannot be drawn that the company is equal to the managing directors. Merely because a company has initiated certain proceedings in the court, it cannot be said that ipso facto, the concerned managing directors are also parties in their individual capacities in these proceedings. The company has its own independent corporate existence which cannot be automatically equated with the independent personality of the managing director. If that is not so, some absurd results may follow, viz., if cost is ordered against the company, it can be said that he managing director has personally to pay the said cost. But Mr. Thakkar is right to the limited extent that merely because a company files proceedings before the court, straightway, an equation cannot be drawn that the company is equal to the managing directors. Merely because a company has initiated certain proceedings in the court, it cannot be said that ipso facto, the concerned managing directors are also parties in their individual capacities in these proceedings. The company has its own independent corporate existence which cannot be automatically equated with the independent personality of the managing director. If that is not so, some absurd results may follow, viz., if cost is ordered against the company, it can be said that the managing director has personally to pay the said cost. But Mr. Thakkar's submission is well justified thus far and no further. On the scheme of the relevant provisions of the Act and the Companies (Court) Rules, it cannot be said that managing direction being officers of the company are total strangers to the company petition under section 101. In fact, section 105 indicates that any officer who intentionally commits a wrong during the proceedings under section 101 as contemplated by that section will be liable to be criminally dealt with. That presupposes that the company being an inanimate personality has to act through its limbs, that is, its officers. The scheme of the Companies (Court) Rules also points in the same direction. Therefore, without drawing any exact equation between the company and the managing directors and without treating them as one and the same personality, it can still be legitimately said that in proceedings under section 101, managing directors being officers of the company are required to act in support of the petition and in the progress of the petition as envisaged by the scheme of the Act and rules themselves and they cannot plead total ignorance of these proceedings or nor can they with any justification, say that they are total strangers to the proceedings. To that limited extent, the corporate veil of the company stands statutorily pierced and lifted. In this connection, it would be profitable to have a look at certain observations found in Gower's Principles of Modern Company Law, fourth edition 1979, at page 1, nature and functions of companies have been discussed and it has been mentioned that although company law is a well-recognised subject in the legal curriculum and the title of a voluminous literature, its exact scope is vague, since the word 'company' has no strictly legal meaning. At page 9, inadequacy of legal definitions has been pointed out. Various organs of the company have been mentioned at page 17, viz., the members in general meeting and the directorate. Board of directors as organ of the company is mentioned at page 18 and functions of the managing directors are discussed at page 19 and it is stated :

'This wide delegation of the company's powers is, however, to the directors acting as a board, not to the individual directors.'

33. Then, in Chapter 6, at page 112, is found a discussion pertaining to lifting of the corporate veil. It is observed, relying on diverse decisions of English courts, as follows :

'The question, generally described as that of 'lifting the veil' is one which until recently, has aroused little attention and less theoretical discussion in this country. Nevertheless, it has always been recognised that 'the Legislature can forge a sledgehammer capable of cracking open the corporate shell' and even without the aid of a legislative sledgehammer the courts have sometimes been prepared to have a crack.'

34. At page 126 is found a discussion regarding fraud or improper conduct. It has been observed therein that 'many example can be found of cases in which the courts have refused to allow the corporate entity principle to be used as an instrument of fraud. Thus, they will not allow company promoters to conceal the profits which they are making by operating through dummy companies'. In this connection, it would be profitable to look at a decision in the case of Wallersteiner v. Moir [1974] 1 WLR 991 (CA), delivered by the Court of Appeal in England, which refused to allow Dr. Wallersteiner to put in a defence out of time to claims for misfeasance as a director in relation to breaches of the Companies Act. Lord Denning, M.R. made the following observations in that connection (p. 1013) :

'He controlled their every movement. Each danced to his bidding. He pulled the strings. No one else got without reach of them. Transformed into legal language, they were his agents to do as he commanded. He was the principal behind them. I am of the opinion that the court should pull aside the corporate veil and treat these concerns as being his creatures - for whose doings he should be, and is, responsible.'

35. Thus, corporate veil can be pierced in proper cases either by statutory provisions or by the judicial decision of the court. I may now refer to one decision of the Supreme Court on the point. In Tata Engineering and Locomotive Co. Ltd. v. State if Bihar [1964] 34 Comp Cas 459 (SC), the Supreme Court quoted with approval, the aforesaid passage of Grower, at p. 470 of the report and explained the principle of lifting of corporate veil in cases where the court is concerned with finding out the fraud of the concerned officers of the company. The said passage reads (at p. 470) :

'Grower has similar summarised this position with the observation that in a number of important respects, the Legislature has rent the veil woven by the Salomon's case [1897] AC 22 (HL). Particularly is this so, says Gower, in the sphere of taxation and in the steps which have been taken towards the recognition of enterprise-entity rather than corporate-entity. It is significant, however, that, according to Gower, the courts have only construed statutes as 'cracking open the corporate shell' when compelled to do so by the clear words of the statute; indeed they have gone out of their way to avoid this construction whenever possible. Thus, at present, the judicial approach in cracking open the corporate shell is some what cautious and circumspect. It is only where the legislative provision justifies the adoption of such a course that the veil has been lifted. In exceptional cases where courts have felt 'themselves able to ignore the corporate entity and to treat the individual shareholder as liable for its acts', the same course has been adopted. Summarising his conclusions, Gower has classified seven categories of cases where the veil of a corporate body has been lifted. But it would not be possible to evolve a rational, consistent and inflexible principle which can be invoked in determining the question as to whether the veil of the corporation should be lifted or not. Broadly stated, where fraud is intended to be prevented, or trading with an enemy is sought to be defeated, the veil of a corporation is lifted by judicial decisions and the shareholders are held to be the persons who actually work for the corporation.'

36. At page 205 of the same volume of Gower, are found the observations pertaining to the organic theory and it has been observed in this connection :

'In a previous Chapter, we have seen that in relation to the internal operation of a company, the general meeting, the board of directors and even a managing director have, in effect, come to be treated as organs of the company rather than as merely its agents. But the judicial development with which we are now concerned seems to have taken place quite independently of that line of cases. Instead, it sprang form the speech of Lord Haldane in Lennard's Carrying Co. v. Asiatic Petroleum Co. Ltd. [1915] AC 705 (HL). In that case, a company which owned a ship was seeking to take advantage of the limitation of liability under section 502 of the Merchant Shipping Act, 1894. This limitation is available only where the injury is caused without the owner's 'actual fault or privity'. The loss resulted from the default of Lennard, its managing director, and in holding the company liable, Viscount Haldane L.C., delivering the judgment of the House, said :

'My Lords, a Corporation is an abstraction. It has no mind of its own any more than it has a body of its own; its active and directing will must consequently be sought in the person of somebody who for some purposes maybe called an agent, but who is really the directing mind and will of the corporation, the very ego and centre of the personality of the corporation ..... If Mr. Lennard was the directing mind of the company, then his action must, unless a corporation is not to be liable at all, have been an action which was the cation of the company itself within the meaning of section 502 ... It must be upon the true construction of that section in such a case as the present one that the fault or privity is the fault or privity of somebody who is not merely a servant or agent for whom the company is liable upon the footing respondent superior, but somebody for whom the company is liable because his action is the very action of the company itself'.'

37. The aforesaid legal position on the point leaves no room for doubt that when the company acts as a corporate body, it acts through its officers who are its real organs and he managing directors are the brain of the company. For the purpose of expenses involved in litigation and costs, etc., the company as a corporate body may remain liable independent of its officers, but when the question of fraud of some officers is no the anvil, the court cannot be precluded from tearing of the veil to reach the substance of the matter. Under these circumstances, it is impossible to agree with Mr. Thakkar that the managing directors of the company were total strangers and had nothing to do with the proceedings for reduction of share capital of the company which they were managing. It is, therefore, held that they were as good as parties to the proceedings, though their names were not expressly mentioned as person filing the petition on behalf of the company. They were for all practical purposes petitioners before the court legally representing the petitioning company which has to file an application under section 101 of the Act for sanction in the name of the company but which has to act through its officers and which term in its turn includes the concerned managing directors. It must be noted at this stage that the managing directors in their individual capacities may not be parties to such proceedings but in their official capacity as managing directors and as officers of the company, they could certainly be said to represent the company in such proceedings. In fact, they are entitled to act on behalf of the company in their official capacity in such proceedings but even they are required to so act as seen from the various provisions of the Act and the Rules. Even apart from this position, on the peculiar facts of this case, it must be held that the concerned three brothers-managing directors of the company were the real parties to the proceedings. As I have already observed earlier, the evidence on record clearly show that the very idea of having the scheme of delinking of Arbuda from Ambica owed its genesis to the family arrangement document among the three brothers. It was their private purpose and not the corporate purpose which ultimately resulted in the scheme of reduction of share capital. Thus, they were the real persons who were interested in getting the first step towards the implementation of the family arrangement processed and sanctioned through the court. They were the persons who were pulling the strings in the main proceedings if I borrow the phrase employed by Lord Denning M.R. in Wallersteiner's case [1974] 1 WLR 991. It is in the background of the peculiar facts of this case that I have already found on evidence that but for the family arrangement, the main company petition would not have seen the light of the day. Thus, in the name of the company, the managing directors were the real parties who were interested in getting their family arrangement scheme fructified by getting the scheme sanctioned under section 101 of the Companies Act. Therefore, on the special facts of the case, the managing directors must be held to be the real parties while the company was only the apparent party as the managing directors by themselves could not have applied under section 101 which requires the company to move the court through its officers. In fact, the meat of the matter is that the applicant that the managing directors were masquerading in the name of the company in the petition proceedings and were interested in seeing that the company petition succeeds so that their private purpose of effecting the family arrangement gets clearance at least at the first main stage. Consequently, the main submission of Mr. Thakkar in support of the application that the managing directors being total strangers to these proceedings and not being parties to the proceedings, could not have been stigmatised without giving an opportunity of hearing them, falls through on the facts of this case. They were the real parties to the proceedings and were in full know of the charges levelled against them by the concerned objectors. But they intentionally kept away at a safe distance from the court proceedings and did not think it proper to file affidavits presumably because they wanted to avoid the uncomfortable situation of being summoned for cross-examination by the objectors. If they have deliberately taken that course, they cannot make a grievance about violation of the principles of natural justice. It is now well settled that the rules of natural justice are not codified ones. That if a party had a full opportunity to meet the case against it and does not think it proper to meet it, he has to thank himself and cannot make a grievance regarding the breach of principles of natural justice. In Roshan Lal Mehra v. Ishwar Dass : [1962]2SCR947 , S. K. Das J., speaking for the Supreme Court, observed (headnote) :

'If, however, the landlord chose to be absent in spite of repeated intimation to him, he could not be heard to say that the enquiries were made in his absence and were, therefore, bad. To hold in such circumstances that there had been violation of the principles of nature justice would be to put a premium on the recalcitrance of a party. After all, what natural justice required was that a party should have the opportunity of adducing all relevant evidence and that he should have an opportunity of the evidence of his opponent being taken in his presence.

38. In the present case, even though the applicants were as good as parties and in fact, were the real applicants, basking in sunshine under the name of the company and who were directly interested in the result of the company petition being rendered in their favour, if they deliberately did not file any affidavit in reply to the objections of the objectors making specific allegations of mala fides against them, they have to thank themselves and they cannot clutch at the abstract principles of natural justice and their alleged breach. On the facts of the case, it is found that the applicants had full knowledge about the charges levelled against them and had full opportunity to refute the same if they would have been so minded by filing affidavit-in- reply. As I have already observed, these proceedings had to be advertised in local newspapers. It was practically an open debate on relevant points and any one who had anything relevant to say, was welcome. The managing directors being as good as applicants did not think it proper to venture into the arena and they sat on the fence. In doing so, they took a calculated risk and avoided an unpalatable situation for themselves. If such calculated risk was willingly and knowingly taken by them, they must be prepared to meet the consequences and cannot make a grievance on the score that ultimately the court passed certain strictures against them on the basis of the evidence on record. It is also to be kept in view that the observations made by me against the conduct of the managing directors in their official capacity and their role as such vis-a-vis other members of the board of directors as well as the general body. The observations are borne out from the evidence and they have logically flowed from the scheme of the chronological events that have emerged on the record.

39. Even apart form the fact that they were s good as parties to the proceedings and they had full opportunity to meet the charges levelled against them and were in the know of the facts, they were called upon by me to file and affidavit along with which to produce the family arrangement document in question. At that time, I had not specified that a particular managing director may file the affidavit. It was left to the concerned managing directors to decide amongst themselves inter se as to who should file the affidavit and having so decided, they presented the affidavit of Shri Balkrishna Harivallabhdas and along with it, they produced the family arrangement document. Consequently, it cannot be said, in any view of the matter, that they were total strangers to the proceedings. They were at least as good as witnesses in this case. Under these circumstances, the remarks made against them cannot be treated to have been made against total strangers. In this connection, I may also refer to the preliminary judgment which I gave at least six months before the petition was taken up for final hearing and even at that time, having heard all the concerned parties, I have noted the nature of the controversy between the parties. At page 22 of the preliminary judgment, I have noted the submission made by Mr. Shodhan in support of his affidavit-in-reply that the three brothers who were the managing directors were interested in their personal gains. Thus, the objectors were clamouring from house top about the alleged mala fides of the managing directors. Still, however, the applicants did not think it proper to refute the said charge levelled against them in no uncertain terms from the very beginning of contest in these proceedings. I have already discussed various submissions made by Mr. Vakil, learned advocate of the petitioner company during the long drawn out hearing which lasted for about two months wherein he vehemently tried to defend the action taken by the managing directors in not revealing the family arrangement document to the board of directors as well as to the general body. Thus, Mr. Vakil practically held the brief for the company as well as the managing directors, though strictly speaking, it can be said that he was representing the company and the managing directors in their own names were not parties to the proceedings. But, in substance, they were the real parties to the proceedings against whom charges were levelled by the objectors. The charges were reflected in the points for determination as framed by me at least six months prior to the taking up of the company petition for final hearing. The points were framed in the preliminary judgment and were made know to all the concerned parties. Being conscious of these charges, issues were joined by the learned advocates of the respective parties. My findings were invited. Rival versions were submitted for consideration in the light of the evidence on record and on that basis, I gave my findings and while doing so, I made the impugned remarks which clearly flow from the earlier findings and evidence on record and which form the main fabric of the ultimate findings on the relevant points. The managing directors, therefore, had ample opportunity to put forward their case in defence and, in fact, an attempt was made on behalf of the company's advocate to justify their action in the light of the evidence on record and ultimately finding were arrived at by me on merits. If these findings are not justified, the grievance of the managing director, as earlier observed, lies elsewhere and not before me. Consequently, even on merits, the applicants are not entitled to any relief in the present miscellaneous civil application and hence, the said application must be dismissed. Accordingly, rule issued therein is ordered to be discharged. In the facts and circumstances of the case, there will be no order as to costs.


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