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Colaba Land and Mills Co. Ltd. Vs. V.J. Pilani and ors. - Court Judgment

LegalCrystal Citation
SubjectCompany
CourtGujarat High Court
Decided On
Case NumberCompany Petition Nos. 14 of 1963 and 7 of 1960
Judge
Reported in[1971]41CompCas1078(Guj)
ActsCompanies Act 1956 - Sections 10, 397, 398, 406, 539, 540, 541, 542, 543, 543(1), 543(2), 543(3), 544, 561, 633, 644, 645, 646, 647 and 648
AppellantColaba Land and Mills Co. Ltd.
RespondentV.J. Pilani and ors.
Appellant Advocate F.J. Nariman, Adv.
Respondent Advocate G.A. Pandit, Adv.
Cases ReferredNawab Usmanali Khan v. Sagar Mal. Therefore
Excerpt:
(i) company - misfeasance - sections 10, 397, 398, 406, 539, 540, 541, 542, 543, 543 (1), 543 (2), 543 (3), 544, 561, 633, 644, 645, 646, 647 and 648 of companies act, 1956 - whether petition maintainable in view of section 543 and in case alleged acts of malfeasance, misfeasance and non-feasance committed prior to coming into operation of companies act - respondents not able to show how obligation was incurred - legislature intervened to set right matters by enacting sections 397 and 398 - legislature invested highest court of state with equitable jurisdiction to exercise its wide power in just manner - previous cause of action reopened - section 543 given retrospective effect - cause of action arose before companies act - petition under section 543 maintainable. (ii) limitation period -.....j.b. mehta, j. 1. this matter raises the following preliminary issues : '(1) whether the petition is maintainable in view of the provisions of section 543 of the companies act (2) whether the petition is barred by limitation (3) if the alleged acts of malfeasance, misfeasance and non-feasance were committed prior to the coming into operation of the companies act, 1956, whether the petition is maintainable (4) whether the petition is premature inasmuch as the liquidator of the colaba land and mills co. ltd. has yet not declared a final dividend on the shares of that company (5) whether the petition is premature inasmuch as the sale proceeds of 1,922 shared of the colaba land and mills co. ltd. and 10,045 shares of vasant investment corporation ltd. are not realised (6) whether the.....
Judgment:

J.B. Mehta, J.

1. This matter raises the following preliminary issues :

'(1) Whether the petition is maintainable in view of the provisions of section 543 of the Companies Act

(2) Whether the petition is barred by limitation

(3) If the alleged acts of malfeasance, misfeasance and non-feasance were committed prior to the coming into operation of the Companies Act, 1956, whether the petition is maintainable

(4) Whether the petition is premature inasmuch as the liquidator of the Colaba Land and Mills Co. Ltd. has yet not declared a final dividend on the shares of that company

(5) Whether the petition is premature inasmuch as the sale proceeds of 1,922 shared of the Colaba Land and Mills Co. Ltd. and 10,045 shares of Vasant Investment Corporation Ltd. are not realised

(6) Whether the petition have been filed without the permission of this court is maintainable at law

(7) Whether the petition is mala fide and without due regard to the interests of the shareholder

(8) Whether the petition is bad for misjoinder of causes of action and parties If so, whether it is maintainable

(9) Whether the petition is maintainable in view of the alleged delay and laches

The short facts, which are necessary for the disposal of these issues, are as under :

The petitioners, Colaba Land and Mills Co. Ltd. who have filed this petition through their liquidator, are holding 22,000 fully paid up shares in the 16th respondent-company, which is a going concern, newly Vasant Investment Corporation Ltd. (hereinafter referred to as 'he company'). One Mr. Deshpande had been appointed under section 235C of the Companies Act of 1913 on October 17, 1956, as inspector to investigate into the affairs or respondent No. 16 company. He made a report on June 19, 1957, which was made public on July 19, 1957, holding the twelve charges, which are not mentioned in his petition, as, having been established. The petitioners thereupon filed in the Bombay High Court an application under sections 397 and 398 of the Companies Act, 1956 (hereinafter referred to as 'the Act'), on November 26,1958. That petition, on the bifurcation of the Bombay State, came to this court and was numbered as Company Petition No. 7 of 1960. The said petition prayed for the removal of respondents Nos. 2 to 7, directors in that petition, and for obtaining suitable directions for regulating the future conduct of the affairs of the company and for appointment of a committee or proper persons to conduct and manage the future affairs of the company. There was a further relief requiring respondents Nos. 2 to 4, who are respondents, Nos. 1, 5 and 6 in this petition to pay or contribute such sum of sums of money to the company as and by way of compensation for the malpractices, mismanagement, misappropriation and breach of trust committed by them or any of them as set out in the petition and for issuing necessary directions which the court deemed proper. It should be noted, at this stage, that, respondent No. 7 in that petition, who is now respondent No. 14 in the present petition, was deleted in the petition. During the pendency of the petition, the two directors, respondents Nos. 3 and 4, who are the present respondents Nos, 5 and 6, ceased to be directors from June 30, 1959. Thereafter, the reliefs (a) to (d) for regulating the future affairs of the company were not pressed. As this was a composite application invoking the ancillary jurisdiction under section 406 of the Act, which brought in section 543 in the modified form as set out in Schedule XI, it was vehemently argued before Miabhoy J., who heard that petition on July 12, 1963, that the main object of the petition to get substantial relief under sections 397 and 398 having been exhausted, this ancillary jurisdiction could not be invoked at all by granting relief under the modified section 543 by exercising the court's power under section 406 Miabhoy J., in terms, negatived this contention in decision which is now reported in Colaba Land and Mills Co. Ltd. v. Vasant Investment Corporation. It was, in terms, stated that a proceeding under section 543 (Schedule XI) is an emanation from a proceeding under section 397 or section 398 of the Act and, although the object of sections 397 and 398 are different from the object of section 543, there was a vital connection between the two in the sense that a proceedings under the latter section emanated from a proceeding under either of the two sections 397 and 398 of the Act when prima facie evidence came to light in the course of such a proceeding under section 397 or section 398 of the Act on the basis of which proceeding under section 543 (Schedule XI) could be founded. The learned judge pointed out that under the general law of the land, a right to resort to such summary procedure was not given to any creditor or shareholder in the case of a going concern. Under the old law, such a right arose only after the company was taken into liquidation which is now preserved by section 543 in the Act. The legislature intended to extend this right further by conferring a similar right upon the creditors and members of the company even during the subsistence of the company by imposing a fetter or limitation which is now enacted in the opening words of section 543, Schedule XI. Further proceeding, the learned judge observed, at page 920, that in order to make an application under section 543 Schedule XI, it is not necessary that a proceedings under section 397 or section 398 should be subsisting. The learned judge also pointed out that the existence of a prima facie case is not to be shown to the satisfaction of the court. A prima facie case has only to come to light in the course of such a proceeding duly instituted under section 397 or section 398. That is why the petitioner-company was allowed to bring materials on the record of that proceeding. As soon as these materials came on the record of that petition, it was obvious that in the course of proceeding under section 397 or section 398 this prima facie case against these delinquents and even others having come to light, as indicated by the learned judge, a separate independent petition could be made under section 543, Schedule XI, by the petitioner-company in its capacity as the shareholder of the company. At page 925, the learned judge has pointed out that, having regard to the materials which have appeared on the record of that petition, the petitioner-company should review those materials and take such steps as it may think necessary or expedient in one consolidated proceeding against such of the persons against whom the record reveals a prima facie case of misfeasance rather than that it should proceed to get the matter decided only against the directors, who were respondents Nos. 2 to 4 in that petition or the present respondents Nos, 1,5, and 6. The learned judge also observed that even if ultimately the petitioner decided not to proceed against any other person, it was better that a separate and independent proceeding should be filed rather than that the petition under sections 397 and 398 should be kept indefinitely pending. That is why the learned judge in the penultimate paragraph granted a period of three months by adjourning the main petition so that a proper petition under section 543, Schedule XI, could be filed by the petitioner by way of a consolidated proceeding. That is why the petitioner obtained sanction from the Bombay High Court on October 9, 1963, and filed the present petition under section 543, Schedule XI, on October 10, 1963. The present petition in instituted not only against the original directors, respondents Nos. 2 to 4, in the main petition No. 7 of 1960, but against that director, who was deleted from that petition, and against the other respondents against whom it is alleged that prima facie material has come to light in the course of that proceeding under section 397 or section 398 which could be seen from the record of that petition. Instead of the eight acts, which were specified in the main petition No. 7 of 1960, the allegations could be classified into twelve heads for founding the case of misfeasance or breach of trust against these respondents. It is true that all the respondents are not interested in each and every one of these allegations and that is why these acts could be grouped under twelve heads. It is the case of the petitioner that the total amount which is involved is about Rs. 14,39,000 as per the summary of the relevant allegations which has been given by Mr. Nariman from the allegations in the petition. It may be also mentioned, at this stage, that even the main petition No. 7 to 1960 has not, as yet, been disposed of but, by the order dated February 3, 1964, of our brother, Divan J., it has been stayed. In the light of these facts, we will have to consider the preliminary objections which have been raised. It would be proper at the outset to consider section 543 in the Act and as modified in Schedule XI. Section 543(1) runs as under :

'543. (1) If in the course of winding up a company, it appears that any person who has taken part in the promotion or formation of the company, or any past or present director, managing agent, secretaries and treasurers, manager, liquidator or officer of the company -

(a) has misapplied or retained, or become liable or accountable for, any money or property of the company; or

(b) has been guilty of any misfeasance or breach of trust in relation to the company;

the court may, on the application of the official liquidator, of the liquidator, or of any creditor or contributory, made within the time specified in that behalf in sub-section (2), examine into the conduct of the person, director, managing agent, secretaries and treasurers, manager, liquidator or officer aforesaid, and compel him to repay or restore the money or property or any part thereof respectively, with interest at such rate as the court thinks just, or to contribute such sum to the assets of the company by way of compensation in respect of the misapplication, retainer, misfeasance or breach of truest, as the court thinks just.'

2. Section 543(2) provides for a limitation by enacting that an application under section 543(1) shall be made within five years from the date of the order for winding up, or of the first appointment of the liquidator in the winding up, or of the misapplication, retainer, misfeasance or breach of trust, as the case may be, whichever is longer. Section 543(3) provides that the section applies notwithstanding that the matter is one for which the person concerned may be criminally liable. Section 406 enacts that, in relation to an application under section 397 or 398, sections 539 to 544, both inclusive, shall apply in the form set forth in Schedule XI, When we turn to Schedule XI, section 539 to 541 deal with criminal liability. Section 542 deals with liability for fraudulent conduct of business. Section 543 in Schedule XI runs as under :

'543. (1) If, in the course of the proceedings on an application made to the court under section 397 or 398, it appears that any person who has taken part in the promotion or formation of the company, or any past or present director, managing agent, secretaries and treasurers, manager or any officer of the company -

(a) has misapplied or retained or become liable or accountable for any money or property of the company; or

(b) has been guilty of any misfeasance or breach of trust in relation to the company; the court may, on the application of any creditor or member, examine into the conduct of such person, director, managing agent, secretaries and treasurers, manager or officer aforesaid, and compel him to repay or restore the money or property or any part thereof respectively, with interest at such rate as the court thinks just or to contribute such sum to the assets of the company by way of compensation in respect of the misapplication, retainer, misfeasance or breach of truest as the court thinks just.

(2) This section shall apply notwithstanding that the matter is one for which the person concerned may be criminally liable.'

If, therefore, section 543 in the Act and section 543, Schedule XI, are compared, it is obvious that the legislature has deliberately deleted the provisions about limitation in section 543(2) of the Act when it applied section 543(1), Schedule XI, in the modified form in the context of an application under section 397 or section 398 when the jurisdiction of the court was invoked under section 406, read with section 543, Schedule XI. Section 543 in the Act gave a right at the time of winding up, while section 543, Schedule XI, gave a right even in the case of a going concern. That is why this right cannot be an absolute right but with the necessary limitation that the proceeding must emanate under section 397 or section 398 and it must appear on the record of such a proceeding that a person, who has taken part in the promotion or formation of the company, or any past or present director, managing agent, secretaries and treasurers, manager or officer of the company, has misapplied or retained or become liable of accountable for any money or property of the company or has been guilty of any misfeasance or breach of trust in relation to the company. It is only when this limitation was satisfied that the court could entertain an application under section 543, Schedule XI.

The history of the enactment of this provision would show that this is a wide remedy, which is now enacted, so as to be applicable in a going concerns provided this necessary limitation is first fulfilled. This remedy has been enacted for the first time in the 1956 Act along with section 397 and section 398 because ancillary jurisdiction for this purpose was conferred under section 406. Under the old Act, section 153C, which was the corresponding provision to section 397, there was no such ancillary jurisdiction for the court to bring to book the delinquent officer for their past mis-deeds. The relief to the minority shareholders could be given under the old section 153C but the directors, promoters and other officers could not be brought to book at all even when misfeasance summons was contemplated by the earlier section 235 of the Act of 1913. That section had a chequered history when earlier enacted. It had a sub-clause, which provided that the Limitation Act of 1908 shall apply to such misfeasance proceeding as if it was a suit. That is in Govind Narayan Kakade v. Rangnath Gopal Bajopadhye, Marten C.J., In terms, stated that out of the four articles which may be invoked, article 120 would be the most appropriate article where the misfeasance liability arose under the article of association for misapplication of the company's funds by the directors. Patkar J. also agreed with this view at page 269. Under this old section in Bank of Multan Ltd. v. Hukam Chand, the Division Bench consisting of Shadi Lal C.J. and Abdul Qadir J. took the view that section 10 of the Limitation Act did not apply to directors of companies, as there was no express trust. An application under section 235 was in the same position as a suit for the purpose of the Limitation Act and that is why it was held that section 235 was not intended to revive any rights that have become already barred by time and, therefore, it was only reasonable that the powers of a liquidator under section 235 should extend to these actions only regarding which it would be shown that there was a subsisting right or liability. This view was taken on the footing that section 235 gave no new rights, but simply provided a summary mode of enforcing rights, which might otherwise have been enforced by suit. Thereafter, the legislature intervened to remedy the situation by the amending Act of 1936 by deleting its link with the old Limitation Act and by creating limitation in the very body of section 235 itself. The position in the amendment was interpreted by the Division Bench of the Allahabad High Court by their Lordships, Braund and Walli Ullah JJ., in Official Liquidators, Benares Bank Ltd. v. Sri Prakasha. The learned judges took into account the evidence furnished by section 235 itself which contemplated the investigation of past transactions by specific reference to past directors and by assigning no limit to the court's scrutiny of the past. At page 46, the learned judges observed that the fact that what the court made was an examination and on the result of that examination was given a discretion to compel the object of its examination to pay what it 'think just', pointed to the jurisdiction under the sub-section being more in the nature of an equitable jurisdiction than a jurisdiction circumscribed by any hard and fast rule of the law of limitation. The learned judges pointed out that it should be kept in mind that the process prescribed by section 235 to be follows by a liquidator in respect of the investigation of misfeasance in a winding-up was itself a matter of procedure and that the law of limitation was a procedural matter as to the time within which a particular remedy should be enforced, if at all, by a suit and that it is the general principle that statutes were not to be held to act retrospectively unless an express intention to that effect was manifested, applied only where the matter in question was one affecting an existing right in the sense of substantive right and not where it affected a mere matter of procedure only. The learned judges pointed out, at pages 49, that nobody had any vested interest in the maintenance of any particular law of procedure. If the legislature intervened by such a remedial legislation by expressly severing its link with the old Limitation Act of 1908, it was obvious that there was little or nothing to be said against the justice of the legislature's view that, no matter when a director of a company or an officer of company committed an act of misfeasance, he should, subject to the discretion of the court, be answerable for it at any distance of time. Further proceeding at page 50, the learned judges observed that, perhaps, the strongest point in the whole argument was the fact that section 235 of the Indian Companies Act, 1913, was still a discretionary section. There was noting whatever to prevent the winding up court from taking the view in any particular case - even applying the analogy of a statute of limitation - that it would be unjust in that particular case to hold a director or officer liable for some act of misfeasance which took place long ago. Therefore, if equity demanded the persons being accused in the wider interest of justice, the court was not helpless because of the discretion specifically vested in the court and conversely the public interest could be manifestly benefited by the amendment. Therefore, the Division Bench, in terms, held that, after this amendment in 1936, even under the old section 235, the liquidators were entitled to have the conduct of any promoter, director, manager or officer of the bank examined under that section and to claim compensation for the wrongful act of any such person discovered and proved as a result of such inquiry, notwithstanding that a cause of action on the act would in a suit by the company itself, have been barred by the law of limitation in force prior to the coming into operation of the amendment, proceeded nevertheless that the express provisions as to limitation of the amended section 235(1) of the Indian Companies Act. 1913, were themselves observed. After greater experience, the legislature became still wiser. When the new Act came to be enacted, even for section 543, which gave the power of misfeasance summons in a winding-up proceeding, that provisions limitation, which was existing in section 235, was incorporated by enacting section 543(2) by extending the period from 3 to 5 years. However, when the matter came for considering the question of modifying section 543, so that it could properly apply to cases of a going concern, the legislature, when it enacted section 406 and applied section 543, only in the modified form, it expressly deleted the limitation provision. Therefore, now, not only the old Limitation Act of 1908, which fettered Marten C.J., no longer exists but, even a limited fetter of limitation which in a winding-up proceeding existed, has been discarded by the legislature in term when it enacted section 543, Schedule XI, only in this modified form. I would be only dilating on the justness of this provision when it has been so well considered as observed by the learned judge in the aforesaid decision, when the first like with the 1908 Act was discontinued by the legislature in the 1936 amendment. In the present case, the new remedy, which is given by the legislature, is not a restricted remedy to apply only winding-up proceedings. The legislature wants the misfeasance summons to be invoked ever when the company is a going company. Under the old law, none could ever envisage such a misfeasance summons against a going concern. This was the right for the first time created by the new Act in such wide terms. The only limitation set out was that such a proceeding must emanate from the main proceedings under section 397 or section 398. Sections 397 and 398 both provide important conditions precedent before the court could be moved under those sections on the ground of oppressive management against the minority shareholders or on the ground of mis-management. If, however, those conditions are satisfied and a further condition is also satisfied that, in the course of those proceedings, the materials have come on the record bringing to light the acts of misfeasance, etc., on the part of those promoters and directors of the company, this section 543, Schedule XI, applies. Looking to this important second condition that the materials must come to light in the course of the proceedings under section 397 or section 398 with which this modified section 543 begins, it is obvious that the legislature has deliberately done away with a limitation period when this new remedy was created. The minority shareholders could not file a suit in a court of law for making these delinquent directors or officers to pay the amounts which they have misappropriated or mis-applied. The company could file a suit but the company being majority - managed, the minority shareholders were not in a position to know the acts of fraud committed by them and they were helpless in filing a suit in the name of the company, unless they were specifically permitted, on bringing evidence, which would enable them to use the name the company in such a litigation. Therefore, the legislature advisedly enacted section 543 in a modified form by merely providing that section 543 misfeasance summons should emanate from a proceedings because the materials have now come to light for this purpose and such a statutory action would have no bar of limitation. In this context, we may add that the strongest point was the very discretionary nature of this jurisdiction. Even though no limitation is provided the court while acting under section 543, Schedule XI, is exercising discretionary jurisdiction, which, like other jurisdiction, would take into account the considerations which would do justice. That is why section 543 itself provides that the court can consider the conduct of the delinquents and pass a just order for compensation to the extent it deems proper in a particular case. Even there is a power to give relief in section 633 if the court thinks that such a persons should be excused and relieved or liability on such terms as the court thinks fit. Therefore, the whole jurisdiction is an equitable jurisdiction to bring to book the offenders even if the defaults have been committed in the past provided these defaults have come to light in a proceedings under section 397 or section 398. As soon as these conditions are fulfilled, this proceeding for a misfeasance summons under section 543 could be instituted by a proper petitioner to invoke this ancillary jurisdiction of the court. It is in the light of these considerations that we must now consider the various preliminary issues which are raised in this petition.

Issue No. (1) :

The first issue regarding the maintainability of the petition under section 543 was vehemently argued on the ground that the cause of action, which is alleged in this petition, is of all acts from 1948 to 1954. Therefore, the new remedy which came into force by the new section 543, Schedule XI, could never apply to such a cause of action, particularly when a suit in a civil court had also got barred by time. The question which arises is not as to section 543, Schedule XI, being prospective or retrospective but as to its true nature, scope and ambit. In Trimbak Damodhar Raipurkar v. Assaram Hiraman Patil, their Lordships approved the observations of Buckley L.J. in West v. Gwynne, where the learned judge had pointed out the distinction between retrospective operation and interference with existing rights in the following words :

'If an Act provides that as at a past date the law shall be taken to have been that which it was not, that Act I understand to be retrospective. That is not this case. The question here is whether a certain provision as to the contents of leases is addressed to the case of all eases or only of some, namely, leases executed after the passing of the Act. The question is as to the ambit and scope of the Act, and not as to the date as from which the new law, as enacted by the Act, is to be taken to have been the law.'

Their Lordships pointed out that this distinction must always be borne in mind between an existing right an a vested right. Where a statute operated in future, it could not be said to be retrospective merely because within the sweep of its operation all existing rights were included. Their Lordships agreed with Buckley L.J. by pointing out that, as held by that learned judge, the provisions of the relevant section applied to all leases whether executed before or after the commencement of the act and this construction did not make the Act retrospective in operation; it merely affected in future existing rights under all leases whether executed before or after the date of the Act. In Sree Bank Ltd. v. Sarkar Dutt Roy and Co., their Lordships approved the observations of Lord Denman C.J. in R. v. St. Mary, Whitechapel (Inhabitants) that 'a statutes is not properly called a retrospective statute because a part of the requisites for its action is drawn from time antecedent to its passing.' Their Lordships also followed the case in Master Ladies Tailors Organisation v. Minister of Labour and National Service, where it was observed that 'the fact that a prospective benefit is in certain cases to be measured by or depends on antecedent facts does no necessarily ...... make the provision retrospective.' In the same decision, Raghubar Dayal J. at page 1967, followed the decisions in Weldon v. Winslow, and pointed out the settled legal position that :

'It is said that this a retrospective construction, because the cause of action arose before the statute came into operation; but the section does not say anything about cause of action; it deals with bringing the action, and there is nothing in it to limit its provisions to cause of action arising after thee statute came into operation.'

That is why it was held that if action was brought after the statute came into operation, it was within the plain words of the section and it would be distorting the grammatical meaning to hold that it could apply to only causes of action which had arisen after the statute came into operation. This decision would be, in terms, applicable so far as section 543, Schedule XI, is concerned. The legislature never states that a cause of action should arise after the Act of 1956 when section 543, Schedule XI, was enacted. On the contrary, the construction would show that the contrary is indicated by the use of the expression 'has misapplied or retained or become liable or accountable for any money or property of the company or has been guilty of any misfeasance or breach of trust in relation to the company.' Further evidence is by use of the expression 'past director' including even those who had taken part in the promotion or formation of the company. We can never ignore from our consideration while considering section 543, Schedule XI, another section 561(a) by which the legislature enacted that the Act shall apply to existing companies; in the case of a limited company other than a company limited by guarantee, this Act shall apply in the same manner as if the company had been formed and registered under this Act as a company limited by shares. Therefore, the promoter's liability so far as the existing companies are concerned is to be inquired into on the footing that such an existing company was formed and registered under the 1956 Act. The legislature could never have enacted this fiction unless it intended to bring to book the delinquents, even from distant past, for their liabilities, even, in distant past, In any event, what is material for section 543, Schedule XI, is that it provides no limitation period and contemplates the investigation into the conduct of past directors and even of the promoters of all existing companies as well. Therefore, such a cause of action any arise in the past but if this new statutory remedy, which is indicated in section 543, Schedule XI, is availed of after if was enacted, the section would only have prospective operation. Therefore, on that ground, this petition could never be said to be not maintainable, because in the future application of his section, it contemplates investigation of remote past or causes of action which had taken place before this new Act came into force. Issue No. (3).

(3). It would be proper, in this very context, to complete the discussion on issue No. (3) as well, as it is a connected issue. The new Act of 1956 has repealed in Schedule XII the earlier Companies Act of 1913 by section 644. The saving provision made in sections 645 to 648 would not be material for our purpose. That is why section 6 of the General Clause Act, 1897, would be applicable. It was vehemently argued on the basis of that section that the repeal would not affect any right or obligation which was incurred under the earlier Act of 1913 and that any such investigation or legal proceeding in respect of that right or obligation had to be enforced as if the repealing Act had not been passed. Here also, the proper distinction is ignored between an existing right and a vested right when this wider contention is advanced. The presumption against retrospectivity applied when vested rights are affected; when existing rights are sought to be disturbed by taking within its ambit any previous cause of action, the principle, as we have already considered, was not one of retrospective operation of the statute. It was clearly prospective but only on consideration of its ambit and scope. In a remedial measure of this nature when the scope and ambit of the legislation is wide enough to take within its ambit even the past conduct, that section should be read in that fashion. But that has nothing to do with the aspect of retroactivity at all. The question of retroactivity arises in the context of vested right where is a prima facie presumption against such retroactivity unless a different intention appears.

3. It should also be kept in mind that section 6 talks of this vested right which accrued under the 1913 Act. In the present case, the respondents are not able to show how this obligation was incurred under any provisions of the Act. They are all relying on the tortious action in the case of misfeasance by referring to the remedy of a civil suit. That is a remedy at common law. That is not a right and liability created by this statute, namely, the Companies Act. Even under the earlier Companies Act, the statutory remedy of misfeasance summons was confined only to winding-up proceedings. This new right of misfeasance proceedings, even in the case of a going concerns is, for the first time, created by the statute. This is a new right and remedy, which is now provided, to be availed of by the creditor or a member. A member could never have filed a civil suit, except in the company's name. And, therefore, this is totally a new right and remedy created to which section 6 of the General Clauses Act could hardly apply. While explaining the scheme of section 6, their Lordships pointed out in Nani Gopal Mitra v. State of Bihar, that the amended law relating to procedure operates retrospectively. Their Lordships approved Lord Blackburn's observations in James Gardner v. Edward A. Lucas, where the learned judge had observed that it was perfectly settled that if the legislature intended to frame a new procedure, that instead of proceeding in this form or that, you should proceed in another and a different way; clearly there bygone transactions were to be sued and enforced according to the new form of procedure. Alterations in the form of procedure were always retrospective, unless there was some goods reason or other why they should not be. Their Lordships also approved the decision in King v. Chandra Dharma, where alterations in procedure were held to be retrospective. It was in terms stated in that decision that a statute shortening the time within which proceedings could be taken was retrospective, and, therefore, it was impossible to give any goods reason why a statute extending the time within which proceedings might be taken should not also be held to be retrospective. The only Limitation was that a concluded transaction which had created vested rights could not be affected. In the present case, there is no question of any extension of limitation. As earlier pointed out, these minority shareholders had never a remedy to sue for misfeasance, except in the name of the company, if they were entitled to use the name. It is the company which could proceed against the director by filling a suit for the tortious act of the director. The company being majority managed the filling of a suit could hardly be said to be a remedy available to these minority shareholders. The very fact that the company was majority managed and the directors being persons of the majority who were liable for the acts of misfeasance and the officers were persons who were appointed by the majority directors would should that the company could never have filed such a suit. Therefore, while considering such an alternative remedy, it could never be alleged that these minority shareholders who, for the first time, got this new statutory right to invoke this equitable jurisdiction were, in any manner, seeking to affect the vested rights of the respondents. As it was earlier observed, none has a vested interest in the maintenance of a particular law of procedure. The legislature gets wiser with its experience and, when new problems pose themselves, it offers new solution. The remedy to these shareholders was only illusory and, in such a state of affairs, to prevent this mischief, the legislature provided, for the first time, this remedy deleting the limitation provisions. It is, therefore, obvious that this remedial measure could be invoked by these minority shareholders, after it was enacted. That would be giving prospective operation to the statute by considering its true scope and the ambit and the evil which it sought to remedy. The previous cause of action would be brought within its ambit. That is because the legislature intended to set right the old state of affairs by providing the new remedy. If, therefore, nobody has a vested right in the maintenance of such an inadequate procedure, there would be no question of application of section 6 in the present case. There would be no question of retroactivity on the wider principle that it affects any vested right. If the directors had committed acts of misfeasance or breach of trust, even if the company might not have filed the suit, because the persons, managing the company, were not interested to file the suit, the said cause of action had never been wiped off for want of an effective remedy. Injustice had been done and fraud had been perpetrated and a new effective remedy to reach this evil had to be found out. That is why the legislature intervened to set right these matters by enacting sections 397 and 398 and conferring this ancillary jurisdiction on this highest court in the State. It should be noted that section 10, which provides for delegation of the powers of this court by a notification to the district court, would not apply in the case of such a misfeasance proceeding under section 543. Therefore, the legislature has invested the highest court of the State with this equitable jurisdiction to exercise its wide powers in a just manner, on the consideration of the facts and circumstances of the case, even by giving relief in proper cases. Therefore, when such a jurisdiction is conferred, the petition under section 543, Schedule XI, could never be held to be non-maintainable, because previous causes of action are re-opened or that the causes of action had arisen before the 1956 Act and, therefore, the section was being given retrospective effect. Therefore, issues Nos. (1) and (3) must be held against the respondents.

4. Issue No. 2.

5. As regards the question of limitation, as I have already discussed, the old links with the Limitation Act were already disrupted in 1936. The only limitation, which was enacted in the company law in section 543(1), has also been omitted deliberately, when the legislature recast section 543 Schedule XI, in a modified form, for the purpose of its application to such a proceeding, which emanated from the main petition under section 397 or section 398. In the absence of a specified provision of limitation such a bar of the law of limitation could never be urged.

6. That is why the respondents vehemently argued on the footing that this was giving retrospective effect to section 543, Schedule XI, which arguments are already negatived. The section is given only a prospective operation, by enforcing the new remedy, and by re-opening old transactions. Such power is given because of the wide ambit and scope of section 543, Schedule XI. Alternatively, the respondents relied upon article 181 or article 120 of the old Limitation Act, 1908. It may be noted that this was a pending proceeding when the new Limitation Act came into force. Therefore, such a pending proceeding, in view of section disposed of under the old Limitation Act, 1908. So far as article 181 is 30(10(b), is to be concerned, that residuary article has been held on judicial interpretation as being application to those cases where an application is made to the court under the Code and for which no limitation is provided. In the present case, the respondents could not point out any provision of the Code of Civil Procedure which would permit such an application for misfeasance summons. Misfeasance summons has come only by a statutory provision whether the old section 235 or the new section 543, Schedule XI. This proceeding is not one under the Code. In the Town Municipal Council, Athani v. Presiding Officer, Labour Court, Hubli, their Lordships considered the earlier decision in Sha Mulchand and Co. Ltd. v. Jawahar Mills Ltd. and pointed out that, by a long series of judicial decisions, the words 'under the Code' were added in the first column of that article. The same view was taken in Bombay Gas Co. Ltd. v. Gopal Bhiva. Therefore, article 181 has always to be read with the words 'under the Code' added in the first column of that article. Even regarding article 137, their Lordships had made the following observations :

'even the further alteration made in the articles contained in the third division of the Schedule to the new Limitation Act containing references to applications under the Code of Criminal Procedure cannot be held to have materially altered the scope of the residuary article 137 which deals with other applications. It is not possible to hold that the intention of the legislature was to drastically alter the scope of this article so as to include within it all applications, irrespective of the fact whether they had any reference to the Code of Civil Procedure.'

7. In view of this settled legal position, even the residuary article 181 could only apply if these misfeasance proceedings could be considered as a suit or an application under the Civil Procedure Code. It was argued that 'under the Code' might be widely interpreted to mean 'as contemplated under the Code'. Even this reasoning could not help the respondents. Rule 6 of the Companies (Court) Rules, 1959, provides that save as provided by the Act or by these rules the practice and procedure of the court and the provisions of the Code so far as applicable, shall apply to all proceedings under the Act and these rules. Rule 11(a), item (19), provides that applications by a creditor or member under section 543 (Schedule XI) in the course of proceedings under section 397 or section 398, to enquire into the conduct of any of the persons mentioned in section 543 (Schedule XI) and compel him to repay or restore any money or property to the company or pay compensation shall be made by a petition. Rule 6 only provides a residuary provisions that, save as provided by the Act or by these rules, the Civil Procedure Code would apply to all proceedings under the Act, so far as the practice procedure of the court is concerned. That would not make this statutory application under the Companies Act an application under the Civil Procedure Code or even as contemplated by the Civil procedure Code.

8. To get over this difficulty, the respondents tried to argue that even if the residual article 181 did not apply, article 120, as held by Martin C.J., would be clearly applicable, because it deals with suit for which no period of limitation is provided elsewhere in the Schedule. In Bhagwat Singh Bahadur v. State of Rajasthan, the expression 'suit' for the purpose of the Code has been interpreted as a proceeding which commences with a plaint or petition in the nature of plaint or where the claim is in respect of dispute ordinarily triable in a civil court. This ratio was again approved in Nawab Usmanali Khan v. Sagar Mal. Therefore, the short question, which arises, is, can this misfeasance proceedings be treated as a suit in a civil court. It was vehemently argued that it starts with a petition and such an original petition, which result in a money decree, would clearly be a suit. It was also argued that in the Bombay Court-fees Act, 1959, Schedule I, entry 54, has provided for court-fee being levied treating this application as a plaint for a suit. For levying the court fees, such a fiction may have been created. The material question which arises is whether this is a suit at all. In in re National Funds Assurance Company Jessel M.R. has pithily held as under, at page 124 :

'I read the section literally; that is, as I understand it the liquidator, or a creditor, or a contributory, may apply : it is for the court to put the section in force if it thinks proper; and if it proper to put it in force, I take it that the order may be made on the application of any one of those persons.'

9. Therefore, the court may be moved on the motion of the member, creditor or a person mentioned in section 543 or section 543, Schedule XI. It is for the court ultimately to put the section in force, if it thinks proper. The money decree may be the consequential relief but what the section envisages is an inquiry into the conduct of the applicants. It is entirely an equitable jurisdiction and that is why it is a discretionary jurisdiction. The entire carriage of the proceedings must remain in the hands of the court because it is the court which puts this section in force. That is why section 633 enables the court to relieve a person, if proper grounds for excusing his are made out. Even while judging the compensation to be paid by a particular person, his entire conduct would be considered. He may not be made liable for the whole amount and only such amount would be ordered to be payable which the justice of the case required. Therefore, by no stretch of imagination, can this proceedings be equated with a suit in a court of law. It is difficult to envisage a suit under the Civil Procedure Code which is not for the benefit of the plaintiff at all but where an inquiry is to be ordered into the conduct of persons and ultimate decree or reimbursement is to be made in favour of the company. The plaintiff has also no unconditional right to commence the proceeding as in a civil suit. These ordinary shareholder could file this petition only when the misfeasance came to light in the course of a proceeding under section 397 or section 398. Therefore, unless there was a valid petition under section 397 or section 398 from which this proceeding could emanate these ordinary shareholders could never file such a proceeding. Looking at the carriage of the proceeding and the manner in which it terminates, it can never be equated with a suit where, after inquiry, as per the statute, the highest court is empowered to exercise equitable jurisdiction to order compensation from the delinquent and where also protection is given to persons who can show that they should be excused from this liability. Therefore, the entire nature of this jurisdiction could hardly be equated with a suit. On such a misconceived analogy, article 120 could hardly be applied. Martin C.J. was right when he applied it because, at that time, section 235 in its sub-clause had enacted that the application could be governed by the Limitation Act of 1908, as it if was a suit. Once that link with the Limitation Act has been discarded by the legislature, we cannot try to invoke that analogy once again. The legislature, even in this particular statute, when misfeasance proceedings starts in a winding-up proceedings, has extended the period of limitation in section 543. When it envisaged application of this remedy to a going concern, the legislature in its wisdom in terms modified the language of section 543, Schedule XI, by deleting this bar of limitation, and ignoring this legislative scheme, we are told that we should again invoke the said bar and that too the old Limitation Act, 1908. Therefore, the whole argument that this proceeding was barred by limitation is thoroughly misconceived. Therefore, issue No. (2) also must be decided against the respondents.

10. Issue No. (8).

11. It would be proper to finish the discussion about issue No. (8) as well. It is alleged that there is a misjoinder, In fact, in the earlier decision, Miabhoy J. had, in terms, observed that a consolidated application should be filed by the petitioners not only against those directors, who were parties to the main petition, but against others against whom prima facie material is disclosed and misfeasance has come to light on the record of that petition. Once the true character of the misfeasance is appreciated, even though the court may be moved by the persons mentioned, it is the court which puts the section into force. This objection could hardly be advanced in an inquiry of this character, where the court is exercising equitable jurisdiction, and all proper precautions would be taken, so that there is so prejudice to any person and the proper hearing, in accordance with the rules and principles of natural justice, is afforded to the respondents. They, however, could not have the petition dismissed in limine, on this misconceived objection as to the true nature of the proceedings, as if it was a suit. Therefore, issue No (8) must also be decided against the respondents.

12. Issue Nos. (4) and (5)

13. It is difficult to appreciate this contention that the petition is premature. There is no dispute that the petitioner company held 22,000 fully paid up shares in the company. As a member, therefore, it has the standing to file this petition under section 543, Schedule XI, in its capacity is a member. The respondents could not contend that the petitioner has ceased to be a member merely because the company is in liquidation and, therefore, the company having not ceased to be a member of the other company, the proceeding could be taken by the liquidator, who uses the name of the company. Besides, the objection, which is raised in these two issues, could never justify the dismissal of the petition in limine. Out of the twelve grounds only two grounds might invoke some consideration on these issues. Whether the purchase of the shares was the true transaction or not may have to be considered while ascertaining the liability. Therefore, these two grounds could never be advanced for contending that the petition by a member is premature. Therefore, issues Nos. (4) and (5) must also be decided against the respondents.

14. Issue No. (6).

15. None of the respondents could point out any provisions of law which required the permission of the court of the court to institute this petition. The Bombay High Court has sanctioned institution of this petition by the liquidator. Therefore, there is no substance in this contention and it must be decided against the respondents.

16. Issue No. (7).

17. It is difficult to envisage that this petition is mala fide. Miabhoy. J. had applied his mind and had made certain observations that prima facie material had come to light and the petitioner company was advised to file a consolidated petition not only against the directors, who were parties in that petition, but against others against whom there was material disclosed. There is a report of Mr. Deshpande in respect of these allegations. The petition could, therefore, never be said to have been filed mala fide. The objection is thoroughly misconceived on the facts of the present case.

18. Issue No. (9) :

19. Finally, as regards issue No. (9), the plea of the delay and laches could never be advanced as a bar in limine to this petition. These minority shareholders were not persons in the management. The report of Mr. Deshpande was made public on July 19, 1957. In 1958, the main petition was filed where this relief was sought, of course, against some of the directors. As proper petition had to be filed, in view of the observations of Miabhoy J., the present petition was filed. Therefore, prima facie, there is no such delay which would substantiate the plea of laches being advanced against the petitioners. Nothing is shown at this stages as to how the respondents had prejudiced themselves. In any event, while exercising equitable jurisdiction, if proper grounds are made out so as to attract section 633, the court would give relief. Some of the respondents tried to urge that, after so many years, the evidence might not be preserved by them. If any such prejudice, which is now sought to be imagined, is made out, the court ultimately would not be helpless when it would exercise its discretionary jurisdiction so that justice would properly be done in the matter. In any event this would not be a ground to be urged in the present case as a bar in limine for disposal of the petition. As a result of this discussion, these issues are decided against the respondents and the petition is held to be maintainable.


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