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Ramakrishna Industrials Private Limited Vs. P.R. Ramakrishnan and ors. - Court Judgment

LegalCrystal Citation
CourtChennai High Court
Decided On
Reported in(1983)2MLJ227
AppellantRamakrishna Industrials Private Limited;p.R. Ramakrishnan and ors.
RespondentP.R. Ramakrishnan and ors.;ramakrishna Industrials Private Limited and ors.
Cases ReferredWard v. James
- .....of the assets.4. we find mr. pai's contentions extremely naive. especially that bit about the learned judge's order being entirely to the good of the company. it sounds a little like a school master claiming that caning a pupil is for his own good. in our judgment, there is no comparison between annual stock-taking and what is involved in the order under appeal. here is a company having a machine shop, a newspaper, printing press, and a textile mill, at coimbatore, all of them in full swing, not to speak, of the godowns. administrative offices, and other establishments. into such places descended the advocate-commissioners armed with the order under appeal, clamouring that all normal business be laid aside to let them enter into a meticulous count of the stock, the machinery, and.....

Balasubrahmanyan, J.

1. This appeal is from an interlocutory order of Shanmukham, J. The order directed the appointment of a number of Advocates as Court Commissioners to take an inventory of the assets and accounts of a Company in Coimbatore. The Company is the appellant before us. It contends that the order is wrong.

2. Mr. Vasantha Pai, learned Counsel appearing for the contesting respondents, raises a preliminary objection. He says that we should not entertain this appeal.

3. The appeal is filed under Section 483 of the Companies Act, 1956. This section provides for an appeal against any order passed by a Court of first instance in a winding up matter. The section says that an appeal is available against such an order in the same way as an appeal is available from any other order of a Court for which the law provides. This is the substance of the words of the section. They are fairly wide words in which the appeal provision is cast. But the Supreme Court in Shankarlal Aggarwal's case : [1964]1SCR717 , have said that a Court of appeal cannot entertain any and every appeal in a winding up matter merely because the section provides for it. They said that the appellant must show the appellate Court that some right has been affected by the order in question. Quoting this position, Mr. Vasantha Pai raised the query: What is it that the Company has lost by this order? You do not lose any assets by counting them, he said, although by not counting them there is a chance of some assets being lost sight of. He pursued this line of argument further, thus: The Company every year prepares inventories for its balance-sheet. They are a necessary part of annual accounting. The inventory order passed by Shanmukham, J., cannot be unwelcome since it only gives the Company a picture here and now, of its assets. Nobody need have to wait for the position to emerge by the year-end to fin d out an upto date account of the assets.

4. We find Mr. Pai's contentions extremely naive. Especially that bit about the learned Judge's order being entirely to the good of the Company. It sounds a little like a School Master claiming that caning a pupil is for his own good. In our judgment, there is no comparison between annual stock-taking and what is involved in the order under appeal. Here is a company having a machine shop, a newspaper, printing press, and a textile mill, at Coimbatore, all of them in full swing, not to speak, of the godowns. administrative offices, and other establishments. Into such places descended the Advocate-Commissioners armed with the order under appeal, clamouring that all normal business be laid aside to let them enter into a meticulous count of the stock, the machinery, and other bric-a-brac. We have no doubt that it not only affects the production for the duration; but puts off the staff from transacting even pressing business with their customers. And because it is a court order that operates against the company, the news of it tends to spread affecting the company's name and credit in the market. Annual stocktaking does not have these harmful side-effects, even though business is suspended while the stock is being taken. This is because the clientele knows that it would be so, because, just about the same time, most of them would also be engaged in a similar pursuit. Closing the shop-doors during annual stock-taking does not evoke the wrong kind of publicity.

5. We are for discouraging frivolous appeals under Section 483 of the Companies Act and also appeals against formal orders. But this order of Shanmukham, J., is a hurt against the Company. The Company has a good cause for com. plaint, even if counting of assets by the Court Commissioners may not diminish either the quantum of assets on their value. We hold that the preliminary objection fails.

6. In the appeal, the submissions were addressed by Mr. Biksheswaran, who argued the Company's case. One was that, the order was much too hasty. The other was that it was made barely within minutes of the admission of the winding up petition. It was urged that an interim order cannot be made by a Company Court excepting when the main winding up petition is actually being taken up for hearing.

7. On the first head of criticism of the learned Judge's order, there is no denying the speed which attended it. The winding up petition was admitted by the learned Judge on 13th June, 1981. Closely following the admission, an application for appointment of Commissioners was moved before the learned Judge as an urgent motion. The Company got wind of the winding up petition. It stationed a lawyer in the Company Court to take notice and oppose an ex parte order. The order of Shanmukham, J. shows that Miss Bhanumathi, a member of the Bar, intervened and asked for time till the next day morning for filing an affidavit in opposition. The learned Judge, however, turned down this request and proceeded to pass the order. We are informed from the bar that it was about 4 p.m. on that day when the learned Judge passed the order. The request of Miss Bhanumathi, if granted, would have meant deferring the hearing of the application by a few hours. Not more than that. But the learned Judge proceeded on the footing that the matter did not brook even this little post ornament. It is Mr. Biksheswaran's submission that the learned Judge did not do the right thing when he hustled the interim order in this manner.

8. We are inclined to accept this criticism as legitimate. After all, the adjournment asked for was not a matter of days, but hours. The heavens were not going to fall down, as the saying goes, in between one evening and the next morning. The learned Judge acted as though there was not a moment to be lost. But the order does not point to any circumstance, even a prima facie belief, that there was a risk of the accounts or the assets being spirited away by the company if given a breathing time. The learned Judge did not think that the Company had no case to put forward in the interlocutory application. On the contrary, he gave ample time to file a counter affidavit. The learned Judge did not, and could not, say that the request of the Company amounted to delaying tactics, for the Company had asked only for the barest minimum interval of time to prepare its affidavit in opposition. The Company ha d to have copies of the petition for winding up and of the affidavit in support of the interlocutory application. These had to be studied for the counter affidavit to be prepared. And yet, the postponement asked for was only till the next morning when the Court assembled and commenced its work. The learned Judge was apparently willing to give a long time to the Company to file a counter affidavit, after the Commissioners were appointed; but he was not prepared to give a short time for the same purpose before any such order was made. This only shows the learned Judge's overpowering sense of urgency for an interim order to be passed. There are times when Courts must act swiftly, with the velocity of sound, if possible, if their acts should have any meaning at all. We do not, however, think that this was one such occasion. We believe that in the Vast majority of cases justice would carry well, with self-imposed speed limits.

9. Mr. Pai said that the learned Judge did go into the case for urgency. The winding up petition was before him. The affidavit in support of the application was before him. And he was entitled to act on the basis of his own individual judgment of the situation from what he gathered from the papers before him. We agree that in the din and clamour of trial litigation, the trial Court is the best judge of the competing claims of urgency, on the one hand,and deliberation, on the other. Even so, since the order can be passed only from what on record, and not from what is net on record, an appellate Court is quite capable of finding out whether the record justifies the order. In this case, we do not find anything in the winding up petition or in the supporting affidavit which would' have compelled any reasonable mind to believe that between one evening and the next morning the Company would have irretrievably altered the assets position.

10. Mr. Pai, reminded us that the order under appeal is a discretionary order passed by the learned Judge in an interlocutory application. There are certain norms, he said, which Courts of Appeal should observe while dealing with a discretionary order of a Court of first instance. He urged that we ought not to upset the order of Shanmukham, J., merely on the score that in his place we world have acted differently, given the chance.

11. This enunciation of the limit of, appellate review of discretionary orders is out of date. In the good old days it was thought that at appellate Court will not set aside discretionary orders, unless the discretion was exercised in a non-judicial way. Appellate Courts, however, no longer treat discretionary order with excessive respect.. They are just like any other orders. the appellate judges feel free to interfere with the discretion exercised by the Court below not only where it had acted non-judicially but also where it had given wrong reason. This is the trend in England, the home of the doctrine of judicial discretion (See, for example, Evans v. Bartlam (1937) A.C. 473 and Charles Ostention v. Johnson (1942) A.C. 130 Davies L.J. in the Court of Appeal in In re. O (1971) Ch. 748 went to the extent of remarking, 'I am quite un-able to subscribe to the view that a decision must be treated as sacrosanct because it was made in the exercise of 'discretion; so to do might well perpetuate injustice.' Lord Denning, M.R. in Ward v. James (1966) 1 Q.B. 273 said that an appellate Court can go into the grounds on which the trial Court has exercised its discretion in order to find out if those grounds are tenable and if they support the order made. We are, therefore, satisfied that we not only have the power, but we owe an obligation to our selves as an appellate Court to examine Shanmukham, J.'s order to see if the grounds stated by him support his decision to appoint Commissioners.

12. The learned Judge has given three reasons for his order. They are (2) that Article 38 of the Company's Articles clearly indicates an inventory in winding up proceedings; (ii) that there were many serious charges levelled against the Company an d those who are running it now; and (iii) that the Company is obliged to face a number of legal proceedings. Not one of these grounds, in our judgment, justifies an order for inventory.

13. Article 38, of the Company's Articles, relied on by the learned Judge, does not, in our view, provide any justification for the order for inventory. A mere provision in an article of this kind is by itself to proof of the existence of facts much less their urgency, which would justify an order for inventory against the Company. What, after all, the article carries is nothing but a special provision to the effect that in the event of a deadlock in the management leading to a winding up, the distributor of assets among members might be in specify or of the proceeds on realization of the assets. This article might, in some measure, be regarded as an indication of the importance of safeguarding and properly accounting the Company's assets. But even in the ordinary modes of winding up, where the ultimate distribution is to be of the proceeds of assets, it is equally important to have a proper account of the assets and to safeguard them for the duration of the winding up And yet, we have not heard of any statutory provision, or statutory rule, or even a court ruling, which lays down that in every case which comes before it the winding-up court must order an inventory forth with as an indispensable first step, before the Court decides upon anything else.

14. Another ground relied on by the learned Judge in his order is that there are serious allegations against the Company. The learned Judge does not, however, state, even ever so briefly, what are the allegations which, in his opinion. make out a prima facie case for an urgent order of appointment of Commissioners. We have studied the winding up petition to see if the allegations therein have a bearing on the demand for an inventory of assets by Court Commissioners. Apart from a diffuse averment that those who now run the Company are attempting to sell or fritter away the Company's resources, the winding-up petition contains only two specific allegations against them. One relates to an actual transfer of a block of certain shareholdings, held by the Company as an investment, in favour of Vysya Bank in discharge of the Company's outstanding dues to the Bank. The other is about the passing of a resolution by the Board proposing the sale of a building in Madras, a building site in Coimbatore and some equity shares. The transfer of shares to Vysya Bank took place way back in 1976. As for the Beard resolution, it was circulated early in 1979. There is no knowing whether even this resolution was implemented, and, if so, how and when. Whatever importance these allegations might assume in the winding-up petition ; can they, on any reasonable standard of judgment, justify the view that unless, an inventory is taken, there is imminent danger of assets going underground and hence the order must go without a moments delay. In our view, such a conclusion, would not be reasonable on any evaluation of the allegations.

15. The third and last reason, that weighed with the learned Judge is about the Company having to face even now, a number of legal proceedings. This remark can hardly offer a justification, for the order under appeal. Practically anybody can be dragged to court now-a-days. That there are collateral proceedings against the Company is, therefore, no reflection at all on it, in the absence of any indication of some a diverse remarks or other against the Company in such proceedings which might tend to provide some prima facie support, at least for the issue of an interlocutory order in the winding-up.

16. We must conclude, therefore, that and one of the reasons stated by the learned Judge in his order justifies it. Nor does the order carry conviction when considered in juxta position with two other orders passed by the learned Judge on the same evening. One was in an application for an interim injunction, in which he granted an interlocutory order as prayed for. The other was in an application for appointment of a pro-visional liquidator, in which, he merely ordered notice. It is possible that the learned Judge was struck by the overlapping of the reliefs as between the three interlocutory motions. Even so, the order under appeal does not evince any clear perception of priorities.

17. We like to imagine that if the learned Judge had given a reasonable and adequate opportunity to the Company to place its objections, there is just a chance that he might have avoided passing an order for inventory or, at any rate, avoided relying on wrong reasons for an order for inventory. In any case, there would have been no room for the comment that the decision was taken without due consideration.

18. In interlocutory matters the safest guide for a court to act on is not whether a prima facie case is made out for an interim order, but where the balance of convenience lies, as between the parties. This latter test really provides the requisite safety value to the Court's conscience, For it always behaves the Court to make sure that any interim order it is about to make is capable of being unmade at the earliest opportunity if the situation so demands, or if realization dawns on the Court that the interim order ought never to have been made in the first place. Judicial expiration of this sort can be readily available in some kinds of inter, locutory orders. Interim injunctions; for example. For today's injunction can always be vacated tomorrow, or the day after, if it is found ill a devised or rash And the party, affected can afford to ignore the brief interlude. Not so an order for taking out inventories. An order of this nature, when made, is made once and for all, even though it is called an interim order. Witness what happened in. this case. Soon after the order was made, with the warrants of commission supplied to them the Commissioners went to Coimbatore, visited the Company's various establishments, and busied themselves taking out inventories. The Commissioners' reports and their lists of inventories have since been filed into Court. The company might cry hoarse about it all, as it is now doing, but it can only do so, ex post facto. Things have been done under that order. They cannot now be undone. Indeed, even the setting aside of the learned Judge's order in this appeal would not matter a tittle now. It is said that after passing the interim order, the learned Judge gave a date for the final hearing of the matter and also granted some weeks' time to the Company for filing its counter affidavit. We wonder what good it would do to the Company to file a counter affidavit when the Commissioners appointed by Court had already done their job and, as Mr. Biksheswaran would describe it, the damage had already been done. Even if, at the final hearing, the Court comes to realize that the order was quite a mistake, that cannot restore the status quo.

19. To the judicial mind it must forever be a matter for regret if it should commit a mistake not unavoidably, but owing to a procedural indiscretion. But judicial regret without the means of setting right judicial error would be a frustrating experience. To adopt Katherine Mansfield out of context, regret is an appalling waste of energy; you cannot build on it; it is only fit for wallowing in. We grant that where parties are fully heard and an order is passed, that order too, if wrong, has the same effect on the party aggrieved, as much as a wrong order passed without hearing him. But, then, it would at least save the Court from being stricken with conscience, if whatever is done is done after a full-blooded hearing. We, therefore, regard it as quite a caution that where interim orders can do things which, afterwards cannot be undone, courts had better not pass such orders at all, or at least not pass orders without hearing those who might be affected thereby.

20. These, then, are out reasons for holding that the order of Shanmukham, J. cannot be sustained. This conclusion of ours is enough to dispose of the appeal in favour of the Company. We would, however, examine, the other argument of Mr. Biksheswaran wherein he questioned the very jurisdiction of the learned Judge to pass the order at the time he did. Learned Counsel rested his contention on his interpretation of Section 443(1)(c) of the Companies Act, 1956, and the impliestions he derived therefrom. According to this contention, the learned Judge was in error in passing an interim order at the stage of admission of the winding up petition. The suggestion was that an order of this kind can issue, under Section 443(1)(c) of the Act, only at the time of hearing the winding up petition, and not before.

21. A perusal of the section shows that it deals with the powers of the winding-up Court while hearing a winding-up petition. In that context, Clause (c) of Section 443(1) provides that the Court ma y, instead of dealing with' the winding up petition finally, one way or the other, prefer to make some interim order or other, and call it a day. The actual words of Section 443(1)(c) are to the effect that 'on hearing a winding-up petition the Court may make any interim order that it thinks fit'. Mr. Biksheswaran sought to read into this provision an implied bar of the Court's jurisdiction to pass interim orders at the stage of admission of the winding up petition.

22. Learned Counsel's argument is seemingly based on the rule, 'expression unius est exclusio alterius'. What is expressed excludes what is left unexpressed. Like any other cannon of constriction, this one will have to be handled with care; otherwise it will misfire. In our opinion, the rule has a limited application. It will apply to exclude one of a pair of opposites whereone alone is expressly mentioned. Where, for instance, there is a signboard 'women 'at the entrance to a place, everyone of us, laymen included, world readily recognize that it is no place for 'men', but is meant exclusively for the other sex. The logic of this rule of construction cannot, however, fit in with Section 443(1)(c). The section has to be construed in the context of the mainsprings of Parliament's resolve to entrust jurisdiction ir company matters to long-established common law Courts under the existing dispensation, rather than to special tribunals set up or to be set up under the statute. This is one indication we must go by in construing the relevant provision. Another is that, even while requiring the Court to be the forum for company law proceedings in certain matters, Parliament had not said, or even hinted at, in any provision in the Companies Act anything which tends to disturb the Court's traditional role and status. Incidentally, this is in marked contrast to what the Tamil Nadu State Legislature did in some of the Estates Abolition Acts. Under these Acts the final appeal lay to the High Court but, in the process, the High Court itself was downgraded in status as a mere tribunal with appellate powers. It is, however, quite different with the Companies Act. Among the matters entrusted by this Act to the Court, the winding-up of companies is the most important. In. our judgment, the investitute of the Court with the win ding-up jurisdiction', as of other powers, must be interpretedas adding to the gamut of the Court's existing jurisdiction. It would be mistake to interpret the statute as stripping the Court of all its powers first and then conferring on it only such powers as are permitted, say by Section 443(1) and other related provisions. We are satisfied that having regard to the scheme of the Companies Act, we cannot read any provision in the statute which relates to jurisdiction of Courts, as being in derogation of the full plenitude of the Court's powers under the common law, unless we cap find in it a clearly expressed, or equally clearly implicit, bar of restriction of the Court's jurisdiction

23. We think it necessary for Courts to construe statutes, such as the Companies Act, according to the wisdom of Parliament and not according to the folly of the draftsman. Section 443(1) is a case in point. The section sets about enumerating the different ways in which, the Court can tackle a winding-up petition when it comes before it for hearing. The section, in this context, enumerates the Court's powers. But there are certain things which go without saying or ought to. Adjournment, for instance, is one of them, you cannot regard it as a remarkable aspect of judicial power. And yet, Clause (b) of Section 443(1) very seriously mentions adjournment as one of the ways in which the Court can gives disposal to the petition on the day of the hearing. This is quite an insane provision. Even without it nobody would contend and certainly not practising lawyers, that a winding-up Court has no power to a Doerun the petition, but must get on with it even at the first hearing. Nor, for that matter, would anyone argue that because of Clause (b) the Court has lost its power. to grant adjournments on other occasions. So too is the case with Clause (c) of Section 443(1) which refers to the passing of interim orders. The presence of this clause in Section 443(1) cannot mean that, but for it, the Court will have no power to pass any interim orders at any time, or, because of its presence in Section 443(1), its existence or exercise on other occasions must be ruled out. Courts and lawyers should read Acts of Parliament sensibly. They should not match the denseness of the draftsman with a dithering denseness or their part. We are satisfied that Section 443(1)(c.) has not the hidden meaning which Mr. Biksheswaran attributes to it, namely, that no interim order can be passed by a winding-up Court at the time of admission of the winding-up application.

24. Mr. Vasantha Pai submitted before us that a winding-up Court has an inherent, power to pass interim orders at any time. This argument is directed to answering Mr. Biksheswaran's object on to jurisdiction but it really goes a long with Mr. Biksheswaran's interpretation of Section 443(1)(c) and is in tacit acceptance of it, which we have earlier rejected. Mr. Pai referred to Rule 9 of the Companies (Court) Rules to spell out the theory of inherent powers. Rule 9, it is plain to see, is of no help. It occurs in the statutory Rules, and is applicable only in so far as the Rules are concerned. The text of the Rule itself clearly says so. If there is a lacuna in the statute, a mere rule cannot design to supply it. The Supreme Court is the rule-making authority which has in a med the Companies (Court) Rules. As a judicial tribunal it might be open to the Supreme Court to spell out the company Court's powers from the statute, as we have done in the foregoing paragraphs. Paradoxically enough, however, what the Supreme Court can do by way of interpretation in an activist manner, as a Court of construction, it cannot bring abort in subordinate Legislation, in the same activist manner as a rule-making authority. Be that as it may, we would prefer to rest our decision, rather, on the scheme of the Act and on the very words of Section 443(1)(c) to hold that the Court's power to pass interim orders at any time it thinks fit in the course of winding up proceedings is net expressly or impliedly barred-under the Companies : Act. Turning to the case on hand, our conclusion is, that whatever other defects the learned Judge's order under appeal might hold, it does not suffer from want of jurisdiction.

25. At the conclusion of his argument, Mr. Biksheswaran urged that in the event of our setting aside the order appointing Commissioners and the direction for taking inventories, we might also consider the feasibility of making an added declaration that the reports and inventories filed by the commissioners in the winding-up proceedings ought not to be treated as part of the record but must stand expunged. We do not think we should accede to the learned Counsel's request. For all that is before us in this appeal is the order of the learned Judge. We are setting aside that order. What effect our judgment holds is not a matter on which we should animadvert. As an appellate Court we can only pass an appellate order. We cannot be explaining what its consequences will be, either in law or on facts, in follow-up proceedings.

26. Having considered the order of Shanmukham, J., with the care and respect which it deserves, we are of the view that the grounds on which that order is founded are untenable. What is more, the passing of the order without affording the Company an adequate hearing cannot be justified. These defects in the order can only be cured by setting it aside. We accordingly do so. In the circumstances, however, there will he no order as to costs.

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