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international Coal Corporation Vs. Pure Sitalpur Coal Concern Ltd. - Court Judgment

LegalCrystal Citation
SubjectArbitration
CourtKolkata High Court
Decided On
Case NumberSuit No. 165 of 1970
Judge
Reported inAIR1972Cal45
ActsArbitration Act, 1940 - Section 21; ;Partnership Act, 1932 - Section 19; ;Companies Act, 1956 - Section 402
Appellantinternational Coal Corporation
RespondentPure Sitalpur Coal Concern Ltd.
Appellant AdvocateMitter and ;S.C. Sen, Advs.
Respondent AdvocateDeb, Adv.
Cases Referred(Cal) (Mukundrai Ravishankar Trivedi v. Keshavlal Amritlal). As
Excerpt:
- .....of assets, books, papers and documents of the company to the company 'represented by kashavlal ojha a special officer appointed in suit no. 2029-a of 1967 by an order dated 18th may, 1971'. the said special officer appointed in suit no. 2029-a of 1967 by the order dated 18th may, 1971 signed both the arbitration agreement as also the terms of settlement on 31st may, 1971. for and on behalf of the plaintiff one of the partners, one ashok kumar h. mehta signed both the arbitration agreement as also the terms of settlement describing himself as a partner on 31st may, 1971. one b.b. sinha has also signed the terms of settlement as late as on 3rd june, 1971 for and on behalf of pure sitalpur coal concern limited but without indicating in which capacity he has so signed. the above is the.....
Judgment:
ORDER

Ramendra Mohan Datta, J.

1. A terms of settlement is sought to be put in whereby all disputes in respect of the above suit have been agreed to be referred to arbitration as per agreement dated July 31, 1971. The said agreement has been made an annexure to the said terms of settlement.

2. By an interlocutory order made in this suit, Ghose, J., by an order dated 22nd May, 1970 appointed two joint receivers being the respective representatives of the plaintiff and the defendant herein and directed them to run the colliery belonging to Messrs. Pure Sitalpur Coal Concern Limited (hereinafter called the said company). By the said order the plaintiff, in this suit, inter alia, agreed to advance a sum of Rupees two lakhs and the said joint receivers were directed to invest the same in the said company for the purpose of running the said colliery. The joint receivers were also directed to pay up the sum by stated instalments. It was further directed that the said joint-receivers would stand discharged from further acting as joint-receivers subject to their filing of accounts, when the dues of the plaintiff firm would be fully paid off by them, and in that event they would make over possession of the said colliery to the defendant company.

3. The admitted position is that the plaintiff firm in pursuance of that order advanced a sum to the extent of Rs. 36,000/- only and the balance sum had not been advanced by them. The claim in the suit herein is for a sum of Rs. 1,91,616.15 paise.

4. By Clause 3 of the said arbitration agreement, which is annexed to the said Terms of Settlement, it is agreed that all interim orders made in this suit including the order for the appointment of joint receivers would stand vacated. By Clause 4 it is also agreed that after such discharge the joint receivers would hand over possession of assets, books, papers and documents of the company to the company 'represented by Kashavlal Ojha a Special Officer appointed in suit No. 2029-A of 1967 by an order dated 18th May, 1971'. The said Special Officer appointed in Suit No. 2029-A of 1967 by the order dated 18th May, 1971 signed both the arbitration agreement as also the Terms of Settlement on 31st May, 1971. For and on behalf of the plaintiff one of the partners, one Ashok Kumar H. Mehta signed both the arbitration agreement as also the Terms of Settlement describing himself as a partner on 31st May, 1971. One B.B. Sinha has also signed the Terms of Settlement as late as on 3rd June, 1971 for and on behalf of Pure Sitalpur Coal Concern Limited but without indicating in which capacity he has so signed. The above is the actual position with regard to the arbitration agreement annexed to the Terms of Settlement proposed to be put in.

5. Mr. Deb appearing on behalf of some of the shareholders of the defendant company has raised several objections. The locus standi of Mr. Deb's clients for interfering with the putting in of the Terms of Settlement being challenged, Mr. Deb argues that the company at present has no directors. All the directors have ceased to exist because the company has not held any annual general meeting for the last about 7-8 years. He refers to an Order of A. N. Sen, J. made on 4th September, 1967 in Suit No. 2029 A of 1967 (Cal) (Keshavlal Ojha v. Gunwantrai Ojha) which ran as follows :

'Mr. B. B. Sinha is directed to keep a separate account in respect of transactions, other parties are restrained from acting as directors. Interim order to continue.'

6. By virtue of that order and under authority from the said B.B. Sinha, one Promoderai Amritlal Ojha, one of the shareholders in the group for whom Mr. Deb is appearing, was acting as the Liaison Officer of the defendant company. Mr. Deb contends, that the company is being run properly and its position has improved to a great extent since the appointment of the said joint-receivers; now the whole group of Keshavlal Ojha is in collusion and in conspiracy with Gunwantrai Ojha and a few others and have now been trying to oust the said joint receivers and the said Promoderai Ojha from the management of the colliery business of the said company. The said Keshavlal Ojha thereby now intends to have full control over the said defendant company by adopting this round-about process. Mr. Deb contends that prior to the order dated 4th September, 1967 the said Promoderai Amritlal Ojha and a few other members of the Ojha family in that group were acting as directors of the said company but now by adopting this method Keshavlal Ojha's group will have complete control over the defendant company to the complete ouster of the said Promoderai Amritlal Ojha and the group to which he belongs. Mr. Deb contends that B.B. Sinha who was previously a director has since automatically ceased to be a director by retirement by rotation because the company has not called any annual general meeting for the last about 7-8 years. Accordingly, it is contended that since there are no directors of the defendant company the shareholders have become vitally interested in the affairs of the company.

7. To show how and in what manner Keshavlal Ojha became the Special Officer and how he is seeking to have complete control over the said company, Mr. Deb contends that by the Consent Order dated 18th May, 1971, Keshavlal Ojha got himself appointed as a Special Officer at a monthly remuneration of Rs. 1,500/- to manage the affairs of the company till the disposal of the said suit No, 2029 A of 1967 (Cal). The said Keshavlal Ojha was to maintain accounts of the dealings and finance of the company till the disposal of the said suit. By that order the said B. B. Sinha was discharged from the obligation of keeping separate accounts in terms of the ad-interim order dated 4th September, 1967 and the filing of accounts by him pursuant to the said order was dispensed with. The said consent Order also provided that all the directors of the defendant company were restrained from acting as directors of the company till the disposal of the said suit being Suit No. 2029 A of 1967.

8. After the said Consent Order was passed Mr. Deb's clients came to know about it and filed a suit for setting aside the said Consent Order on the ground of fraud and collusion. On the 2nd June, 1971 on an ex parte application of Mr. Deb's clients made in their said suit, this court made an ad-interim order of injunction restraining the defendants i.e., the parties to the Suit No. 2029A of 1967 (Cal) including the said Company, their agents and servants from giving effect to or acting upon the compromise and/or the Consent Order dated May 18, 1971 passed in suit No. 2029A of 1967. The said application was made returnable by 7th June when the said Interim Order was varied; the relevant portion thereof provides :

'I appoint Mr. B.B. Sinha and Mr. Keshavlal Amritlal Ojha as the joint Special Officers without security to carry on the business of M/s. Pure Sitalpur Coal Concern Limited until the disposal of this application.'

9. After providing for some other directions the said order also provided :

'save as aforesaid the ad-interim Order passed herein is varied to this extent.'

10. It is argued that the net position has been that the Consent Order dated 18th May, 1971 remains stayed but the said B.B. Sinha and the said Keshavlal Ojha were appointed as joint Special Officers of the company in the Suit filed by Mr. Deb's clients to carry on the business of M/s. Pure Sitalpur Coal Concern Limited.

11. For all these reasons as stated above Mr. Deb contends that his clients are to a great extent interested in resisting the filing of the terms of Settlement inasmuch as apparently the terms might appear to be quite innocent but, if put into action, this will have far-reaching consequences and will adversely go to affect the interest of the company as well as of Mr. Deb's clients. That being the position Mr. Deb prays for leave to intervene and to object to the terms being filed on its merits also.

12. Mr. Mitter on the other hand argues that Mr. Deb's clients have admitted the position in their petition before the Appeal Court that B. B. Sinha was acting as the director of the said Company and on that basis the said Promodrai Amritlal Ojha was so long holding the power of Attorney from the said B. B. Sinha and as such was looking after the business of the said company.

13. Mr. Sen on behalf of the plaintiff firm contends that just as the shareholders have no say in the matter of the internal management of the company, when the company is managed by the board of directors, except in certain special circumstances as provided by the Statute, similarly, the shareholders cannot also have any say in a matter where the Special Officer is acting on behalf of the company. It is argued that Mr. Deb's clients have no locus standi to interfere into the putting in of the Terms of Settlement in this suit and the court should not grant them leave to intervene in this matter.

14. It is necessary here to determine the position and the powers of the Special Officers and in what manner they should function after their appointments.

15. The position and the powers of a Special Officer have not been provided in the Companies Act, 1956. It is settled law that to run the affairs of the company such as this, a receiver should not be appointed. In order to remove a deadlock in a company this Court often had to resort to the appointment of a Special Officer of the company so that the affairs of the company could be run most beneficially by way of interim measure through the said Special Officer under the supervision of the Court in the pending matter. It is admitted by and on behalf of all the parties herein that since quite some time past a practice has grown up in this court to make such appointments, in a suitable case if the court so thinks fit and proper solely with a view that there might not be any deadlock in the company and so that the affairs of the company might be conducted in a suitable manner through such Special Officer. As to what would be the powers and functions of such Special Officers have not been laid down in any of the decided cases of this court.

16. In my opinion, the powers and functions of a Special Officer must vary in accordance with the facts of each case but such powers and functions must be such so as to enable him to run the affairs of the company in the best interest of the company and its members and under the supervision of the Court. Accordingly, it is always desirable and, I should say, incumbent upon the Special Officer to take directions from time to time from the Court appointing him as such Special Officer so that the interest of the company might be, protected in the best possible manner. In any event, his powers and functions should not be, and indeed, cannot be, such so that he would be in a position to achieve his own end or that of his group by sacrificing the existing interests of the other group of shareholders without an order from Court to that effect. Being the sole Special Officer he cannot have that unlimited power in respect of the Company unless the Court specifically clothes him with such powers. Being an Officer of the Court if he would do that, that would be a misuse of his powers. He must not, without an order of the Court do such things that the interest of the company would suffer in his hands and his acts would, in any way, be prejudicial to the interest of the shareholders or creditors or contributories of the company. In my opinion, for the purpose of deciding this case it is not necessary for this court to say anything more about the powers and functions of the Special Officer. Suffice it to say, that in exercising powers as such Special Officer and in functioning in that position such Officer shall always look to the interest of the company and whenever any step has to be taken by him which would be likely to be of controversial nature, the said Officer is bound to take directions of the court and to act in accordance with such directions.

As a sole Special Officer his position and powers are much lesser than that of the board of directors which runs the business of the company in accordance with the powers entrusted to it by the Memorandum and the Articles of the Company and by the Statute. A Special Officer being an Officer of the Court remains answerable to the Court for his acts and conduct and as such must obtain the necessary directions from the Court appointing him to clothe himself with special powers. In that respect his position and powers are different from that of a director or of a board of directors. He cannot have the full powers of a director unless the court vests him with such powers.

17. In respect of this company, namely, Pure Sitalpur Coal Concern Limited by the order of A.N. Sen, J., dated 4th September, 1967 all the directors have ceased to act as directors. Only B.B. Sinha was directed to keep accounts of the company in respect of the transactions of the company. In the present suit two joint-receivers were appointed as such receivers in order to look after the business of the colliery. By the Consent Order dated 18th May, 1971 all these are sought to be given a go-by. Keshavlal Ojha, the Special Officer is himself an interested party but he seeks to come into the picture by means of the Consent Order where the court did not have the opportunity to go into the question after hearing the parties but on the basis of such consent had passed the said order dated 18th May, 1971. By virtue of these powers derived by the Special Officer from the said Consent Order the next step he took was to settle this Suit with the plaintiff firm so that he could take full control over the company by obtaining the discharge of the said two joint-receivers and of the said Liaison Officer who was acting under the authority of the said B.B. Sinha under the said Power of Attorney. According to Mr. Deb, the Special Officer, by means of such consent order in a suit which has been kept pending for the purpose of allowing the Special Officer to function and which cannot remain pending after the dispute with Gunwantrai Ojha is settled, now seeks to clothe himself with all the powers to have full control over the company and to run its affairs without any sanction of this Court. He has created himself the Special Officer in a Suit in which he was one of the plaintiffs-directors with the help of some of the other directors but now in this suit which is a suit between the said company and an outsider, by consent he seeks to oust the joint-receivers and to have full control over the colliery. If the directors have been restrained from functioning as directors and if the company's affairs are sought to be managed in this manner, I see no reason why the shareholders cannot come in to intervene and bring it to the notice of the Court in what manner their interests are being sacrificed by obtaining and utilising the various orders of this Court obtained by the consent of the parties in the pending suit.

18. Accordingly, in my opinion under such circumstances, the shareholders have certainly a say in the matter and can legitimately come up before the court and ask for leave to intervene to bring it to the notice Of the Court in what manner the Court's Officer has been behaving in respect of a particular company and whether he should be allowed to file the Terms of Settlement or not. In my opinion, Mr. Deb's contentions are acceptable and sound. I hold that it is a fit case where I should and, accordingly, I give his clients leave to intervene in this matter.

19. In my opinion, the parties by consent cannot appoint a special Officer of a company. That is a power which a Court can exercise, and indeed very sparingly, if the Court thinks fit under special circumstances by taking into consideration the interest of the company its shareholders, contributories and its creditors. The parties by their acts by means of a Consent Order cannot jeopardise the interest of the shareholders of the company or of the directors or creditors of the company by making an appointment of a Special Officer over a company.

20. While deciding this matter I will not seek to lay down the circumstances under which a Special Officer should be appointed by Court or what should be their powers, rights or liabilities but all that I need observe here, in this case, is that if a practice of this nature has grown up let it grow up as a healthy one and not as a corrupt one. Let it not be utilised to seek one's own gain by sacrificing the interests of the general body of the shareholders or of the company. Accordingly, in a case where the Special Officer is allowed to function and the entire body of the directors are restrained from functioning as such directors, and more so, when the Special Officer appointed happens to be an interested party, in the sense that he was previously acting as a director of the company and there are groups of directors who are fighting amongst each other, the Special Officer appointed by Court, in all fairness and in the interest of the company and of all persons concerned in the company ought to take directions from the Court before settling any pending matter which would go to affect the interest of a particular group of directors or shareholders of the company. In this case not only that Keshavlal Ojha was not at present in the management of the company but one of Mr. Deb's clients Promodral was now acting as the Liaison Officer under the authority of the said B.B. Sinha whom the Court authorised to keep accounts and to run the company and the colliery is being run by the joint receivers under certain directions of the Court. It is quite obvious that by the Consent Order dated 18th May, 1971 not only Keshavlal is trying to get control over the company but at the same time Promodrai and the joint receivers who are actually managing the affairs of the colliery and as such the main business of the said company, are sought to be removed without obtaining the prior sanction of this Court. It is contended that the said Suit No. 2029A of 1967 (Cal) (Keshavlal Ojha v. Gunwantrai Ojha) is purposely being kept alive and the said consent order has been sought to be obtained by way of an interlocutory order even though, it is apparent that nothing remained in the said Suit. The purpose is to allow Keshavlal to act as the Special Officer of this Court as long as possible by ousting the other persons as indicated above.

21. Mr. Deb contends that the Terms of Settlement ought not to be allowed to be put in because the same has not been properly signed by the parties to it. Mr. Deb contends that the terms, sought to be put in, should have been signed by the Joint Special Officers describing themselves, as such Joint Special Officers appointed in the Suit to Mr. Deb's clients being Suit No. 246 of 1971 (Cal) (Mukundrai Ravishankar Trivedi v. Keshavlal Amritlal). As stated above the terms have been sought to be signed by Keshavlal as Special Officer in Suit No. 2029A of 1967. Mr. Mitter on the other hand, contends that at the relevant point of time when the said signature was put in, the said Special Officer was appointed as such and accordingly, that was his correct designation on that date and consequently there is no irregularity in his signature. On this point I have already expressed my views as stated above.

22. It is argued by Mr. Deb that under the provision of Section 19(2) Clause (c) of the Partnership Act. 1932 one partner has got the implied authority, and the implied authority pf such A partner does not empower him, to compromise and to reduce any claim or portion of a claim by the firm. Accordingly Mr. Deb argues that the Terms of Settlement have not been duly signed by both the partners and hence should not be allowed to be filed. Mr. Mitter on behalf of the defendant and Mr. S.C. Sen appearing on behalf of the plaintiff at that time asked the Court's permission so that the other partner who was also present in the court, if necessary, could put his signature on the Terms of. Settlement.

23. Both Mr. Mitter and Mr. S.C. Sen also argue that in any event, the provision of Section 19 of the Partnership Act has no application in the facts and circumstances of the case in as much as the said provision only relates to the extent of the implied powers of the partners to act on behalf of the firm. There is no provision anywhere to the effect that one partner cannot sign on behalf of the firm in referring a dispute to arbitration. Moreover, it is only the partners or those who are parties to the Suit who can agitate the point relating to the authority of one partner to bind the other in referring a dispute to arbitration. In any event, they contend that Mr. Deb's clients cannot take up the said point because they are neither parties to the Suit nor parties to the settlement nor of the said arbitration agreement. Accordingly, in so far as the signatures of the partner of the plaintiff firm on the terms of settlement as also on the arbitration agreement are concerned, the same do not suffer from any defect. I think that that is the correct way of reading the provision of Section 19 and accordingly, the contention of Mr. Deb on this point must be rejected.

24. Mr. Deb next argues that Clause 4 pf the said arbitration agreement, which has been made a part of the Terms of Settlement, if allowed to be given effect to, would be in conflict with the latest order that has been passed by this Court whereby both Keshavlal Ojha and B.B. Sinha have jointly been appointed the Special Officers in the suit filed by Mr. Deb's clients. The said Clause 4 of the said arbitration agreement provides that the said joint receivers will hand over possession of the assets, books, papers and documents belonging to the defendant company 'represented by Keshavlal Ohja Spl. Officer appointed in Suit No. 2029 A of 1967 by order dated 18th May, 1971.' It is true that Clause 4 of the arbitration agreement relates to the tune when the said Terms and the arbitration agreement were signed, namely, on 31st May 1971 but, in any event, the said agreement, if allowed to be put in will be in conflict with the later orders passed by this Court whereby the said consent order dated 18th May, 1971 has been stayed and the Joint Special Officers have been directed to act jointly and not singly and as such must necessarily, be entitled to the possession of such books etc. in terms of their order of appointment. I uphold the contentions of Mr. Deb on this point.

25. But the most vital objection which has been raised by Mr. Deb is that there is no petition before this court whereby the matters in suit could be referred to arbitration. If the provisions of Section 21 of the Arbitration Act, 1940 has to be taken recourse to, then there must be an application in writing before this Court. Arbitration rules have been framed in respect of the said section by this Court whereby the application must be, by way of petition. The rules framed by this Court even though they are procedural in nature are meant to be followed and in the absence of compliance of such rules under Section 21 of the Arbitration Act the Court cannot be said to have been properly moved and the court's jurisdiction to determine the Suit cannot be taken away except under the said provision.

26. Mr. Mitter realised the defect in putting in the Terms of Settlement and as such after the point was taken and in the midst of the arguments he came prepared with a petition. He now seeks to present the petition before this Court in order to entitle his clients to put in the Terms of Settlement whereby all disputes in respect of Suit No. 165 of 1970 are agreed to be referred to arbitration. The matter has been argued at great length on the basis of the Terms of Settlement which is sought to be put in by Mr. Mitter and I feel, I should not allow Mr. Mitter to present the petition at this stage in this proceeding. I hold that this Terms of Settlement cannot be filed without complying with the rules provided by this Court. This petition is accordingly not entertained and is returned.

27. On the question of the signature of B.B. Sinha Mr. Deb argues that he has not indicated in which capacity he has put his signature there. B.B. Sinha has signed the same for and on behalf of Pure Sitalpur Coal Concern Limited. Mr. Deb has also brought to my notice the date when the said B.B. Sinha has put his signature, namely, 3rd June, 1971. According to Mr. Deb, in any event, only one director cannot sign the Terms for and on behalf of the company. It must be signed by Board's resolution and in a case where there is no such Board it must have the approval of the general body of the shareholders and in a case where a Special Officer has been appointed he should sign on behalf of the company after obtaining the prior directions to that effect from the court. Mr. Deb has referred to several English decisions and also of this Court bat it is not necessary to discuss them because both Mr. Mitter and Mr. S.C. Sen have admitted the principles laid down therein.

28. The last point of Mr. Deb is that the plaintiff is also in collusion and in conspiracy with Keshavlal and his group; the plaintiff in pursuance of the order dated 22nd May, 1970 made by Ghose, J., was to advance a sum of Rs. 2 lakh to the defendant company; the plaintiff failed to comply with the said order but only put in a sum of Rs. 36,000/-. Accordingly, the plaintiff has, an interest to compromise the suit by appointing their own arbitrators and getting an award in their favour without complying with the order of Ghose. J., with the help of Keshavlal. It is alleged that the arbitrators are near relations of the partners of the plaintiff firm.

29. By considering all these points, in my opinion, Mr. Deb's arguments have great force behind them and as indicated above, I have no hesitation to accept them. In my opinion, the Special Officers appointed herein being Officers of the Court must obtain prior directions from the appropriate Court before they are advised to refer to arbitration the subject-matter of the dispute in a pending suit in which the company is involved and more so, when none of the directors of the company are functioning as such directors. I am further of the opinion that neither the arbitration agreement nor the Terms of Settlement have been properly, signed except as indicated above and in any event the matter cannot be agreed to arbitration without a petition. Accordingly, I reject the same. There will be no order as to cost.


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