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Calcutta Chemical Co. Ltd. Vs. Krishna Das Pal and ors. - Court Judgment

LegalCrystal Citation
SubjectCompany
CourtKolkata High Court
Decided On
Case NumberCompany Petition No. 200 of 1981
Judge
Reported in[1985]57CompCas503(Cal),87CWN945
ActsCompanies Act, 1956 - Sections 397, 398 and 483
AppellantCalcutta Chemical Co. Ltd.
RespondentKrishna Das Pal and ors.
Appellant AdvocatePrabir Sen, ;Bimal Chatterjee and ;Barin Ghose, Advs.
Respondent AdvocateDipankar Gupta and ;Samaraditya Pal, Advs.
DispositionAppeal dismissed
Cases ReferredIn Shanta Genevieve Pommemt v. Sakal Papers Pvt. Ltd.
Excerpt:
- .....single judge of this court taking company matters, dismissing the application of the company to file a supplementary affidavit, a copy of the proposed supplementary affidavit having been annexed to the said application, in a proceeding under sections 397 and 398 of the. companies act, 1956.2. the company has an overdraft account with its banker, the united bank of india, hereinafter referred to as ' the bank '. the credit facilities that were available to the company under the said overdraft account at the relevant time was up to rs. 146.37 lakhs. as such limit or extentof the credit facilities was considered by the company to be inadequate forits purpose, it approached the bank to enhance and/or modify the overalllimit of the credit facilities. after some discussions that took place.....
Judgment:

Dutt, J.

1. This appeal has been preferred by the Calcutta Chemical Co. Ltd., hereinafter referred to as ' the company ', against the order of a learned single judge of this court taking company matters, dismissing the application of the company to file a supplementary affidavit, a copy of the proposed supplementary affidavit having been annexed to the said application, in a proceeding under Sections 397 and 398 of the. Companies Act, 1956.

2. The company has an overdraft account with its banker, the United Bank of India, hereinafter referred to as ' the bank '. The credit facilities that were available to the company under the said overdraft account at the relevant time was up to Rs. 146.37 lakhs. As such limit or extentof the credit facilities was considered by the company to be inadequate forits purpose, it approached the bank to enhance and/or modify the overalllimit of the credit facilities. After some discussions that took place betweenthe bank and the representatives of the company, the bank by its letterdated July 6, 1979, required the company to appoint a firm of technicalconsultants to study the viability of the unit of the company and a firmof chartered accountants for the internal audit of the company. Suchappointments were to be made by the company after the approval of thebank. As required, the company, with the approval of the bank, appointed S. R. Batliboi and Co., a firm of chartered accountants, both for thepurpose of studying the viability of the unit of the company and for internal audit. S. R. Batliboi and Co. by its letter dated July 23, 1980, informed the company that the study would ' cover various aspects of the company's working together with our suggestions for remedial measures aspay be considered necessary for bringing about improvements in thefuture'.

3. After the technical report and the internal audit report were submittedby S. R. Batliboi and Co., the bank considered the same and by its letterdated August 6, 1980, agreed to enhance and modify the credit facilities ofthe company from Rs. 146.37 lakhs to Rs. 178.04 lakhs on certain terms andconditions which included, among others, a term that the companyshould undertake to implement the modification in its organisational' setup as suggested by S. R. Batliboi and Co., in its report on Techno-EconomicStudy, within the next six months and submit a report to the bank tothat effect. Another term was that a nominee of the bank woultf be onthe board of directors on non-rotational basis. It appears that the com-pany accepted the terms and conditions as proposed by the bank for theenhancement of the credit facilities for the company up to Rs. 178.04 lakhsand, accordingly, the bank, in its turn, enhanced and/or modified thecredit facilities for the company up to the said amount.

4. It appears that in its report on Techno-Economic Study and in the report on internal audit, S. R. Batliboi and Co. made certain adverse findings and comments in regard to the working of the company and also made certain recommendations or suggestions required to be implemented by the company for the improvement of its functions and/or activities. The said report was submitted by S. R. Batliboi and Co. on March 21, 1980, and the report on internal audit was submitted by it on January 17, 1980.

5. On June 17, 1981, respondents Nos. 1, 2 and 3, who are the shareholders of the company, filed an application before the company court under Sections 397 and 398 of the Companies Act, inter alia, praying for the super-session of the board of directors of the company and for appointment of a special officer and/or an administrator to carry on the business and affairs of the company. In support of the said prayers, respondents Nos. 1, 2 and 3 in the said application under Sections 397 and 398 relied upon the adverse findings and comments made in the said Tech no-Economic Study report and the internal audit report of S. R. Batliboi and Co. and, inter alia, prayed for the supersession of the board of directors of the company and for the appointment of a special officer or administrator to take charge of all the books and assets of the company and to carry on its business and affairs.

6. The company opposed the said application under Sections 397 and 398 of the Companies Act by filing an affidavit-in-opposition denying the allegations made in the application, but not specifically dealing with the adverse findings and comments made in the said reports submitted by S.R. Batliboi and Co. The company, however, pointed out in the affidavit-in-opposition some implementations and improvements made by it as suggested or recommended in the said reports.

7. Some time in January, 1982, the case was opened on behalf of respondents Nos. 1, 2 and 3, but the hearing did not proceed further. On February 22, 1982, the company filed a supplementary affidavit with the leave of the learned judge. Thereafter, submissions were made from time to time on behalf of respondents Nos. 1, 2 and 3 at the hearing of the application. After the conclusion of the submissions on behalf of the said respondents on December 9, 1982, the company started its submissions in reply on the next day and it was submitted on behalf of the said respondents that an application would be made by them praying for leave of the court to re-verify the application under Sections 397 and 398 of the Companies Act. It was also represented to the court, on behalf of the company, that it would file an application for leave to file a supplementary affidavit.

8. On December 21, 1982, the said respondents filed an application for leave to re-verify the application under Sections 397 and 398 of the Companies Act. On January 11, 1983, the company filed an application praying for leave to file a supplementary affidavit. A copy of the proposed affidavit was annexed to the application.

9. The case of the company as pleaded in the said application was, inter alia, that as advised by its counsel, it did not specifically deal with the contents of both the said reports submitted by S. R. Batliboi and Co. in the affidavit-in-opposition filed by it. In the course of submissions made on behalf of respondents Nos. 1, 2 and 3, in the month of January, 1982, it was submitted on their behalf that in spite of various recommendations and/or suggestions made by S. R. Batliboi and Co., in its report on Techno-Economic Study of the company, the management of the company had not made attempts and/or taken any steps for the purpose of effective implementation of the said recommendations and/or suggestions. It was alleged that the said submission was devoid of any substance, and that in order to remove any doubt and/or cloud, the company filed the supplementary affidavit with the leave of the court. In the supplementary affidavit, it was alleged that the said reports were not at all relevant and should not be taken, any notice of by the court. It was averred that the company did not agree with the contents of the said reports to a large extent. The company, however, pointed out certain implementations and improvements made by it in terms of the Techno-Economic report submitted by S. R. Batliboi and Co. and annexed some documents in proof of the same.

10. The further case of the company was that after the said supple-mentary affidavit was filed, the application under Sections 397 and 398 again came up for hearing before the learned judge. At the resumed hearing, it was submitted on behalf of respondents Nos. 1, 2 and 3 that as no specific challenge was made as to the correctness of either the Techno-Economic report or of the internal audit report, the company should not be permitted or allowed to challenge the correctness and validity of the said reports. According to the company, in view of the said submission of respondents Nos. 1, 2 and 3, the company felt the necessity of filing a second supplementary, affidavit showing the incorrectness of the findings made in the said reports of S. R. Batliboi and Co. In that view of the matter, the company filed the said application praying for leave to file a second supplementary affidavit. It appears that in the proposed supplementary affidavit, the company has challenged the adverse findings and comments made in the said reports and has annexed a number of documents from the records of the company in support of its allegation as to the incorrectness of the said reports.

11. The learned judge, as stated already, dismissed the said application of the company praying for leave to file the supplementary affidavit. Hence, this appeal.

12. The first thing that we propose to consider is the objection taken by Mr. Dipankar Gupta, learned counsel appearing on behalf of respondents Nos. 1, 2 and 3 to the maintainability of the appeal. It may, however, be stated that the learned counsel has not raised the objection at the outset as a preliminary objection, but has taken the same in the course of his reply to the submissions may by Mr. Prabir Sen, learned counsel for the company, in support of the appeal including the submission that the appeal is maintainable. Be that as it may, the contention of Mr. Gupta is that the impugned order of the learned judge, which is interlocutory in character, dismissing the application of the company for leave to file a supplementary affidavit, is not a judgment within the meaning of Clause 15 of the Letters Patent and, as such, no appeal lies from such an order.

13. It is true that the impugned order is an interlocutory order, but thequestion as to whether it is a judgment under Clause 15 or not will dependupon the nature of prejudice it has caused to the company. In the decision of the Supreme Court in Shah Babulal Khimji v. Jayaben D. Kania : [1982]1SCR187 , it has been observed by Fazal AH J., in (p. 1816).para. 115 of the report as follows :

' Thus, in other words, every interlocutory order cannot be regarded as a judgment but only those orders would be judgments which decide matters of moment or affect vital and valuable rights of the parties and which work serious injustice to the party concerned. Similarly, orders passed by the trial judge deciding the question of admissibility or relevancy of a document also cannot be treated as judgments because the grievance on this score can be corrected by the appellate court in appeal against the final judgment.'

14. The above observation has been strongly relied upon by the learned counsel for respondents Nos. 1, 2 and 3 in support of his contention that the impugned order is not a judgment and, hence, not appealable. In our view, however, the observation leans against the contention of the learned counsel. The impugned order is not as simple as an order deciding the question of admissibility or relevancy of a document, but it has impliedly decided matters of moment and has caused serious prejudice to the company. The reports of S. R. Batliboi and Co. contain certain findings and comments against the company. Such findings and comments which are the sheet anchor of respondents Nos. 1, 2 and 3 if not allowed to be dealt with or controverted by the company, there is every possibility of the final decision going against the company resulting in the supersession of its board of directors and appointment of a special officer or administrator. There can, therefore, be no doubt that by the impugned order, the company has been seriously prejudiced. We do not find any substantial distinction between the nature of prejudice suffered by a defendant in a suit whose written statement is struck out or who is not permitted to file a written statement and that suffered by the company in the instant case by the dismissal of its application for leave to file a supplementary affidavit in defence against the prayer for supersession of its board of directors and appointment of a special officer or an administrator to take charge of the company. It may be that the impugned order can be challenged in appeal against the final judgment disposing of the application under Sections 397 and 398 of the Companies Act, as contended on behalf of respondents Nos. 1, 2 and 3 but, in our opinion, the contention is quite irrelevant to the serious prejudice that has been caused to the company by the impugned order. An interlocutory order, unless made expressly appealable by any statute under which it is passed, can always be challenged by the aggrieved party in an appeal from the judgment disposing of the proceeding. The seriousness of the prejudice or injustice caused to an aggrieved party by an interlocutory order is the guiding factor for the decision of the question as to whether such an order is a judgment within the meaning of Clause 15 of the Letters Patent. We are, therefore, of the view that the impugned order is a judgment under Clause 15 of the Letters Patent and, consequently, the appeal is quite maintainable. The contention to the contrary is overruled.

15. It is submitted by Mr. Prabir Sen, learned counsel for the company, that even assuming that the impugned order is not a judgment within the meaning of Clause 15 of the Letters Patent, still the appeal is maintainable under Section 483 of the Companies Act. Section 483 provides that appeals from any order made, or decision given, in the matter of the winding up of a company by the court shall lie to the same court to which, in the same manner in which, and subject to the same conditions under which, appeals lie from any order or decision of the court in cases within its ordinary jurisdiction. Section 483 is, therefore, a provision for appeal from any order or decision made or given in the matter of the winding up of a company. Sections 397 and 398, however, do not relate to a proceeding for the winding up of a company, but they are an alternative to the same. In Shanta Genevieve Pommemt v. Sakal Papers Pvt. Ltd. : AIR1983SC269 , it has been observed by the Supreme Court as follows :

' Now, an order under Sections 397, 398 and 403 of the Companies Act, 1956, on the face of it, cannot be said to be an order made or a decision given, in the matter of the winding up of a company. Relief, undoubtedly, under Sections 397 and 398 is in fact an alternative to winding up. No doubt, an order under Sections 397 and 398 could be an order made or decision given by the High Court having jurisdiction under the Companies Act and, therefore, an appeal will He to this Division Bench of the same High Court. This is not disputed.'

16. It thus appears from the above observation of the Supreme Court that the provision for appeal as contained in Section 483 of the Companies Act also applies to any order made, other than an administrative or ministerial order, or decision given in a proceeding under Sections 397 and 398 which is, as held by the Supreme Court, an alternative to a winding up proceeding. There is, therefore, substance in the contention of the learned counsel that the instant appeal against the impugned order is maintainable under Section 483 ofthe Companies Act.

17. It is, however, contended on behalf of respondents Nos. 1, 2 and 3, that the said application for leave to file a supplementary affidavit was an afterthought and was filed by the company mala fide with a view to delay the proceeding. It is submitted that as the learned judge in his discretion refused to grant leave to the company to file the supplementary affidavit, this court should not interfere with the discretion exercised by the learned judge. We are unable to accept the contention. It appears that the company was wrongly advised not to deal with the said reports submited by S. R. Batliboi and Co. The very object of the company was to get the loan facilities increased by the bank and the said object having been achieved, it did not seriously consider the adverse findings and comments made in the said reports. In the proposed supplementary affidavit, the company has annexed a number of documents from the records of the company for the purpose of showing the incorrectness of such findings and comments. It is, therefore, difficult to say that it was an afterthought or that the said application was filed mala fide in order to delay the proceedings. It must, however, be said that there was some negligence on the part of the company in not dealing with the said findings and comments in the affidavit-in-opposition and in the first supplementary affidavit. But, on that ground, it would not be proper to refuse the prayer of the company to file the proposed supplementary affidavit. The supplementary affidavit could be allowed to be filed on terms.

18. In the circumstances, we set aside the impugned order of the learned judge and grant leave to the company to file the supplementary affidavit by June 6, 1983. Further, the company shall pay to the said respondents Nos. 1, 2 and 3 costs of this appeal assessed at 100 G.Ms., on or before June 6, 1983. Such payment shall be made to Mr. Partha Ghosh, learned advocate on record of the said respondents, either in cash or by an account payee cheque drawn in favour of the said learned advocate. In case the company either fails to file the supplementary affidavit or pay the said costs assessed at 100 G.Ms., within the time mentioned above, this appeal will stand dismissed with costs and the impugned order of the learned judge will stand affirmed. If the supplementary affidavit is filed, the said respondents will be at liberty to file an affidavit-in-reply within three weeks thereafter.

19. Save as aforesaid, there will be no further order for costs in this appeal.

M.K. Mukherjee, J.

20. I agree.


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