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PETITIONER: NATIONAL CONDUITS (P) Ltd.

       Vs.

RESPONDENT: S. S. ARORA

DATE OF JUDGMENT: 01/09/1967

BENCH: SHAH, J.C. BENCH: SHAH, J.C. SIKRI, S.M. SHELAT, J.M.

CITATION:  1968 AIR  279            1968 SCR  (1) 430  CITATOR INFO :  R          1983 SC1272  (22)

ACT: Companies Act, (1 of 1956) Ss. 433 and 439--Compulsory wind- ing up--Petition admitted--Advertisement--If Court bound. Companies (Court) Rules, 1959, rr. 9, 24(2) and 96.

HEADNOTE: In  an appeal to this Court, the High Court’s view  that  on the  admission  of a petition under ss. 433 and 439  of  the Companies Act, 1956 for compulsory winding up of a  company, the Court is bound forthwith to advertise the petition,  was challenged. Held: A petition for winding up cannot be placed for hearing before the Court, unless the petition is advertised: that is clear from terms of r. 24(2) of the Companies (Court) Rules, 1959.   But that is not to say that as soon as the  petition is  admitted,  it must be advertised.  If  the  petition  is admitted, it is still open to the company to move the  Court that  in the interest of justice or to prevent abuse of  the process  of Court, the petition be not advertised.  Such  an application  may be made where the Court has  issued  notice under  the last clause of r. 96, and even when there  is  an unconditional admission of the petition for winding up.  The power  to  entertain such an application of the  company  is inherent in the Court and r. 9 iterates that power. [432C-F] In re.  A. Company (1894) 2 Ch.  D. 349 applied. Lord  Krishna Sugar Mills Ltd., v. Smt.  Abnash Kaur  A.I.R. (1961) Punj. 505 approved.

JUDGMENT: CIVIL APPELLATE JURISDICTION: Civil Appeal No. 1082 of 1967. Appeal  from the judgment and order dated March 7,  1967  of the Delhi High Court in Company Appeal No. 3 of 1967. A.   N. Khanna and Harbans Singh, for the appellant. P.   C. Khanna and Maharaj Krishan Chawla, for the respon- dent. The Judgment of the Court was delivered by Shah,  J. The appellants private limited Company-is  engaged

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in  the manufacture of electric conduit pipes.  The  respon- dent  who is a director of the Company presented a  petition in  the  High Court of Delhi under ss. 433 and  439  of  the Companies Act, 1956, for an order for compulsory winding  up of  the Company.  The respondent claimed that it  was  "just and  equitable"  within  the meaning of  s.  443(f)  of  the Companies Act, 1956, to make an order for compulsory winding up,  because one of the three factories of the  Company  had been closed, that the accounts of the Company were not being shown to the respondent, that no meeting of the Company  had been  held, no balance-sheet had been prepared and a  letter of resignation purported to be signed 430 431 by  the  respondent  had been forged.   On  July  18,  1966, Capoor,  J., directed that notice of the petition be  issued to  the appellant Company.  The order has not been  formally drawn  up, and it is not clear whether by that order it  was intended  to  call upon the Company to show  cause  why  the petition  should not be admitted, or that by the  order  the petition  was  admitted  and  notice  under  r.  96  of  the Companies (Court) Rules, 1959 was issued. The  appellant  Company filed its  reply  controverting  the allegations made by the respondent.  The Company also  filed an  application  that the winding up petition filed  by  the respondent  be taken off the file and be dismissed and  that the petition in the meantime be not advertised.H. R. Khanna, J.,  held that the appropriate remedy of the  respondent  on the  allegations  of  mismanagement of the  affairs  of  the Company  and oppression of the minority shareholders by  the group of Anandi Lal was to file a petition under ss. 397 and 398  of the Companies Act.  The learned Judge  further  held that the petition for winding up was instituted with a  view "to unfairly prejudice the interests of the shareholders  of the  Company", respondent having set up a rival  factory  in the  name  of  his son for  manufacturing  electric  conduit pipes.  The learned Judge directed that the petition be  not advertised and be. dismissed. In appeal against the order passed by H. R. Khanna, J.,  the High  Court of Delhi held that under the  Companies  (Court) Rules,  1959, once a petition is admitted to the  file,  the Court  is  bound forthwith to advertise the  petition.   The company challenges that order in this appeal. Rule  96  of "The Companies (Court) Rules, 1959"  framed  by this Court provides :               "Upon the filing of the petition, it shall  be               posted  before  the  Judge  in  Chambers   for               admission  of the petition and fixing  a  date               for the hearing thereof and for directions  as               to  the advertisement to be published and  the               persons,  if  any,  upon whom  copies  of  the               petition are to be served.  The Judge may,  if               he  thinks fit, direct notice to be  given  to               the company before giving directions as to the               advertisement of the petition." Rule 24 which relates to advertisement of petitions provides               "(1)  Where  any petition is  required  to  be               advertised,   it  shall,  unless   the   Judge               otherwise  orders, or these,  Rules  otherwise               provide, be advertised not less than  fourteen               days before the date fixed for hearing, in one               issue of the Official Gazette of the State  or               the  Union  Territory concerned,  and  in  one               issue each of a daily newspaper in the English                             language and a daily newspaper in the  regional

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             language circulating in the State or the Union               Territory  concerned, as may be fixed  by  the               Judge. 432               (2)   Except in the case of a petition to wind               up a company, the Judge may, if he thinks fit,               dispense  with any advertisement  required  by               these Rules." When  a petition is filed before the High Court for  winding up  of  .a company under the order of the  Court,  the  High Court (i) may issue notice to the Company to show cause  why the  petition  should not be admitted; (ii)  may  admit  the petition  and fix a date for hearing, and issue a notice  to the Company before giving directions about advertisement  of the petition; or (iii) may admit the petition, fix the  date of  hearing of the petition, and order that the petition  be advertised  and  direct  that the petition  be  served  upon persons  specified in the order.  A petition for winding  up cannot  be placed for hearing before the Court,  unless  the petition  is advertised that is clear from the terms  of  r. 24(2).  But that is not to say that as soon as the  petition is  admitted, it must be advertised.  In answer to a  notice to show cause why a petition for winding up be not admitted, the  Company may show cause and contend that the  filing  of the  petition  amounts  to an abuse of the  process  of  the Court.  If the petition is admitted, it is still open to the Company to move the Court that in the interest of justice or to  prevent abuse of the process of Court, the  petition  be not  advertised.  Such an application may be made where  the Court has issued notice under the last clause of r. 96,  and even  when  there  is  an  unconditional  admission  of  the petition  for  winding up.  The power to entertain  such  an application of the Company is inherent in the Court, and r.               Nothing  in  these Rules shall  be  deemed  to               limit or otherwise affect the inherent  powers               of  the Court to give such direction  or  pass               such orders as may necessary for the  ends  of               justice to prevent abuse of the process of the               Court", iterates  that power.  In in re.  A. Company(1) it was  held that if the petition is not presented in good faith and  for the legitimate purpose of obtaining a winding-up order,  but for  other purpose such as putting pressure on the  Company, the  Court will restrain the advertisement of  the  petition and  stay  all further proceedings -upon it.  We  may  state that  the High Court of Punjab in Lord Krishna  Sugar  Mills Ltd.  v. Smt.  Abnash Kaur(2) was right in  ,observing  that the  Court in an appropriate case has the power to  .Suspend advertisement of a petition for winding up, pending disposal of an application for revoking the order of admission of the petition, though we may hasten to state that we cannot agree H.R. Khanna,, J., was apparently satisfied that the petition was  not  a,  bona  fide  petition  and  the  respondent  in presenting (1) (1894) 2 Ch.  D. 349. (2)  A.L.R. 1961 Punjab 505. 433 the petition was acting with ulterior motive and his attempt to obtain an order for winding up was  "unreasonable".Before the High Court directed that the petition for winding up  be advertised,the High Court was bound to consider whether  the view expressed by H. R. Khanna,, J., was right. For reasons already set out, in our judgment, the High Court erred  in  holding that a petition for winding  up  must  be advertised even before the application filed by the  Company

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for  staying the proceeding for the ends of justice,  or  to prevent  abuse of the process of the Court.  The view  taken by  the  High  Court that the Court must,  as  soon  as  the petition is admitted, advertise the petition is contrary  to the  plain terms of r. 96.  Such a view, if accepted,  would make  the  Court  an  instrument,  in  possible  cases,   of harassment and even of blackmail, for once a petition is ad- vertised,  the  business of the Company is bound  to  suffer serious loss and injury. The  appeal is allowed.  The High Court has disposed of  the appeal  on  a  ground of procedure and  has  not  considered whether  the view of H. R. Khanna, J., that in the  exercise of  the  inherent  power for the ends  of  justice  and  for prevention  of  the  abuse  of the  process  of  Court,  the petition should not be advertised, is correct.  The case  is therefore remanded with the direction that the High Court do deal with and dispose of the appeal according to law.  There will  be no order as to its costs in this Court.  The  costs in the High Court will be costs in this appeal. Y.P.                       Appeal allowed. 434