High Court · 2009

IN THE HIGH COURT OF JUDICATURE AT MADRASDated : 10.07.2009Coram :THE HONOURABLE MR.JUSTICE K.RAVIRAJA PANDIANandTHE HONOURABLE MR.JUSTICE P.P.S.JANARTHANA RAJAOriginal Side Appeal No.89 of 2009Kothari Industrial Corporation Ltd., represented by its ChairmanKothari Buildings,114, Mahatma Gandhi Road,Nungambakkam, Chennai 34. Appellant(Respondent)v.Kotak Mahindra Bank Ltd.,I Floor, Ceebros Centre, 39, Montieth Road,Egmore, Chennai 8, represented by its Deputy Vice President J.Kannan. Respondent(Appellant)Original Side Appeal filed under Order XXXVI Rule 2 ofthe Original Side Rules read with Clause 15 of the LettersPatent against the order of a learned single Judge of this Courtdated 08.04.2009 made in C.P. No.51 of 2007.For appellant: Mr.T.K.Seshadri, Senior Counsel, for Mr.T.K.BhaskarFor respondent: Mr.Arvind P.Datar, Senior Counsel, for M/s. PL.NarayananJUDGMENTK.RAVIRAJA PANDIAN, J.This appeal is filed against the order of the CompanyCourt dated 08.04.2009 made in CP No.51 of 2007 ordering windingup of the appellant company under the provisions of theCompanies Act, 1956 and directing to advertise within 14 days anotice in the prescribed form of making of the order of windingup in one issue of Tamil Daily "Dinamani" and another two issuesin the English daily "Indian Express" and the "Times of India"(All India Edition) and other peripheral directions. https://hcservices.ecourts.gov.in/hcservices/

2. The above said winding up order is assailed by theappellant on several grounds. The primal and material ground onwhich the order of the Company Court is challenged, is thatnone of the statutory provisions, which are mandatory in naturefor ordering winding up of the company, has been not only takennote of, but also followed in this case. Even withoutadmitting the company petition, the winding up order has beenpassed, which is ex facie an illegal order as it is against therequirements of the statutory provisions i.e., Rules 96 and 99of the Companies (Court) Rules, 1959 and the impugned order isquite contrary to section 443(2) of the Companies Act.3. Learned counsel for the respondent-company petitionerhas also not disputed the factum that the company petition wasneither admitted nor the mandatory statutory provisions werefollowed in this case. But it was argued on behalf of therespondent-company petitioner that this Court, being the firstappellate Court, can cure the defect of non admission of thecompany petition and failure of causing publication of thecompany petition as per the requirement of the Companies (Court)Rules, 1959. It is also submitted that if the Court is intendedto remit the matter to the Company Court for redoing theexercise, the exercise being procedural in nature, this Courtmay request the Company Court to keep in tact the findingrecorded for ordering winding up and remit the matter to theCompany Court for purpose of completing the procedural lacunaexplicit in the order of the Company Court. 4. Heard the learned counsel on either side and perusedthe materials available on record.5. There is no dispute about the way in which the orderof winding up is passed by the company Court, i.e., the order ofthe company Court is passed without following the mandatorystatutory provisions, which is evident from paragraph 5 of theorder, wherein the Company court has categorically stated thaton notice, the respondent has filed its counter disputing theaverments contained in the company petition". Upon hearing theparties on pre-admission notice stage the impugned order ofwinding up is passed.6. Rule 96 of the Companies (Court) Rules, 1959 read asunder :“Upon the filing of the petition, it shall be postedbefore the Judge in Chambers for admission of the petitionand fixing a date for the hearing thereof and fordirections as to the advertisement to be published and thepersons, if any, upon whom copies of the petition are tobe served. The Judge may, if he thinks fit, direct noticeto be given to the company before giving directions as tothe advertisement of the petition.” https://hcservices.ecourts.gov.in/hcservices/ Rule 24 which refers to advertisement of petitionprovides :“(1) Where any petition is required to be advertised,it shall, unless the Judge otherwise orders, or theseRules otherwise provide, be advertised not less thanfourteen days before the date fixed for hearing, in oneissue of the Official Gazette of the State or the UnionTerritory concerned, and in one issue each of a dailynewspaper in the English language and a daily newspaper inthe regional language circulating in the State or theUnion Territory concerned, as may be fixed by the Judge.(2) Except in the case of a petition to wind up acompany, the Judge may, if he thinks fit, dispense withany advertisement required by these Rules.”It is explicit from the above Rules that when a petitionis filed in the company Court for winding up of a company, theCourt (i) may issue notice to the Company to show cause why thepetition should not be admitted; (ii) may admit the petition andfix a date for hearing, and issue a notice to the Company beforegiving 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 thepetition be served upon persons specified in the order. Apetition for winding up cannot be placed for hearing before theCourt, unless the petition is advertised: that is clear from theterms of Rule 24(2). But that is not to say that as soon as thepetition is admitted, it must be advertised. In answer to anotice to show cause why a petition for winding up be notadmitted, the Company may show cause and contend that the filingof the petition amounts to an abuse of the process of the Court.If the petition is admitted, it is still open to the Company tomove the Court that in the interest of justice or to preventabuse of the process of Court, the petition be not advertised.(vide National Conduits (P) Ltd. v. S.S. Arora,(1968) 37 CC786.) 7. From the above decision of the apex Court, it isevident that the admission of the Company Petition andadvertisement of the same as provided in the rules are must andin the absence of advertisement and its admission, the companypetition was bound to be rejected. In Cotton Corporation ofIndia Ltd. v. United Industrial Bank Ltd., (1984) 55 CC 423, theinbuilt safeguard against the abuse of machinery of winding uphas been succinctly explained by saying that Rule 96 confers adiscretionary power on the Judge not to give any direction atthe initial stage, but, if after receipt of the notice, thecompany appears and satisfies that the debt is bona fide disputeor the presentation of the petition is mala fide, actuated byulterior motive or an abuse of the process of the Court,certainly the Judge may decline to admit the petition and may https://hcservices.ecourts.gov.in/hcservices/ direct the party presenting winding up petition to prove itsclaim by a suit or in other manner. Thus, undoubtedly, awinding up petition is not a recognised mode of recovery of debtand if the company is shown to be solvent and the debt is bonafide disputed, the Court generally is reluctant to admit thepetition. This power is conferred on the Judge before whom thepetition comes for admission, to issue pre-admission notice tothe company so that the company is not unaware and may appearand point out that the petitioner is actuated by an ulteriormotive and presentation of the petition is a device topressurise the company to submit to an unjust claim. This is asufficient safeguard against the mala fide action and thecompany would not suffer any consequence as apprehended. Thisinbuilt safeguard under the Act and the Rules would save thecompany from adverse consequences if a petition is presentedwith ulterior motive. See NEPC Micon Ltd., NEPC Agro FoodsLtd. v. Hindustan Thomson Associates Ltd., (1999) 95 Com Cases532. 8. Admittedly, in this case, none of the above mandatorystatutory provisions are followed. On pre-admission notice andupon hearing the appellant company it was directed to be woundup.9. Where a statute requires to do a certain thing in acertain way, the thing must be done in that way and all othermethods of performance are necessarily forbidden.(AIR 1984 SC718 - A.R.ANTULAY VS. R.S.NAYAK) 10. Any order passed against the principles of naturaljustice or in violation of a statutory provisions is regarded tobe illegal. "Legality" and "regularity" are well understoodterms and well recognised grounds for interference, on appeal orrevision. An order is illegal, if it is opposed to anyenactment or any rule having the force of law. It is irregularif the procedure followed is in violation of the principles ofnatural justice and fair play. (See Kesava Rao v. Subbaraju,AIR 1957 AP 55). 11. As we are of the view that the order of the CompanyCourt ordering winding up is quite contrary to the statutoryrequirements and in violation of the requirements, the orderwould amount to illegal order not supported by the statute.When an order is illegal, it cannot be severed by keeping thefinding alone in tact and setting aside that portion of theconclusion and remit back the matter to the Company Court tocure the defects. Likewise, it is also impossible for anappellate Court to do the exercise of the Company Court, whenthe Court has come to conclusion that the order impugned is heldto be an order passed against the statutory provisions. https://hcservices.ecourts.gov.in/hcservices/

12. The decisions relied on by the counsel for therespondent in KOKSINGH VS. SMT.DEOKABAI reported in AIR 1976 SC634 and P.PURUSHOTTAM REDDY VS. M/S.PRATAP STEELS LTD., reportedin AIR 2002 SC 771 are not applicable to the facts of the caseon hand in as much those two decisions were rendered explainingthe scope of Order 41 Rule 33 prior to amendment and Order 41Rules 23, 23-A and 25 of Civil Procedure Code respectively. InKoksingh's case, the precise dispute was whether the appellateCourt could grant a decree, which was not granted by the trialCourt in the absence of an appeal. In that case the trial Courtdid not grant decree for charge over the property for which therespondent filed the suit, but granted personal money decree. Onappeal by the appellant against that money decree, the HighCourt granted a decree for charge over the property. When thiswas disputed, the Apex Court ruled as follows:"6. In Giani Ram v. Ramii Lal., (1969) 3SCR 944= AIR 1969 SC 1144) the Court said that in O. 41 R.33,the expression "which ought to have been passed" means"what ought in law to have been passed"and if anappellate Court is of the view that any decree whichought in law to have been passed was in fact not passedby the Court below, it may pass or make such further orother decree or order as the justice of the case mayrequire.7. Therefore, we hold that even if therespondent did not file any appeal from the decree ofthe trial Court, that was no bar to the High Courtpassing a decree in favour of the respondent for theenforcement of the charge." Likewise in Pursuhottam Reddy case, the decree wasgranted by the trial Court in a specific performance suit. Onappeal, the High Court, having found that no plea was taken thatthe suit for specific performance was not maintainable for non-compliance with Forms 47 and 48 of the Appendix A to the CivilProcedure Code, and having found that there was no specificissue framed by the trial Court that whether the plaintiff wasready and willing to perform his part of the contract, set asidethe decree granted by the trial Court and remitted back for re-consideration. After referring to the Order 41 prior to andsubsequent to 1976 Amendment, it was observed by the SupremeCourt that in view of the express provision of Order 41 Rule23-A, the High Court cannot have recourse to its inherent powerto make a remand as the inherent power can be availed of exdebito justicia only in the absence of express provision in theCode. It is only in exceptional cases, where the Court may nowexercise the power of remand de hors the Rules 23 and 23-A. Towit, the Superior Court, if finds the judgment under appeal hasnot disposed of the case satisfactorily in the manner requiredby Order 20 Rule 3 or Order 41 Rule 31 of the Civil ProcedureCode and hence it is no judgment in the eye of law and it may https://hcservices.ecourts.gov.in/hcservices/ set aside the same and send the matter back for re-writing thejudgment so as to protect the valuable right of the parties. AnAppellate Court should be circumspect in ordering a remand whenthe case is not covered either by Rule 23 or Rule 23A or Rule 25of the Civil Procedure Code. An unwarranted order of remandgives the litigation an undeserved lease of life and thereforemust be avoided.13. As already stated, the Company Law is a Special Lawand it provides certain inbuilt mandatory safeguards to befollowed by the Company Court while passing orders and windingup as envisaged in the Company Court Rules. As already stated,the impugned order is an order against the statute and nojudgment in the eye of law, the judgments referred to abovecannot be made applicable to the facts of the present case.Hence, the respondent cannot improve the case under the cover ofthese judgments.14. For the foregoing reasons, the order impugned in thisappeal is set aside the the matter is remitted to the CompanyCourt to pass orders on the petition in accordance with thestatutory provisions. 16. The appeal stands disposed of in the above terms.However, there will be no order as to costs. The application inM.P.No.2 of 2009 is an taken out seeking for permission from theCourt to permit the applicant Company to transfer the propertiesin favour of the purchasers in terms of the memorandum ofunderstanding dated 16.3.2009. In as much as the order passed bythe Company Court is set aside and the matter is remitted backto the Company Court, we are not entertaining this applicationand the application is dismissed. The connected M.P.NO.1 OF2009 is closed.uskSd/Asst.Registrar/true copy/Sub Asst.RegistrarToThe Sub Assistant Registrar,Original Side,High Court, Madras.+ 1 cc to Mr. T. K. Bhaskar, Advocate, SR No.30107+ 1 cc to Mr. P.L. Narayanan, Advocate, SR No.30775BV(CO)SR/15.7.2009 O.S.A.No.89 of 2009