Citation Codes

Equivalent Citations

citation codes

Case Number

Special Appeal No. 3 of 1982

Judges

K.N Singh
B.D Agrawal, JJ.

Acts

provisions of Part III of the Companies (Court) Rules, 1959,
section 439(1) of the Companies Act, 1956,
Rules 96 and 99 provide:96. Admission
rules otherwise provide. Rule 99
rule 24 of these Rules.
rule 12 of the Rules
sub-rule (2) of rule
48.5. Rules 24

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Smart Summary

Structured Summary of the Opinion (B.D. Agrawal, J.)

Factual and Procedural Background

The respondent creditor presented a petition against the appellant (a company) on May 21, 1982 under section 439(1) of the Companies Act, 1956 seeking winding up. The learned company judge directed that notice be issued. In compliance, notices were issued to the company and to the directors for a hearing listed on August 16, 1982 by registered cover. The court office reported that acknowledgments had not returned and notices were not returned undelivered. On August 16, 1982 the learned company judge passed an order which, among other things, recorded that service was "held sufficient on the respondent company" and directed that the petition be advertised in the Hindustan Times and Nav Bharat Times (both New Delhi publications), that three advertisements be made within a month, and that an affidavit along with the newspapers be filed within six weeks, with the case to be listed immediately after that period.

The petition was advertised in the Hindustan Times and Nav Bharat Times on September 8, 1982. The appellants' counsel who had entered appearance on August 17, 1982, applied on September 9, 1912 for a stay of the August 16, 1982 order (as recorded in the opinion). That application was rejected on September 13, 1982 as infructuous because the advertisement had already been published.

The appellant's counsel (Sri Bharatji Agrawal) contended that advertisement could not issue without affording the appellant an opportunity to oppose it, that notices under the May 21 order were not served upon all directors, and that the advertisement was defective because it was not made in the Official Gazette. The respondent's counsel (Sri Sudhir Chandra) countered these contentions.

Legal Issues Presented

Whether the learned company judge could direct advertisement of the winding-up petition when notice had been issued to the company and some directors but no acknowledgments had been received, i.e., whether Rule 96 of the Companies (Court) Rules, 1959 had been complied with.
Whether the learned company judge could dispense with publication of the advertisement in the Official Gazette under rule 24(1) read with rule 99 of the Companies (Court) Rules, 1959.
Whether failure to serve every director (as opposed to the company) invalidated the direction for advertisement or constituted procedural deficiency.
Whether the advertisement process in the circumstances amounted to harassment or abuse of process where the petition might be a pressure tactic to recover a disputed debt.

Arguments of the Parties

Appellant's Arguments

Advertisement could not be issued without first affording the appellant opportunity to oppose the direction for advertisement.
Notices issued under the May 21, 1982 order were not served upon all directors of the appellant company; therefore the direction for advertisement was premature or invalid.
The advertisement was defective because it was not published in the Official Gazette as required by rule 24(1).
The notice issued for August 16, 1982 was for the hearing of the petition and not for objections to the direction for advertisement, so it did not fulfill the requirement of rule 96.
The winding-up petition could be an improper device to enforce payment of a debt genuinely in dispute (an abuse of process), citing several authorities on that principle.

Respondent's Arguments

The learned judge did not direct advertisement immediately on presentation; notice had been issued earlier pursuant to the May 21, 1982 order and the direction for advertisement was given only on August 16, 1982, so rule 96 was observed.
Rule 96 requires notice to the "company" (a distinct legal entity); service on the company (through the managing director) satisfied the requirement and notices to individual directors were not strictly required before advertisement directions could be given.
The judge had power to direct advertisement in the particular newspapers named and to dispense with publication in the Official Gazette under the saving in rule 24 and the express qualification in rule 99 ("subject to any directions of the court").
No satisfactory reason was shown why the appellant, having appeared on August 17, 1982, did not object earlier to the issue of advertisement.

Table of Precedents Cited

Precedent	Rule or Principle Cited For	Application by the Court
National Conduits (P.) Ltd. v. S.S. Arora, [1967] 37 Comp Cas 786 : AIR 1968 SC 279	The alternatives open to a High Court on a winding-up petition (i) issue notice to company to show cause; (ii) admit petition and fix hearing date and issue notice before giving directions about advertisement; (iii) admit petition, fix hearing date and order advertisement and service on persons specified. Also: court need not advertise immediately on admission; immediate advertisement may cause harassment.	The court relied on this authority to identify the permissible courses and held that the learned company judge followed an alternative consistent with (ii) — notice had been ordered before advertisement, and the judge's direction for advertisement on August 16, 1982 did not contravene the principles stated in National Conduits.
Extrusion Processes Private Ltd. v. Jivabhai Marghabhai Patel, [1966] 36 Comp Cas 60 (Bom)	That on a plain reading of rule 96 there is no right in a company to be issued a notice before a petition is admitted nor before the court fixed the date for hearing.	The court cited this decision to support that the judge's course (admitting the petition and fixing hearing and issuing notice in the manner done) was within the scope of rule 96 and did not create an absolute pre-admission right to be served in a particular form.
Amalgamated
Amalgamated Commercial Traders (P.) Ltd. v. A.C.K. Krishnaswamy, [1965] 35 Comp Cas 456 (SC)	Principle that a winding-up petition is not a legitimate means of enforcing payment of a debt which is bona fide disputed by a company; such use may constitute abuse of process and justify dismissal.	The court noted the principle but observed that it did not have direct bearing on the narrow scope of the present appeal; the appellant remained free to raise merits and objections to the petition itself in appropriate proceedings.
Mohd. Amin Bros. Ltd. v. Dominion of India, AIR 1952 Cal 323	Cited in support of the proposition that a winding-up petition may amount to abuse of process where used to enforce disputed debt.	The court recorded the citation as part of authorities on the abuse-of-process principle but did not treat it as determinative for the present procedural challenge to the advertisement order.
Bengal Luxmi Cotton Mills Ltd. v. Mahaluxmi Cotton Mills Ltd., AIR 1955 Cal 273	Cited for the same general principle regarding abuse of process in winding-up petitions used to press disputed claims.	The court acknowledged the authority but held that this principle did not decide the procedural issues under appeal; the appellant could still contest the petition on merits.

Court's Reasoning and Analysis

The court began by identifying and quoting the relevant rules: Part III rules 96 and 99 (winding up petitions) and Part I rules 24 and 26 (general provisions on advertisement and service). It explained the alternatives described by the Supreme Court in National Conduits (P.) Ltd. for how a High Court may handle a winding-up petition, and stressed that the court need not advertise immediately upon admission because immediate advertisement can cause serious loss and harassment to the company.

Applying those principles to the present facts, the court observed that notice had been ordered on May 21, 1982 and that the direction for advertisement was made only on August 16, 1982. On that basis the court concluded that the learned company judge did not advertise "straightway" upon presentation of the petition and thus complied with the procedure contemplated by rule 96 and the alternative (ii) laid down in National Conduits.

The court addressed the appellant's contention that service on individual directors was required before advertisement. It held that rule 96 requires notice to the "company" (a separate legal entity) and that rule 26 (general service provision) does not override the specific requirement to serve the company. Therefore notices to individual directors were not strictly required as a precondition to ordering advertisement. The court further noted that the notice to the company had been served through the managing director and that, as later reported by the office, notices were in fact returned showing service on nine out of thirteen directors, thus undermining the attack on sufficiency of service.

On the form and content of the notice, the court held there is no prescribed pro forma for notice under rule 96. The essential requirement is that the company be apprised of the fact that a winding-up petition has been filed (the notice was accompanied by a copy of the petition), giving the company information sufficient to make enquiries — a meaning supported by a dictionary definition quoted in the opinion.

Regarding the requirement of publication in the Official Gazette under rule 24(1), the court emphasised that rule 24 contains a general requirement "unless the judge otherwise orders" and that rule 99 specifically subjects the manner of advertisement to "any directions of the court." On that basis the court concluded the learned company judge had the power to direct advertisement in specific newspapers and to dispense with publication in the Gazette in the particular circumstances of this case.

Finally, the court considered the broader principle that a winding-up petition may not be used to enforce a disputed debt (abuse of process). The court acknowledged the authority cited on that point but found that the contention did not bear on the procedural issue before it. It noted that the appellant had entered appearance on August 17, 1982 (one day after the impugned order) and that advertisement occurred later; the court saw no satisfactory reason why objection to advertisement was not made at the earlier opportunity.

Holding and Implications

Holding: The appeal is dismissed. The court ordered the appellant to pay costs to the respondent in the sum of Rs. 300 and vacated the interim order dated September 28, 1982.

Implications:

The direction for advertisement made by the learned company judge on August 16, 1982 was upheld as procedurally valid under the Companies (Court) Rules, 1959, given the facts recited in the opinion.
The court found no requirement that every individual director must have been served before a direction for advertisement could be lawfully given where service on the company (through the managing director) was effected.
The learned company judge was within power to specify advertisement in particular newspapers and to dispense with publication in the Official Gazette under the qualifications in rule 24 and rule 99.
No determination was made on the substantive merits of the winding-up petition; the appellant remains at liberty to raise appropriate pleas on merits in opposition to the petition.
The opinion does not purport to create a new precedent beyond applying existing authorities and rules to the facts of this case; the decision's immediate effect is the dismissal of the appeal and the validation of the advertisement process in these proceedings.

Costs and procedural decrees are recorded as stated in the opinion: appeal dismissed with costs of Rs. 300; interim order of September 28, 1982 vacated.

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U.P Twiga Fiberglass Ltd. v. Parekh Marketing P. Ltd.

B.D Agrawal, J.:— This appeal is directed against the order of the learned company judge dated August 16, 1982, in Company Petition No. 7 of 1982.

2. The petition giving rise to the appeal was presented by the respondent creditor against the appellant on May 21, 1982, under section 439(1) of the Companies Act, 1956, for the winding up of the company. Learned company judge directed notice to issue. In compliance with the order dated May 21, 1982, notice was issued to the company and also to the directors for August 16, 1982, under registered cover. The office reported that acknowledgments had not returned nor were the notices received back undelivered. Learned company judge thereupon passed the impugned order on August 16, 1982, which reads:

“Service held sufficient on the respondent company under Chapter VIII, rule 12 of the Rules of the Court.

The petition for winding up shall be advertised in the newspaper, Hindustan Times, published from New Delhi and Nav Bharat Times, also published from New Delhi, which is in Hindi. The petitioner shall get three advertisements made within a month. An affidavit along with the newspapers may be filed by the petitioner within a period of six weeks from today. List the case immediately after the expiry of six weeks.”

3. The petition was accordingly advertised in the Hindustan Times and Nav Bharat Times, Delhi, on September 8, 1982. The appellants' counsel who had put in appearance on August 17, 1982, applied on September 9, 1912, for the stay of the operation of the order dated August 16, 1982. Since the advertisement had come out already, this application was rejected on September 13, 1982, being infructuous. Sri Bharatji Agrawal, learned counsel for the appellant, contends that advertisement could not issue without affording opportunity to the appellant to oppose the same. It is urged also that notice issued under order dated May 21, 1982, was not served upon all the directors of the appellant company and that the advertisement is defective since it was not made in the Official Gazette. All these contentions were countered by the respondent's learned counsel, Sri Sudhir Chandra.

4. A reference may at the outset be made to relevant provisions of Part III of the Companies (Court) Rules, 1959, which relates to “winding up” petitions. Rules 96 and 99 provide:

“96. Admission of petition and directions as to advertisement.—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 advertisements 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.”

“99. Advertisement of petition.—Subject to any directions of the court, the petition shall be advertised within the time and in the manner provided by rule 24 of these Rules. The advertisement shall be in Form No. 48.”

5. Rules 24 and 26, which appear in Part-I (General) of these Rules, read as under:

“24. Advertisement of petition.—(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 language circulating in the State or the Union Territory concerned, as may be fixed by the judge.”

“26. Service of petition.—Every petition shall be served on the respondent, if any, named in the petition and on such other persons as the Act or these Rules may require or as the judge or the Registrar may direct. Unless otherwise ordered, a copy of the petition shall be served along with the notice of the petition.”

In National Conduits (P) Ltd. v. S.S Arora, [1967] 37 Comp Cas 786 : AIR 1968 SC 279, the Supreme Court considered the alternatives open to the High Court when a petition is filed before it for winding up of a company under the order of the court and specified them as under (at page 788 of 37 Comp Cas):

“(i) the High Court 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.”

6. In the case of a petition to wind up a company, the judge may not dispense with advertisement required by the Rules. This is clear from sub-rule (2) of rule 24. The appellant's learned counsel urged that the learned company judge could not give directions for advertisement without considering whether notice had to be given first to the company in this behalf. Stress was laid by him in this connection upon the observation of the Supreme Court in the case of National Conduits (P.) Ltd., [1967] 37 Comp Cas 786 (SC) : AIR 1968 SC 279 (at pages 788, 789 of 37 Comp Cas):

“But that is not to say that as soon as the petition is admitted, it must be advertised…. 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 rule 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 advertised, the business of the company is bound to suffer serious loss and injury.”

7. In the present case, submits the respondents' learned counsel, that the learned judge did not direct advertisement of the petition for winding up of the company straightway on its presentation. Care was taken to issue notice before directing advertisement. The direction for advertisement was made on August 16, 1982; this was subsequent to the order given on May 21, 1982 (when the petition was filed), to issue notice. It cannot, therefore, be said legitimately, in the instant case that rule 96 was not observed in National Conduits (P.) Ltd.'s case, [1967] 37 Comp Cas 786 (SC) : AIR 1968 SC 279. Before the advertisement could be made, the appellant company had filed its reply controverting the allegations made by the respondent. The learned company judge had directed that the petition be not advertised and be dismissed. In appeal against this order, the Delhi High Court took the view that once the petition is admitted to the file, the court is bound forthwith to advertise the petition. The company challenged that order before the Supreme Court and the observations quoted above were made by the Supreme Court in setting aside that order. No such contingency arose in the present case since notice was in fact issued and no objections were filed before the petition was advertised.

8. Learned counsel for the appellant then submitted that in the order dated August 16, 1982, the learned judge recorded satisfaction that service of notice was sufficient on the “company”; but notices had been issued to the directors also and since it was not observed that the directors too had been served, the direction for advertisement could not be given. The submission is devoid of force in our opininion. Rule 96 envisages notice to be given to the “company” which undisputedly is a legal entity distinct from the directors. Rule 26 referred to by the learned counsel is general; that does not control the requirement of rule 96 to serve “the company”. The notices issued to the directors under the order dated May 21, 1982, were, in other words, not strictly required to go before the direction for advertisement of the petition could be passed. The notice issued to the company was served through the managing director; indeed, as the office reported later on September 13, 1982, upon return of notices, notice was actually served upon nine out of thirteen directors as well. No invalidity, therefore, arises on this account.

9. Sri Bharatji Agarwal next invited the attention of this court to the contents of the notice issued for August 16, 1982, and argued that this was for hearing of the petition and not for objections, if any, to the direction being given for advertisement of the petition and hence this does not fulfil the requirement of rule 96. The argument is untenable. The notice to the company under rule 96 is not required to issue in any prescribed pro forma. The company has only to be apprised of the fact that a petition for winding up has been filed (The notice was, of course, accompanied with a copy of the petition). In the context, notice would mean only “information” or knowledge of facts which would naturally lead an honest and prudent person to make enquiry (Black's Law Dictionary, 5th edition, 1979, page 957). The course adopted by the learned company judge in the instant case is covered squarely under the alternative (ii) enunciated by the Supreme Court in National Conduits (P) Ltd.'s case, [1967] 37 Comp Cas 786 (SC) : AIR 1968 SC 279, wherein the judge may admit the petition, fix the date of hearing of the petition and order that the petition be served upon persons specified in the order. In Extrusion Processes Private Ltd. v. Jivabhai Marghabhai Patel*, [1966] 36 Comp Cas 60 (Bom), the Bombay High Court took the view that on a plain reading of rule 96, there is no right in a company to be issued a notice before a petition is admitted nor before the court fixed the date for hearing.

10. The appellant's learned counsel urged that the advertisement of the petition made in the Hindustan Times and the Nav Bharat Times on September 8, 1982, does not satisfy rule 24(1) since the petition had also to be advertised in the Gazette on the date on which advertisement in the news papers was made. This overlooks that the provision contained in rule 24(1) is general with a specific rider, namely, “unless the judge otherwise orders, or those rules otherwise provide”. Rule 99 which specifically deals with advertisement of petition for winding up lays down expressly that the manner provided for advertisement in rule 24 is “subject to any direction of the court”. This leaves no room for doubt, in our view, that the learned company judge could give specific directions with respect to advertisement, as he did under the impugned order, and dispense with publication in the Gazette. Lastly, the appellants' learned counsel referred to the principle that a winding-up petition is not a legitimate means of seeking to enforce payment of a debt which is bona fide disputed by a company and where a petition presented ostensibly for a winding-up order is really to exercise pressure, the same is liable to dismissal since that involves abuse of the process of the court. In support of this, the learned counsel cited Amalgamated Commercial Traders (P.) Ltd. v. A.C.K Krishnaswamy, [1965] 35 Comp Cas 456 (SC); Mohd. Amin Bros Ltd. v. Dominion of India, AIR 1952 Cal 323; Bengal Luxmi Cotton Mills Ltd. v. Mahaluxmi Cotton Mills Ltd., AIR 1955 Cal 273. It does not appear, however, that this has a bearing in so far as the scope of this appeal is concerned. The appellant is not precluded from raising appropriate pleas on merits in opposition to the winding-up petition. Suffice it to say, that appearance for the appellant company was put in this case on August 17, 1982, through counsel. This was just a day after the impugned order was passed. The advertisement of the petition took place long afterwards. If the appellant company was genuinely interested in preventing advertisement of the petition lest this causes loss or injury and not so much in delaying the proceedings, there appears no satisfactory ground why objection against the issue of advertisement should not have been made at the earlier opportunity on the 17th aforesaid or immediately thereafter.

11. The appeal, in our opinion, is devoid of force and is dismissed with costs to the respondent which we assess at Rs. 300 only. The interim order dated September 28, 1982, is vacated.

U.P Twiga Fiberglass Ltd. v. Parekh Marketing P. Ltd.

Structured Summary of the Opinion (B.D. Agrawal, J.)

Factual and Procedural Background

Legal Issues Presented

Arguments of the Parties

Appellant's Arguments

Respondent's Arguments

Table of Precedents Cited

Court's Reasoning and Analysis

Holding and Implications

U.P Twiga Fiberglass Ltd. v. Parekh Marketing P. Ltd.

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