Citation Codes

Equivalent Citations

citation codes

Case Number

Company Application No. 4158 of 1989

Judges

Y.K Sabharwal, J.

Acts

rule 6 of the Companies (Court) Rules, 1959, read with Order 6, rule 17 and section 151, Civil Procedure Code,
rule 6 of the Companies (Court) Rules and section 643 of the Companies Act
Order 6, rule 17, read with section 151, Civil Procedure Code,
XXXIX, section 151 of the Code of Civil Procedure
ORDER 19 RULE 3 CIVIL PROCEDURE CODE
section 69 of the Indian Partnership Act.4.
provisions of the Indian Partnership Act;
section 69 of the Indian Partnership Act
sub-section (3) of section 69
provisions of section 69(3)
COMPANIES ACT 1956

See more information ...

Smart Summary

Judgment Summary — Y.K. Sabhahwal, J.

Factual and Procedural Background

Kalra Iron Stores filed a winding-up petition (C.P. No. 138 of 1988) against Faridabad Fabricators (P.) Ltd., alleging the company was unable to pay debts due to the petitioner. Paragraph 2 of the petition omitted to state the constitution of the petitioner concern (i.e., whether it was a sole proprietorship or partnership). The petition was supported by an affidavit sworn by Gajindra Kalra, who described himself as a partner and stated the facts were true to the best of his knowledge derived from the record of the case.

The company was served with notice and, in its reply affidavit, raised preliminary objections: (1) the petition did not state the constitution of the petitioner firm as required; and (2) the affidavit's verification language was defective (stating facts were "true to the best of my knowledge" and not specifying records). The petitioner applied under Order 6, rule 17 read with section 151 CPC to amend the petition (substituting paragraph 2 with proposed paragraphs declaring the firm to be a registered firm under the Indian Partnership Act and that Gajindra Kalra was a partner whose name appeared in Form "A").

The company opposed the amendment application on two principal grounds: (a) the petition was defective for want of proper verification and thus not maintainable; and (b) non-compliance with section 69 of the Indian Partnership Act.

The Court heard the parties and reserved its decision. It ultimately allowed the amendment upon payment of Rs. 500 as costs, directed timelines for filing the amended petition and subsequent pleadings, disposed of C.A. No. 4158 of 1989 in the terms recorded, and listed the matter for further proceedings on January 30, 1991.

Legal Issues Presented

Whether the petitioner may be permitted to amend a winding-up petition under the Companies (Court) Rules and the Civil Procedure Code (Order 6, rule 17 and section 151), particularly where paragraph(s) omitted the constitution of the petitioner firm.
Whether a purportedly defective verification (affidavit stating facts are "true to the best of my knowledge" and not specifying records) renders the winding-up petition non-maintainable and bars amendment.
Whether section 69 of the Indian Partnership Act (which restricts unregistered firms from suing to enforce contractual rights) applies to winding-up proceedings under the Companies Act, thereby preventing an unregistered firm from instituting such proceedings or requiring specific averments in the petition.

Arguments of the Parties

Petitioner (Kalra Iron Stores)

Filed an application under Order 6, rule 17 read with section 151 CPC to amend paragraph 2 to state that the petitioner is a registered firm under the Indian Partnership Act and that Gajindra Kalra is a registered partner (name appears in Form "A").
Affidavit by Gajindra Kalra avers he is a partner and is competent to swear the affidavit; the affidavit states facts are true to the best of his knowledge derived from the record of the case.
Characterized the proposed amendment as clarificatory, not introducing any new cause of action or fresh claim.

Respondent (Faridabad Fabricators (P.) Ltd.) — summarized from Mr. Khanna's submissions

Contended that the petition is defective because the supporting affidavit's verification is improper: it uses the phrase "true to the best of my knowledge" rather than "true to my knowledge" (or appropriate formulation under Order 19, rule 3 CPC), and it fails to specify the record from which the deponent's knowledge is derived.
Argued that section 69 of the Indian Partnership Act applies and that the petitioner must be a registered firm (and the deponent a registered partner) to maintain proceedings to enforce rights; therefore, non-compliance with section 69 is fatal to the petition or to the proposed amendment.
Relied on authorities including Gaya Textiles v. Star Textile Engineering Works Ltd. and State of Bombay v. Purushottam Jog Naik to support the contention that defects in verification and registration requirements may preclude amendment or maintenance of such petitions.

Table of Precedents Cited

Precedent	Rule or Principle Cited For	Application by the Court
Bhagat Industrial Corporation Ltd. v. Ego Metal Works P. Ltd., [1977] 47 Comp Cas 201 (Delhi)	Support for the proposition that rule 6 of the Companies (Court) Rules is wide enough to permit amendment of a winding-up petition where circumstances warrant.	The Court relied on this decision to confirm its jurisdiction under rule 6 (Companies (Court) Rules) read with Order 6, rule 17 and section 151 CPC to allow amendments to a winding-up petition so long as amendments are not mala fide or do not introduce a new cause of action.
Inder Kumar Jain v. Osra Bottling Co. (P.) Ltd., [1977] 47 Comp Cas 194 (Delhi)	Decision cited with approval in the context of amendment jurisdiction in winding-up proceedings.	The Court noted that this decision was cited with approval in Bhagat and treated it as supportive authority for allowing amendments in winding-up petitions where appropriate.
Bastar Transport and Trading Co. v. Court of Wards, Bastar, [1955] 25 Comp Cas 108 (Nagpur High Court)	Earlier authority referenced in the context of amendment power in winding-up petitions.	Referred to as one of the authorities noticed in support of the proposition that a court can order amendment of a winding-up petition under its rules.
Gaya Textiles Pvt. Ltd. v. Star Textile Engineering Works Ltd., AIR 1968 Cal 388	Authority relied upon by respondent to argue that defects in verification of a winding-up petition cannot be rectified by re-verification and may require dismissal.	The Court recorded that it had reservations about the conclusions in this Calcutta High Court decision and considered it unnecessary to follow that view for the reasons given in the judgment.
State of Bombay v. Purushottam Jog Naik, AIR 1952 SC 317	Supreme Court decision criticizing verifications framed as "true to the best of the information and belief" and directing that verification should generally follow the model of Order 19, rule 3 CPC.	The Court considered this authority but found it inapplicable on the facts: although "true to the best of knowledge" is less than "true to knowledge," the defect was not fatal in the circumstances and did not justify dismissal or denial of amendment.
Sunder Industries v. General Engineering Works, New Delhi, AIR 1982 Delhi 220	Authority cited by respondent regarding verification defects (relied upon but not accepted).	The Court stated reliance upon this decision (and D.N. Gupta) was misconceived in the present context and did not find substance in that reliance.
D.N. Gupta v. Jaswant Singh, AIR 1982 Delhi 250	Another decision cited alongside Sunder Industries on verification/form issues.	The Court indicated that reliance on this decision was misconceived for the facts and issues in the present case.
Kottamasu Sreemannarayanamurthy v. Chakka Arjanadu, AIR 1939 Mad 145	Division Bench holding that a petition for adjudication of a debtor as insolvent is not a proceeding to enforce a right arising from a contract; the creditor's right to insolvency administration is statutory.	The Court relied on this decision to support its view that winding-up/insolvency proceedings are statutory and not enforcement of contractual rights; thus section 69 (Indian Partnership Act) is not applicable to winding-up proceedings.
Sheikh Mohammad Ibrahim and Sons v. Behari Lal Beni Pershad, AIR 1938 Lahore 96	Authority indicating that absence of an averment about a firm's registration in a plaint does not necessarily result in rejection; registration may be proved if disputed.	The Court cited this decision to support the proposition that section 69 does not require express averment of registration in the pleading and that absence of such averment is not fatal to the petition.
Jagdish Chandra Gupta v. Kajaria Traders (India) Ltd., AIR 1964 SC 1882	Supreme Court consideration of the applicability of section 69 of the Indian Partnership Act to arbitration proceedings; held subsections (1) and (2) apply to other proceedings which are effectively for enforcement of contractual rights.	The Court observed this authority but distinguished it: Jagdish Chandra Gupta addressed proceedings that properly could be said to enforce contractual rights (e.g., arbitration), whereas winding-up proceedings are not proceedings for enforcement of contractual rights; therefore the case did not make section 69 applicable to winding up.

Court's Reasoning and Analysis

The Court's analysis proceeded in distinct steps, grounded in the statutory and procedural framework and guided by the authorities cited:

Jurisdiction to Amend: The Court began by recognizing its jurisdiction to allow amendment of a winding-up petition under rule 6 of the Companies (Court) Rules, 1959 read with Order 6, rule 17 and section 151 CPC, provided the amendment is not mala fide and does not introduce a fresh cause of action. It relied on Bhagat Industrial Corporation Ltd. v. Ego Metal Works P. Ltd. and related authorities to affirm this jurisdiction.
Verification Objection: Addressing the objection to verification, the Court accepted that "true to the best of my knowledge" is a formulation inferior to "true to my knowledge" (and distinct from formulations criticized in State of Bombay v. Purushottam Jog Naik). However, the Court held that the absence of an ideal or strictly correct verification need not necessarily lead to dismissal of the petition or denial of amendment. The Court further held that the failure to specify the precise records from which knowledge was derived was not necessarily fatal where no prejudice to the opponent was shown; in the present case, the reference to "record of the case" was taken to mean records relating to dealings with the company.
Applicability of Section 69 (Indian Partnership Act): The Court examined section 69 and concluded that it prohibits an unregistered firm from filing a suit to enforce a right arising from a contract or conferred by the Act, and requires that the person suing be a registered partner where the suit seeks to enforce such contractual rights. The Court found that winding-up proceedings are not "suits" to enforce contractual rights but statutory proceedings to determine commercial (in)solvency and to administer company assets. Consequently, section 69 does not apply to winding-up proceedings. The Court reinforced this position by reference to the Madras decision in Kottamasu Sreemannarayanamurthy v. Chakka Arjanadu, which held that insolvency petitions are statutory and not proceedings to enforce contractual rights.
Consideration of Sub-section (3) of Section 69 and Jagdish Chandra Gupta: The Court considered the submission that sub-section (3) brings "other proceedings" within the ambit of section 69 and considered Jagdish Chandra Gupta (which related to arbitration) but concluded that those authorities apply only where the "other proceedings" are for enforcement of rights arising from contract. Since winding up is not such a proceeding, those authorities did not make section 69 applicable here.
Nature of the Amendment: The Court characterized the amendment sought as clarificatory: it only declared the constitution of the petitioner firm and did not introduce a new claim or cause of action. The Court emphasized a liberal approach to amendments so as to promote substantial justice rather than adopting a narrow, hyper-technical approach.

Holding and Implications

Holding: The application to amend the winding-up petition was allowed. The amendment was permitted on payment of Rs. 500 as costs; the amended petition was to be filed and costs paid within two weeks, the respondent's reply within three weeks thereafter, and rejoinder within two weeks after that. C.A. No. 4158 of 1989 was disposed of in these terms.

Implications:

The direct effect is that the petitioner may amend the petition to state the firm's constitution and that Gajindra Kalra is a partner, subject to the payment of costs and the timelines ordered by the Court.
The Court rejected the respondent's contention that defective verification or section 69 of the Indian Partnership Act necessarily barred the amendment or the proceeding; instead it took a pragmatic approach, holding such defects are not automatically fatal where the amendment is clarificatory and no prejudice is shown.
The opinion did not purport to set out a novel binding precedent beyond applying and distinguishing existing authorities; its outcome is case-specific and directly affects the parties' procedural positions in this matter.

Case references, statutory provisions, and the Court's schedule for further pleadings are taken verbatim or paraphrased from the provided opinion.

Show full summary ...

Kalra Iron Stores v. Faridabad Fabricators (P.) Ltd. (No. 1)

Y.K Sabhahwal, J.:— The winding-up petition (C.P No. 138 of 1988) has been filed by Kalra Iron Stores seeking an order of winding up of the respondent, Faridabad Fabricators (P.) Ltd. (for short, “the company”) on the ground of the inability of the company to pay the debts due to the petitioner. Para 2 of the winding up petition reads:

“That the petitioner is an iron and steel merchant having his registered office at 19/7, Mathura Road, Opp. Escorts Plant-II, N.I.T Faridabad, and is engaged in business of supplying all kinds of rods, angles, flats, etc.

The constitution of the petitioner-firm has not been stated in the winding up petition. It has not been stated whether the petitioner is a sole proprietorship firm or a partnership firm. The petition is supported by an affidavit of Gajindra Kalra. The portion of the affidavit relevant for the present purpose reads thus:

“That I am the partner of the firm and as such fully competent to swear this affidavit. I am well conversant with the facts and circumstances of the case.

That I have read the accompanying application for winding up petition under the Companies Act, 1956, under sections 433 and 439, for appointment of provisional liquidator under XXXIX, section 151 of the Code of Civil Procedure and application for restraining/alienating assets under section 450 and have understood the contents thereof and I state that the facts stated therein are true to the best of-my knowledge derived from the record of the case”.

2. Notice was issued to the company to show cause why the petition be not admitted. In the reply affidavit filed by the company a preliminary objection has been taken that the petitioner has not stated the constitution of the petitioner concern and that it is obligatory for the petitioner to state the nature and constitution of the petitioner. An objection has also been raised in the preliminary objections to the nature of affidavit. The company has pleaded that an affidavit to the effect that “the contents are true to the best of my krfowledge” is not an acceptable affidavit and is liable to be rejected and moreover particulars of the record have not been disclosed. The petitioner has filed this application under Order 6, rule 17, read with section 151, Civil Procedure Code, seeking amendment of the petition with a view to substitute the existing paragraph 2 of the petition by the proposed paragraphs 2, 2(a) and 2(b). In substance by an amendment the petitioner seeks leave of court to state in the petition that it is a registered firm under the provisions of the Indian Partnership Act; the name of the firm has been entered in the Register of Firms and the name of Gajindra Kalra appears in Form “A” and he is one of the partners of the firm and continues as a partner of the firm.

3. The application is vehemently opposed by the company. The grounds of objection are two: (1) that the petition as laid was defective as there was no proper affidavit in support thereof because of defect in verification, and (2) for non-compliance with section 69 of the Indian Partnership Act.

4. There can be no doubt that this court in exercise of the power under rule 6 of the Companies (Court) Rules, 1959, read with Order 6, rule 17 and section 151, Civil Procedure Code, has jurisdiction to allow amendment so long as the amendment is not mala fide or it does not introduce a fresh or a new cause of action. Justice S. Rangarajan in Ego Metal Works P. Ltd., In re: Bhagat Industrial Corporation Ltd. v. Ego Metal Works P. Ltd., [1977] 47 Comp Cas 201 (Delhi) rejected the contention that the winding up petition could not be allowed to be amended at all. After noticing rule 6 of the Companies (Court) Rules and section 643 of the Companies Act the learned judge held that rule 6 is wide enough to enable a court to order amendment even of a winding up petition if the circumstances of the case warrant the same. The decision of T.P.S Chawla J. in Inder Kumar Jain v. Osra Bottling Co. (P.) Ltd., [1977] 47 Comp Cas 194 (Delhi) was cited with approval and also the decision of the Nagpur High Court in Bastar Transport and Trading Co. v. Court of Wards, Bastar, [1955] 25 Comp Cas 108.

5. Mr. Khanna, learned counsel for the company, contends that as a proper affidavit in support of the petition has not been filed, the petition is not maintainable and thus the application for amendment is liable to be dismissed. The objection is that Gajindra Kalra in his affidavit has not stated that the facts in the petition are “true to his knowledge” but has used the words “true to the best of my knowledge”. The other objection is that Kalra has not specified the record from which his knowledge was derived by him. Reliance has been placed by Mr. Khanna on a Single Bench decision of the Calcutta High Court in Gaya Textiles Pvt. Ltd. v. Star Textile Engineering Works Ltd., AIR 1968 Cal 388, in support of the proposition that different considerations apply to defects in verification of a winding up petition. Counsel submits that in respect of defects in verification of plaints the considerations to be applied are different as allegations in the plaint can be acted upon only on proof of the same by evidence or upon admission by the defendant whereas allegations in a winding up petition can be treated by the court as evidence without any further proof and that the winding up order relates back to the presentation of the winding up petition. The Calcutta High Court came to the conclusion that a defect in verification cannot be rectified by granting leave to the petitioner to rectify such a petition for the reason that the winding up order would come into existence on the date of such reverification and this would create a good deal of confusion regarding the assets of the company and rights of third parties the leave to reverify the petition was dedined and the petition was dismissed. With respect to the learned judge of the Calcutta High Court I have my reservations in concurring with the conclusions reached in the said decision but for the view I am taking hereinafter it is not necessary to go deeper into that aspect.

6. In support of the contention that the verification is defective Mr. Khanna relies upon the decision of the Supreme Court in State Of Bombay v. Purushottam Jog Naik, AIR 1952 SC 317. In that case, the Supreme Court did not approve the verification which read, “true to the best of the information and belief” and said that such type of slipshod verifications might well in a given case lead to the rejection of the affidavit. The Supreme Court also said that the verification should invariably be modelled on the lines of Order 19, rule 3 of the Civil Procedure Code whether the Code applies in terms or not. In the present case, Kalra has not said that the facts stated in the petition are to the best of his knowledge and belief. According to Kalra, the facts in the petition are true to the best of his knowledge derived from the records of the case. Where a deponent states that facts are true to knowledge and belief, he has to specify which facts are true to knowledge and which true to belief. On the facts of the present case the cited decision has no applicability. For the same reasons reliance by Mr. Khanna on decisions in Sunder Industries v. General Engineering Works, New Delhi, AIR 1982 Delhi 220, and another decision reported in the same volume in the case of D.N Gupta v. Jaswant Singh, AIR 1982 Delhi 250, is misconceived. Mr. Khanna, however, is right in the submission that “true to the best of knowledge” is something lesser than “true to knowledge”. The ideal and strictly correct verification would be “true to knowledge” and not “true to the best of knowledge”. The lack of an ideal and strictly correct verification need not necessarily result in dismissal of the petition or the application for amendment. That would be too narrow and hyper-technical an approach. Likewise, the verification should specify the record from which knowledge or information, as the case may be, is derived, but once again, the absence of such specification, need not necessarily result in dismissal of the petition particularly when there is no prejudice to the opponent. In the instant case, reference to the record of the case by Kalra is obviously to the record pertaining to the dealings with the company. I do not find any substance in the first objection.

7. Reverting to the second objection, it has to be borne in mind that section 69 of the Indian Partnership Act contains only a prohibition on an unregistered firm filing a suit to enforce a right arising from a contract or conferred by the said Act the firm has to be registered and the person suing has to be a registered partner. The suit to attract section 69 has to be one to enforce a right arising from a contract or a right conferred by the Act. Mr. Khanna has not been able to cite any judgment holding that section 69 would be applicable to winding up proceedings under the Companies Act. In the winding up petition primarily the court, is required to adjudicate whether the respondent is commercially solvent or insolvent and is not to enforce any right arising from a contract The proceedings are not a “suit”. No decree like a suit is passed. The petitioner in this case is only exercising a statutory right under the Companies Act. That right is not arising from a contract between the petitioner and the company. In my view, the provisions of section 69 have no applicability to proceedings under the Companies Act I am fortified in my view by a Division Bench decision of the Madras High Court in Kottamasu Sreemannarayanamurthy v. Chakka Arjanadu, AIR 1939 Mad 145, holding:

“A petition for the adjudication of a debtor as insolvent is not a proceeding to enforce a right arising from a contract The right which the creditor who files the insolvency petition against his debtor is seeking to exercise is the right of a creditor who finds his debtor in insolvent circumstances to have the assets of the debtor administered in insolvency and distributed for the benefit of the creditors as a body. This is a right which is conferred upon the creditors by statute and is not a right arising out of a particular contract of loan between a petitioning creditor and a debtor. The mere fact that the petitioning creditors constitute a firm and the debt is due to the firm in which the petitioners are partners and they cannot file a suit to recover the amount due to them unless the firm is registered, does not deprive the petitioners of their right to file a petition in insolvency.”

8. Mr. Khanna also relies on sub-section (3) of section 69 in support of his contention that the provisions of sub-sections (1) and (2) shall apply to “other proceedings” as well. Reliance is also placed by learned counsel on the decision of the Supreme Court in Jagdish Chandra Gupta v. Kajaria Traders (India) Ltd., AIR 1964 SC 1882. The Supreme Court was considering the applicability of the provisions of section 69 to arbitration proceedings. The Supreme Court opined that sub-sections (1) and (2) will be applicable to claims of set off and also to other proceedings of any kind which can properly be said to be for enforcement of any right arising from contract except those expressly mentioned as exceptions in sub-section (3) and sub-section (4). Thus, for applicability of section 69 other proceedings have to be for enforcement of any right arising from a contract. The provisions of section 69(3) are also very clear. The proceedings of winding up are not for enforcement of a right arising from a contract and as such neither section 69(3) nor the decision relied upon by Mr. Khanna has any applicability.

9. Apart from the above, section 69 does not require the plaintiff to state in the plaint that the plaintiff is a registered firm. In case of dispute the plaintiff has to prove the registration of the firm and that the person suing is a registered partner. The absence of such averment does not result in rejection of the plaint (see Sheikh Mohammad Ibrahim and Sons v. Behari Lal Beni Pershad, AIR 1938 Lahore 96).

10. In my opinion, the amendment sought for is only clarificatory in nature. It only seeks to explain the constitution of the petitioner firm. It does not add any fresh claim. It does not introduce any new cause of action. The court has to adopt a liberal and not a very technical and narrow approach while considering amendment applications. The court is required to do substantial justice between the parties. The rules of procedure are not meant to defeat substantial justice. They are meant to promote the ends of justice. Kalra has said in the affidavit though not in the petition, that he is a partner in the firm. The objections raised by the company are untenable and are also hypertechnical in nature.

11. For the reasons stated above, the applicant is allowed to amend the petition on payment of Rs. 500 as costs. The amended petition be filed and costs paid within two weeks. Reply to the amended petition be filed within three weeks thereafter and rejoinder within two weeks after that. C.A No. 4158 of 1989 is disposed of in the above terms. C.P No. 138 of 1988.

12. List it for further proceedings on January 30, 1991.

Kalra Iron Stores v. Faridabad Fabricators (P.) Ltd. (No. 1)

Judgment Summary — Y.K. Sabhahwal, J.

Factual and Procedural Background

Legal Issues Presented

Arguments of the Parties

Petitioner (Kalra Iron Stores)

Respondent (Faridabad Fabricators (P.) Ltd.) — summarized from Mr. Khanna's submissions

Table of Precedents Cited

Court's Reasoning and Analysis

Holding and Implications

Kalra Iron Stores v. Faridabad Fabricators (P.) Ltd. (No. 1)

Comments