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Rev. C.S Joseph And Others v. T.J Thomas And Others
Factual and Procedural Background
The opinion arises from a miscellaneous first appeal against an order of a learned single judge appointing a receiver to manage the affairs of Kunnamkulam Marthoma Suriyani Christiani Suvisesha Sanghom (the "Sanghom"). The Sanghom is a company incorporated on July 30, 1082 M.E. under the Cochin Regulation (IV of 1080 M.E.), having 19 members, no share capital, and member liability limited to their subscription. Its main objects include propagating Christianity and managing a school. Respondents Nos. 1 to 7 filed a company petition alleging oppression and mismanagement, including that respondents Nos. 2 and 7 collected large donations from school teachers and misappropriated them, and that bamboo clusters were cut and removed from property known as "Sadhusala Parambu" with steps allegedly taken to cause further damage. The respondents contested the petition; one respondent filed a counter-affidavit denying allegations, denying that petitioners were members, and denying that accounts were unaudited. The single judge, after narrating facts, directed that a receiver-administrator be appointed to manage the company's affairs pending disposal of the company petition.
Legal Issues Presented
- Whether an appeal lies to the Division Bench of the High Court against an order passed by a single judge appointing a receiver under section 403 of the Companies Act, 1956, read with section 483 of the Act.
- Whether the impugned order is legally valid when it does not state the reasons for appointing an administrator-cum-receiver.
- Whether, on the facts as placed before the single judge (including the existence of a duly constituted managing body and the petitioners' alleged failure to prove a prima facie case of mismanagement), the appointment of a receiver was justified or required in the exercise of judicial discretion.
Arguments of the Parties
Appellants' Arguments
- The order appointing a receiver is infirm because it does not state the reasons for the appointment.
- A legally constituted body was managing the Sanghom and a takeover of administration should be permitted only under extreme necessity.
- The company petition was not maintainable; therefore the court lacked jurisdiction to pass an interim order under section 403 of the Companies Act, 1956.
- There were no just and equitable grounds to appoint an administrator-cum-receiver.
Respondents' Arguments
- The respondents supported the impugned order of appointment of a receiver.
- It was contended that the appeal against the single judge's order is not maintainable (contention raised before the Division Bench).
Table of Precedents Cited
| Precedent | Rule or Principle Cited For | Application by the Court |
|---|---|---|
| Shankarlal Aggarwala v. Shankarlal Poddar, [1965] 35 Comp Cas 1 (SC); AIR 1965 SC 507 | Distinction between administrative and judicial orders; test whether an order decides rights between parties (a lis) and involves exercise of discretion on objective considerations such that it is judicial. | The court relied on this dictum to conclude that where a matter involves exercise of discretion by a court, the order is judicial and thus can be appealable under section 483. |
| Shah Babulal Khimji v. Jayaben D. Kania, (1981) 4 SCC 8; AIR 1981 SC 1786 | An interlocutory order refusing appointment of a receiver and interim injunction can be a "judgment" within the meaning of Letters Patent when it affects vital rights and contains traits of finality; such orders are appealable to the Division Bench. | The court applied this precedent to hold that an appeal under section 483 of the Companies Act to the Division Bench is maintainable against the single judge's interlocutory order appointing a receiver. |
| State of Kerala v. Krishnankutty, [1985] KLT 201 | Held that procedural and interlocutory orders passed by a single judge in original petitions under article 226 are not within section 5(1) of the High Court Act, 1958 (Kerala) — i.e., such interlocutory/procedural orders are not made appealable by that provision. | The court noted this decision but explained it was not applicable to the present appeal because the present appeal arises under section 483 of the Companies Act (not under section 5(1) of the High Court Act) and the contexts differ. |
| Madhava Naik v. Popular Bank Ltd., Alleppey, [1960] 30 Comp Cas 501 (Ker); [1960] KLT 581 | Considered whether an appeal lies against a single judge's order under section 45H of the Banking Companies Act; held that appeals to a Bench of two judges are competent under section 5 of the Kerala High Court Act when single judge exercises original jurisdiction in liquidation proceedings. | The court cited this decision to support the proposition that an appeal against a single judge's order in company/bank liquidation or related statutory proceedings can be competent to a Division Bench. |
Court's Reasoning and Analysis
The court proceeded in two main analytical stages.
First, the court addressed the threshold question of maintainability of the appeal. It examined the statutory provisions: section 403 of the Companies Act (power to make interim orders to regulate the conduct of a company's affairs on just and equitable terms) and section 483 (right of appeal from any order or decision made "in the matter of the winding-up of a company"). The court explained that where petitions under sections 397 and 398 are pending (as in the present case), an interim order relating to those proceedings can be regarded as an order "in the matter of winding-up" and therefore appealable under section 483. To distinguish administrative from judicial orders the court relied on Shankarlal Aggarwala, concluding that when an order involves exercise of discretion by a court on objective considerations and decides rights between parties, it is judicial and appealable.
The court then considered authority in Shah Babulal Khimji, which held that interlocutory orders concerning appointment/refusal of receivers may qualify as "judgments" for the purpose of Letters Patent appeals if they affect vital rights and possess finality traits; the court applied that reasoning to conclude an appeal under section 483 to the Division Bench is maintainable. The court rejected the respondents' reliance on State of Kerala v. Krishnankutty because that decision concerned a different statutory and constitutional context (article 226 and section 5(1) of the High Court Act) and so did not govern the present appeal under section 483. The court also cited Madhava Naik to show similar past practice in the context of banking-company/winding-up related appeals to support competence of appeal.
Second, on the merits of the challenge to the appointment of a receiver, the court emphasized the high threshold and caution required before appointing a receiver. It noted that the appointment of a receiver can cause irreparable harm if later found unwarranted and therefore is an extraordinary remedy within judicial discretion, not a matter of course. The court quoted authoritative text (Halsbury's Laws of England) to the effect that a strong case must be shown to dispossess a legally interested party and that the court will generally not appoint a receiver where it may cause grave risk of injury to other interested persons. Finding that the impugned order did not state reasons for appointing the receiver, the court concluded the omission was material.
On that basis, rather than adjudicating whether the facts then before the single judge justified appointment, the court set aside the order for want of recorded reasons and remanded the matter to the judge dealing with company matters for fresh consideration of whether appointment of a receiver was necessary in the circumstances.
Holding and Implications
Holding: The Division Bench concluded that the appeal to the Bench was maintainable and, on the merits of the challenged relief, found fault with the impugned order because it did not state the reasons for appointing the receiver. Accordingly, the court set aside the impugned order of appointment of an administrator-cum-receiver and remanded the matter to the judge dealing with company matters for fresh consideration.
Implications:
- The immediate practical consequence is that the order appointing a receiver was vacated and the question whether to appoint a receiver must be reconsidered afresh by the designated company judge with reasons recorded.
- The court emphasized that appointment of a receiver is an exceptional remedy requiring careful judicial exercise of discretion; the opinion does not purport to set any new legal precedent beyond applying and following existing authorities cited in the judgment.
The Judgment of the Court was delivered by
Balakrishnan, J.:— The miscellaneous first appeal has been preferred against an order passed by the learned single judge appointing a receiver to manage the affairs of a company.
2. Kunnamkulam Marthoma Suriyani Christiani Suvisesha Prasanga Sanghom (hereinafter mentioned as “the Sanghom” for convenience) is a company incorporated on July 30, 1082 M.E, under the Cochin Regulation (IV of 1080 M.E). The main object of the Sanghom is to propagate Christianity among the non-Christians, spread gospels and to uplift the spiritual life of Christians. The Sanghom had 19 members. The Sanghom has no share capital and the liability of the members is limited to the extent of their subscription.
3. Respondents Nos. 1 to 7 herein filed a company petition alleging oppression and mismanagement in the affairs of the Sanghom. The Sanghom has four items of properties including an item of property known as “Sadhusala Parambu”. There is also a school under the management of this Sanghom. The main allegation against the management of the Sanghom was that respondents Nos. 2 and 7 had collected huge amounts by way of donations from the teachers appointed in the school and misappropriated the same for themselves. Two bamboo clusters were cut and removed from Sadhusala Parambu and it is also alleged that steps are being taken to cause further damage to the improvements of that property. The respondents entered appearance and contested the proceedings. The second respondent herein filed a separate counter-affidavit denying all the allegations raised by the petitioners. It was also contended by the respondents that the petitioners were not members of the company. The allegation of the petitioners that the accounts of the Sanghom were not audited was specifically denied by the respondents.
4. In the impugned order, the learned single judge has narrated the facts in detail and directed that a receiver-administrator be appointed to manage the affairs of the company pending disposal of the company petition.
5. The main contention urged by the appellants' counsel is that the order suffers from serious infirmity as it does not state the reasons for the appointment of the receiver. According to the appellants' counsel, a legally constituted body is now carrying on the affairs of the Sanghom and the take-over of its administration could have been done only under extreme necessity. It was also contended that the company petition was not maintainable and, therefore, the court had no jurisdiction to pass an interim order under section 403 of the Companies Act, 1956, and that there were no just and equitable grounds to appoint an administrator-cum-receiver for the company. The respondents' counsel supported the order and it was also contended that the appeal filed against the order is not maintainable.
6. The first question that would arise for consideration is whether an appeal would lie before the Division Bench of this court against the order passed by a single judge. It was urged on behalf of the appellants that an appeal against an order passed under section 403 of the Companies Act (Act 1 of 1956) appointing the receiver would lie under section 483 of the Act. section 483 of the Companies Act reads as follows:
“483. Appeals from orders.—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.”
7. section 403 of the Companies Act empowers the court to make any interim order which it may think fit for regulating the conduct of the company's affairs upon such terms and conditions as appear to be just and equitable. Section 483 gives a right of appeal from, an order or decision made or given in the matter of winding-up. In the instant case, the main company petition is purported to have been filed under sections 397 and 398 of the Companies Act. Where a winding-up petition or other petitions under sections 397 and 398 are pending before the company court, and an interim injunction is passed in any other proceedings, the order is one passed “in the matter of winding-up” within the meaning of section 483 and, therefore, it is appealable. The words “in the matter of winding-up” means that the order or decision must be one pertaining to or within the scope of the winding-up jurisdiction. Every order which may reasonably be considered to be a judicial order, as distinguished from a merely administrative order, is made appealable under the above section. The distinction between an administrative and judicial order has been explained in the decision in Shankarlal Aggarwala v. Shankarlal Poddar, [1965] 35 Comp Cas 1 (SC) : AIR 1965 SC 507. The Supreme Court held (at page 8 of 35 Comp Cas):
“It is perhaps not possible to formulate a definition which would satisfactorily distinguish, in this context, between an administrative order and a judicial order. That the power is entrusted to or wielded by a person who functions as a court is not decisive of the question whether the act or decision is administrative or judicial. But we conceive that an administrative order would be one which is directed to the regulation or supervision of matters as distinguished from an order which decides the rights of parties or confers or refuses to confer rights to property which are the subject of adjudication before the court. One of the tests would be whether a matter which involves the exercise of discretion is left for the decision of the authority, particularly if that authority were a court, and if the discretion has to be exercised on objective, as distinguished from a purely subjective, consideration, it would be a judicial decision. It has sometimes been said that the essence of a judicial proceeding or of a judicial order is that there should be two parties and a lis between them which is the subject of adjudication, as a result of that order or a decision on an issue between a proposal and an opposition. No doubt, it would not be possible to describe an order passed deciding a lis before the authority, that it is not a judicial order but it does not follow that the absence of a lis necessarily negatives the order being judicial.”
8. From the above dictum, it is clear that if the matter involves the exercise of discretion and the decision is left to the authority and if that authority were a court, the order passed would be a judicial decision.
9. In Shah Babulal Khimji v. Jayaben D. Kania, (1981) 4 SCC 8 : AIR 1981 SC 1786, a similar matter came up for decision of the Supreme Court. The plaintiff-appellant had filed a suit on the original side of the Bombay High Court for specific performance of a contract and prayed for an interim relief by appointing a receiver of the suit property and injuncting the defendant from disposing of the suit property during the pendency of the suit. The single judge, after hearing the notice of motion, dismissed the application for appointment of a receiver as also for interim injunction. The plaintiff-appellant filed an appeal before the Division Bench of the Bombay High Court, which dismissed the appeal as being non-maintainable on the ground that the impugned order of the single judge was not a judgment as contemplated by clause 15 of the Letters Patent of the High Court. The court held that every interlocutory order cannot be regarded as a judgment but only those orders which decide matters of moment or affect vital and valuable rights of the parties and which work serious injustice to the party concerned would be judgments. The court also held that an interlocutory order to be a judgment must contain the traits and trappings of finality either when the order decides the questions in controversy in an ancillary proceeding or in the suit itself or in a part of the proceedings. The Supreme Court, after elaborately discussing the case, held (at page 1818 of AIR 1981 SC):
“In the instant case, as the order of the trial judge was one refusing, appointment of a receiver and grant of an ad interim injunction, it is undoubtedly a judgment within the meaning of the Letters Patent both because…Order 43, rule 1, applies to internal appeals in the High Court and apart from it such an order even on merits contains the quality of finality and would, therefore, be a judgment within the meaning of clause 15 of the Letters Patent…the order passed by the trial judge in the instant case being a judgment within the meaning of clause 15 of the Letters Patent, the appeal before the Division Bench was maintainable and the Division Bench of the High Court was in error in dismissing the appeal without deciding it on merits.”
10. In view of the above decision, undoubtedly an appeal would lie, under section 483 of the Act, to the Division Bench of the same High Court.
11. Learned counsel for the respondents brought to our notice the decision in State of Kerala v. Krishnankutty, [1985] KLT 201. The question that came up for consideration before the court was whether an order passed by a single judge of the High Court in an interlocutory petition filed in the original petitions under article 226 of the Constitution of India is made appealable under section 5(1) of the High Court Act, 1958 (Kerala). The court held that procedural orders and interlocutory orders will not come within the sweep of section 5(1) of the High Court Act. The above decision has no application to the instant case because the appeal has been preferred under section 483 of the Companies Act and not exclusively under section 5(1) of the High Court Act. Moreover, the decision in State of Kerala v. Krishnankutty, [1985] KLT 201 deals with an order passed in an interlocutory application by the single judge exercising his “special original jurisdiction” conferred under article 226 of the Constitution, whereas the impugned order has been passed by the learned single judge under section 403 of the Companies Act which is specifically made appealable under section 483 of the same Act.
12. A similar question arose in Madhava Naik…* v. Popular Bank Ltd., Alleppey…., [1960] 30 Comp Cas 501 (Ker) : [1960] KLT 581, wherein the Division Bench of this court considered whether an appeal will lie against an order passed by a single judge under section 45H of the Banking Companies Act. This court held (at page 506 of 30 Comp Cas):
“Liquidation proceedings under the provisions of the Banking Companies Act are carried on by a single judge of this High Court in the exercise of the original jurisdiction of the High Court and hence under section 5 of the Kerala High Court Act, an appeal shall lie to a Bench of two judges from a judgment or order of a single judge, passed in the exercise of such original jurisdiction in respect of liquidation proceedings. Such an order or judgment will become a final order or judgment of the High Court only with the decision in the appeal as provided for in section 5. If no appeal is preferred against the judgment or order of the single judge and if such order or judgment is allowed to become final, then also it would become the final judgment or order of the High Court. The appeals contemplated by section 45H of the Banking Companies Act are appeals against the final orders or decisions of the High Court in civil proceedings under the Banking Companies Act. The present appeals are only appeals against the order of a single judge to a Bench of two judges of the same court as provided in section 5 of the Kerala High Court Act. The right to prefer such appeals has been expressly conferred by section 5 of that Act. Hence the appeal is competent.”
13. Therefore, we hold that there is no merit in the objection raised by the respondents regarding the maintainability of the appeal. The next point urged by the appellants' counsel was that the learned single judge has not given reasons for the appointment of an administrator-cum-receiver and, therefore, the order was bad in the eye of law. It was further contended that the company was managed by duly elected office-bearers of the company and that they are entitled to continue in office. Though the petitioners therein have contended that there was oppression and mismanagement, they could not produce any evidence to prove a prima facie case of mismanagement. The appointment of a receiver is in many cases a matter for the most serious consideration of the court. The court by taking possession at the instance of the plaintiff may be doing a wrong, in some cases irreparable wrong to the defendant, for, if the plaintiff should eventually fail in establishing his right, the court may by its interim interference have caused mischief to the defendant and subsequent restoration of the property may afford no adequate compensation. It has been held by various judicial authorities that the jurisdiction given to the court must not be lightly but most cautiously exercised. The relief is not one ex debito justitiae but one which is within the judicial discretion of the court. The court is not bound to grant such relief merely because it is lawful to do so. The power to appoint a receiver is not to be generally exercised as a matter of course and that it can do no harm to appoint a receiver, is no reason for allowing an application. It has been stated in Halsbury's Laws of England, fourth edition, volume 39, pages 426 and 427:
“A strong case must be made out to dispossess a party who is interested and who has the legal title. As against a prior legal mortgagee in possession, for instance, a receiver will not be appointed unless the mortgagee's debt has been wholly satisfied.”
“Generally, the court does not appoint a receiver if the appointment may involve grave risk of injury to the interests of other persons interested.
The court will be reluctant to risk damage to the reputation of a professional partnership by appointing a receiver, particularly where the integrity of the partners is not in question.”
14. Since the impugned order does not give the reasons for the appointment of the receiver, we set aside the same and remand the matter to the judge dealing with company matters to be considered afresh as to whether the appointment of a receiver would be necessary in the circumstances of the case.
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