IN THE HIGH COURT OF GUJARAT AT AHMEDABAD O.J.APPEAL No 25 of 2001 in COMPANY PETITIONNo 186 of 2000 with CIVIL APPLICATION No 171 of 2001 For Approval and Signature: Hon'ble MR.JUSTICE M.S.SHAH and Hon'ble MR.JUSTICE D.A.MEHTA ============================================================ 1. Whether Reporters of Local Papers may be allowed : YES to see the judgements? 2. To be referred to the Reporter or not? : YES 3. Whether Their Lordships wish to see the fair copy : NO of the judgement? 4. Whether this case involves a substantial question : NO of law as to the interpretation of the Constitution of India, 1950 of any Order made thereunder? 5. Whether it is to be circulated to the Civil Judge? : NO -------------------------------------------------------------- THE WELDING RODS PVT. LTD. Versus INDO BORAX & CHEMICALS LTD. -------------------------------------------------------------- Appearance: 1. O.J.APPEAL No. 25 of 2001 MR ASHWIN L SHAH for Petitioner No. 1 MR AS VAKIL for Respondent No. 1 2. CIVIL APPLICATION No. 171 of 2001 MR ASHWIN L SHAH for Petitioner No. 1 MR AS VAKIL for Respondent No. 1 -------------------------------------------------------------- CORAM : MR.JUSTICE M.S.SHAH and MR.JUSTICE D.A.MEHTA Date of decision: 28/12/2001 CAV JUDGEMENT (Per : MR.JUSTICE M.S.SHAH) This is an appeal against the judgment and order dated 20.7.2001 passed by the learned Company Judge overruling the preliminary objections raised by the appellant-Company to the maintainability of the winding up petition (Company Petition No. 186 of 2000) filed by the present respondent. 2. The facts leading to filing of this appeal, briefly stated, are as under :- The present respondent (hereinafter to be referred to as `the petitioning-creditor' or `the original petitioner') has filed Company Petition No. 186 of 2000 for winding up of the appellant-Company under the provisions of Sections 433, 434 and 439 of the Companies Act, 1956 (hereinafter to be referred to as `the Act'). Upon service of notice, the appellant-Company appeared and filed affidavit in reply dated 28.2.2001 raising the following preliminary contentions :- (i) There is no resolution for institution of winding up proceedings against the respondent Company by the petitioning company; (ii) Mr S.L. Jain who has filed an affidavit in support of the petition was not authorized to initiate and/or institute the winding up petition. So, there is no winding up proceedings in the eyes of law which can be said to have been instituted; (iii) Duly Constituted Attorney or the Authorized Person of the petitioner Company has not signed the Company Petition, though it is mandatory, according to the form prescribed under the relevant rules; (iv) The affidavit filed in support of the winding up petition is not an affidavit in the eyes of law or in accordance with Rule 21 of the Company (Court) Rules, 1959 (hereinafter referred to as `the Rules'). 3. After hearing the learned counsel for both the parties, and after considering the resolution dated 28.6.2000 passed by the Board of Directors of the petitioning-creditor, the learned Company Judge by order dated 20.7.2001 overruled the objections in as much as the learned Company Judge came to the conclusion that the irregularity in the verification of the affidavit and want of signature below the petition and above the verification were the irregularities which were required to be permitted to be cured and the learned Company Judge accordingly afforded an opportunity to the appellant-Company to sign the petition and remove all technical objections within a period of 15 days from the date of the order. The original petitioner availed of the said opportunity. The present appeal came to be filed on 13.8.2001. Thereafter the hearing of the appeal came to be adjourned from time to time at the request of the learned counsel for the parties. On 2.11.2001, the learned counsel for the original petitioner submitted the affidavit dated 31.10.2001 of Mr Sushil Kumar Jain, a Director of the petitioning-creditor stating that at the meeting of the Board of Directors of the petitioning-creditor held on 12.10.2001 a resolution came to be passed clarifying the resolution dated 28.6.2000 produced in the Company Petition. Thereafter the learned counsel for the parties were heard at length on all the facets of the dispute which is the subject matter of this appeal. The appeal is being finally disposed of by this judgment. 4. At the outset, it was pointed out to Mr Ashwin Lalbhai Shah, learned counsel for the appellant-Company to satisfy the Court whether the present appeal is maintainable under Section 483 of the Companies Act, 1956 because all that the learned Company Judge has prima facie done is to pass a procedural order permitting the petitioner to remove certain defects in verification of the affidavit and to put the signature of the petitioner at the foot of the petition above the verification clause. Section 483 of the Act reads as under :- "483. 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." 5. In Shankarlal Agarwal vs. Shankarlal Poddar, 35 Comp. Cases 1 = AIR 1965 SC 507, the Apex Court has held that an appeal under Section 483 of the Companies Act, 1956 is maintainable against an order which affects the rights or liabilities of parties, but not against mere procedural orders in the course of the winding up proceedings. The attention of the learned counsel was also invited to the judgment dated 4.9.2001 of this Court in O.J. Appeal No. 24 of 2001 (Horst Kurves GMBH vs. Essar Oils Ltd.). 6. Mr Ashwin Lalbhai for the appellant submitted that the adjudication by the learned Company Judge does affect the rights of the appellant-Company because if the appellant's contentions were upheld by the learned Company Judge, and the winding up petition were held to be not maintainable, the same would have been dismissed. 7. However, since the discussion on the question whether the order under challenge is merely a procedural order or whether it affects the rights of the parties also involved consideration of the arguments on the merits of the subject matter of the appeal, we heard the learned counsel for the parties on all the facets of the controversy involved in the appeal. We, therefore, proceed to deal with the contentions raised by the learned counsel for the appellant-Company which are repetition of the preliminary objections which were raised before the learned Company Judge. Contention Nos. (i) and (ii) (i) At the time of institution of the petition, there was no resolution for institution of winding up proceedings against the respondent Company by the petitioning company. Hence, the petition was not at all maintainable. The defect could not have been subsequently cured. (ii) Mr S.L. Jain who has filed an affidavit in support of the petition was not authorized to initiate and/or institute the winding up petition. So, there is no winding up proceeding in the eyes of law which can be said to have been instituted. 8. In the affidavit in reply to the winding up petition, the appellant-Company raised the above interconnected contentions on the ground that no resolution for filing the winding up petition appeared to have been passed by the Board of Directors of the petitioning-creditor and that there was no averment in the petition as to whether any such resolution was passed. Hence, alongwith the rejoinder affidavit filed on behalf of the petitioning-creditor, a copy of the resolution dated 28.6.2000 passed by the Board of Directors of the petitioning-creditor at the Registered Office of the Company was produced at Annexure "I". Certified true copy of the said resolution read as under:- "Certified True Copy of the resolution passed by the Board of Directors of M/s Indo Borax & Chemicals Ltd. in the meeting held on 28th June, 2000 at the Registered Office of the Company. ------------------------------------------------- The Chairman informed the Board that the Company need to initiate legal proceedings against some of the Customers who have defaulted in making payment and requested the members to authorize Shri S.L. Jain to do the needful in the matter. The matter was discussed and following resolution was passed :- "RESOLVED THAT Shri S.L. Jain, be and is hereby authorized to represent the Company in any legal proceedings before any Court of Law or any other authority or forum in any law-suit or other legal proceedings, initiated or filed by or against the Company and to affirm, sign or execute any documents, Agreement, Papers, Statements, Correspondences, Verify applications, Complaints, Affidavit and to appoint/engage advocates for institution of legal proceedings or to appear before any court of law to proceed/prosecute and also do all the acts which are required in the matter and the Company agrees to ratify and confirm the above action whatsoever Shri S.L. Jain do lawfully or cause to be done by virtue of this resolution. CHAIRMAN" 9. The learned Company Judge held that the resolution has to be interpreted in the context of the agenda proposed and the proposal put forward by the Chairman before the members of the Board. The Chairman had impressed upon the Board members the need for the Company to initiate "legal proceedings against those who have defaulted in making payment" and requested the members to authorize Mr S.L. Jain to do the needful in the matter. If Mr Jain in light of the statutory notice already served on the respondent-Company approaches a lawyer and in turn he is advised to initiate winding up proceedings, in that event the initiation of proceedings by Mr Jain on the advice of a lawyer cannot be said to be initiation of proceedings without the consent or assent of the Board of Directors or without the authority conferred on him. After making the aforesaid observation, the learned Company Judge made the following observations in para 3.2 of the order :- "3.2 Respondent Company, even if has a slightest doubt in its mind that Board of Directors might not have decided to institute a winding up proceedings - ... ... ..., then in that event, the petitioner Company can be asked to tender clarificatory further resolution." 10. Thereafter Mr Sushilkumar Jain, a Director of the petitioning-creditor filed the affidavit dated 31.10.2001 stating as under :- "I state that I am also on the Board of Directors of Indo Borax & Chemicals Limited. I state that at the meeting held on 12.10.2001 of the Board of Directors of Indo Borax & Chemicals Limited at which I was personally present, a resolution came to be passed clarifying the resolution dated 28.06.2000 produced in the captioned Company Petition No. 186 of 2000." The said resolution reads as under :- "CERTIFIED TRUE COPY of the resolution passed by the Board of Directors of M/s Indo Borax & Chemicals Limited in the meeting held on 12th October, 2001 at the Registered Office of the Company. The Chairman informed the members that : Pursuant to the resolution dated 28.06.2000, Indo Borax & Chemicals Limited, had initiated proceedings for winding up, against the "Welding Rods Pvt. Ltd.", in the Gujarat High Court at Ahmedabad. The said proceedings are numbered Company Petition No. 186 of 2000. However, the said resolution dated 28.06.2000 were worded in general terms : After discussion, following resolution was passed unanimously :- "RESOLVED THAT in continuation of the resolution passed in the meeting held on 28.06.2000, it be and is hereby clarified that the said resolution did intend to authorize institution of proceedings for winding up under the provisions of the Companies Act, 1956 against the Welding Rods Pvt. Ltd. and the winding up petition (No. 186 of 2000) filed by Indo Borax & Chemicals Limited against the said Welding Rods Pvt. Ltd., in the High Court of Gujarat at Ahmedabad did have the necessary authorization of the Board of Directors of Indo Borax & Chemicals Limited vide the said resolution dated 28.06.2000. CHAIRMAN" 11. Mr Ashwin Lalbhai Shah, learned counsel for the appellant Company has, however, vehemently submitted that the resolution dated 12.10.2001 passed after the learned Company Judge passed the order dated 20.7.2001 - or for that matter after filing of the winding up petition cannot cure the initial defect as the winding up petition originally filed was not maintainable for want of a proper resolution of the Board of Directors of the petitioning-creditor to institute a winding up petition against the present appellant Company. Since the petition was not maintainable and was liable to be dismissed at the threshold, such subsequent resolution dated 12.10.2001 cannot revive the stillborn petition. The learned counsel for the appellant-Company relied on several decisions in support of his contention Nos. (1) and (ii), referred to hereinafter. 11.1 Reliance is placed on the decisions of the Delhi High Court in Nibro Ltd. vs. National Insurance Co. Ltd., (1991) 70 Company Cases 388, and in Ferruccio Sias vs. Jai Manga Ram Mukhi, (1994) 1 Comp.LJ 345 wherein the Court has held that it it well settled that under section 291 of the Companies Act, 1956, except where express provision is made that the powers of a company in respect of a particular matter are to be exercised by the company in general meeting, in all other cases the board of directors are entitled to exercise all its powers. Individual directors have such powers only as are vested in them by the memorandum and articles. It is true that ordinarily the court will not non-suit a person on account of technicalities. However, the question of authority to institute a suit on behalf of a company is not a technical matter. It has far-reaching effects. Order 29, rule 1 of the Code of Civil Procedure, 1908, does not authorize persons mentioned therein to institute suits on behalf of a Corporation - it only authorizes them to sign and verify the pleadings on behalf of the Corporation. thus, unless a power to institute a suit is specifically conferred on a particular director, he has no authority to institute a suit on behalf of the company. Such power can be conferred by the board of directors only by passing a resolution in that regard. 11.2 Strong reliance is also placed on the decision of the Bombay High Court in Shantilal Khushaldas & Bros. vs. Smt. Chandanbala Sughir Shah, (1993) 77 Company Cases 253 wherein it has been held that proceedings for winding up under section 433 of the Companies Act can by no stretch of imagination be equated to suits or for that matter suits for recovery of money. In winding up proceedings the lis is not between the petitioning party and the company sought to be wound up. Once the petition is admitted, the creditors, contributories, shareholders, etc., seek redress in the proceedings and even oppose the winding up. The company is directed to be wound up depending upon a case made out whereupon the assets are taken over and distributed in accordance with the provisions of the Companies Act and the Rules. A suit for recovery of money is essentially a suit between the parties where no third party can seek any indulgence or impleadment. A constituted attorney must be specifically authorized to lodge company petitions for winding up a company. A mere authorization to file suits or proceedings for recovery of amounts is not sufficient to empower him to institute proceedings under the Companies Act for winding up the company. 11.3 Mr Shah also cited the decision of the Madras High Court in K.N. Shankaranayanan vs. Shree Consultations & Services Pvt. Ltd., (1994) 80 Company Cases 558 wherein it is held that the question of authority to institute a suit on behalf of a company is not a technical matter. Unless power to institute a suit is specifically conferred on a particular director, he has no authority to institute a suit on behalf of the company. Such power can be conferred by the board of directors only by passing a resolution in that regard. A letter of consent to file a petition under sections 397 and 398 of the Companies Act can never be said to be a matter of administrative or ministerial character like verifying or signing a pleading. The decision must be taken by a resolution of the board of directors of the company on whose behalf the letter of consent is to be issued. It cannot be done by an individual director or the secretary of the company unless he is so authorized by a board resolution to issue such letter of consent for the presentation of a petition under sections 397 and 398 of the Companies Act, 1956, by the company. Any case instituted without authority makes it invalid from its inception and cannot be validated by a later ratification. 11.4 Mr Shah also relied on the decision of the Patna High Court in BOC India Ltd vs. Zinc Products and Co. Pvt. Ltd., (1196) 86 Company Cases 358 and particularly on the following observations :- "In Nibro Ltd. vs. National Insurance Co. Ltd. (1991) 70 Comp Cas 388; AIR 1991 Delhi 25, it has been held that although ordinarily the court ought not to unsuit a person on account of technicalities, the question of authority to institute a suit on behalf of a company is not a technical matter. It has far-reaching effects. It often affects policy and finance of the company. Thus, unless a power to institute a suit is specifically conferred on a particular director, he has no authority to institute a suit on behalf of the company. Such a power can be conferred by the board of directors only by passing a resolution in that regard. ... ... ...The defect in the application goes to the root of the matter and is not curable. As the Delhi High Court has held in the above mentioned case even a subsequent authorisation/ratification by the board of directors cannot cure the defect." 11.5 Further reliance has been placed on the decision in Punjab State Co-operative Bank Ltd. vs. Milkha Singh, (1997) 89 Company Cases 696 wherein the Punjab & Haryana High Court followed the decision of the Delhi High Court in Nibro Ltd. vs. National Insurance Co. Ltd. (Supra) and made the following observations :- "The Punjab State Cooperative Bank is a body corporate registered under the Punjab Co-operative Societies Act, and it functions through its managing director and other officers. The managing director is a principal officer of the society but there must be a decision of the body corporate/board of directors authorizing the managing director to file an appeal. The decision whether to file an appeal or not rests with the board of directors which is heart and soul of the bank. While the regulations of the bank give powers to the managing director to institute, conduct, defend any legal proceedings by or against the bank, the decision to institute or defend the proceedings has to be taken by the body corporate for functions of its managing director. In the absence of that decision of the board of directors, an appeal filed by the managing director alone would not be competent and maintainable. In the Punjab Co-operative Societies Act, there is no provision which independently confers powers on the managing director to take a decision for the institution of the legal proceedings without the prior approval of the board of directors." 12. On the other hand, Mr AS Vakil, learned counsel for the petitioning-creditor (the present respondent) has relied on the decisions of the Bombay High Court in Western India Theatres Ltd. vs. Ishwarbhai Somabhai Patel, AIR 1959 Bom. 386, of the Andhra Pradesh High Court in D & H Secheron Electrodes (P) Ltd. vs. Voltare Electrodes (P) Ltd., (1997) 89 Company cases 592 (AP) and of the Calcutta High Court in State Bank of India vs. The India Electric Works Ltd., (1969) 2 CLJ 169 (Cal.) in support of his contention that the rules of procedure are handmaids of justice and that the rules or forms do not require any resolution of the Board of Directors of the petitioning creditor to be produced nor do the Rules or forms require any power of attorney to be filed. The resolution dated 28.6.2000 was clear enough to authorize Mr SL Jain to file the winding up petition against the appellant-Company and in any case the resolution dated 12.10.2001 passed by the Board of Directors of the petitioning-creditor has sufficiently clarified the matter and put the issue beyond any pale of doubt. 13. Before discussing the rival submissions, we may refer to Rules 6, 9 and 17 of the Companies (Court) Rules, 1959 which read as under :- "6. Practice and procedure of the Court and provisions of the Code to apply - Save as provided by the Act or by these rules the practice and procedure of the Court and the provisions of the Code so far as applicable, shall apply to all proceedings under the Act and these rules. The Registrar may decline to accept any document which is presented otherwise than in accordance with these rules or the practice and procedure of the Court. 9. Inherent powers of Court- Nothing in these rules shall be deemed to limit or otherwise affect the inherent powers of the Court to give such directions or pass such orders as may be necessary for the ends of justice or to prevent abuse of the process of the Court. 17. Forms - The Forms set forth in Appendix I, where applicable, shall be used with such variations as circumstances may require. The Act, Rules or forms do not require any resolution to be passed for the purpose of initiating winding up proceedings, even where the petitioning-creditor is a Company with a Board of Directors. Neither the Act, the Rules nor the Forms stipulate that any particular resolution should be passed by the Board of Directors for instituting a winding up petition. The resolution dated 28.6.2000 authorized Mr SL Jain to do all the acts which are required in "any legal proceedings" which did not mean only suits for recovery of money from the defaulting customers. Even if the resolution dated 28.6.2000 was lacking in particulars, all those particulars have been given with sufficient details and clarity in the clarificatory resolution dated 12.10.2001 for passing which the learned Company Judge himself had granted the permission in para 3.2 of the judgment quoted in para 9 hereinabove. 14. Having heard the learned counsel for the parties on the contention whether there is any resolution for institution of winding up proceedings against the appellant-Company by the petitioning-creditor, we hold that the resolution dated 28.6.2000 read with the resolution dated 12.10.2001 passed by the Board of Directors of the petitioning-creditor did authorize filing of the present winding up petition being Company Petition No. 186 of 2000. 15. At this stage, before dealing with the contention vehemently urged by Mr Ashwin Lalbhai Shah for the appellant-Company that as held by the Patna High Court, the Punjab & Haryana High Court and the Madras High Court, even a subsequent authorization/ratification by the Board of Directors cannot cure the technical defect in institution of a suit or a petition, we would like to refer to the decision of a Division Bench judgment of the Bombay High Court in Western India Theatres Ltd., AIR 1959 Bom. 386 which is binding on us. 16. Western India Theaters Ltd. (Supra) before the Division Bench of the Bombay High Court was a case where a winding up petition was filed and the learned Company Judge passed an order for advertising it. During the course of those proceedings, the original petitioning creditor withdrew from the petition and the learned Company Judge made an order substituting in his place Ishwarbhai Somabhai Patel. The respondent Company whose winding up was sought challenged the order in appeal. One of the grounds raised in the appeal was that the winding up petition