Case: Extrusion Processes Private Limited Vs. Jivabhai Marghabhai Patel

PATEL, J. ( 1 ) THE present appeal comes up from the order of Mr. Justice Kantawala in a winding up petition. ( 2 ) THE respondent in this appeal had filed a winding up petition against the Extrusion Process private Ltd. , the appellant company. It is a private limited company and a substantial portion of the shares is held by the managing director and his relations and friends. In the petition for winding up serious allegations were made to show that it was proper and fit that the company should be wound up. It came first before Mr. Justice K. K. Desai for preliminary orders under rule 96 of the Companies (Court) Rules framed under the Companies Act. Desai J. dismissed the petition in limine. Against his order an appeal, being Appeal No. 32 of 1963, was filed and that appeal was heard by us on November 5, 1963. After hearing counsel on both the sides we made the following order :"in the result, we allow the appeal, admit the petition, give a notice to the company and postpone the giving of the advertisement until after it is heard. The trial court will hear the matter hereafter. . . "( 3 ) BEFORE the matter came on board, affidavits were filed on behalf of the company to show cause. Affidavits in rejoinder were filed by the petitioning shareholder and also the other shareholders including a director who was according to his allegation excluded from management. Mr. Justice Kantawala felt that we had heard the company and that we had already admitted the petition. He, therefore, directed advertisements. It is against this order that the present appeal is brought. ( 4 ) MR. Parpia argues that by our order we only accepted the petition and that before it is admitted it should be heard on merits, i. e. , the company ought to be heard and as Mr. Justice kantawala did not hear all the arguments of the company before admitting the petition, the order is bad. In support Mr. Parpia relies upon Western India Theatres v. Associated Bombay Cinemas ([1959] 29 Comp. Cas. 127; [1956] 60 Bom. L. R. 1240), a decision regarding the practice followed in such matters by this court before the Act was amended and new rules were made. ( 5 ) THE question is of importance for obvious reasons. If the contention is accepted it would mean that there would be appeal from order admitting a petition, appeal from an order of advertisement and appeal from the final order. In between, there may be other appeals. We must, therefore, carefully examine the provisions of the Act and the Rules. ( 6 ) SECTION 439 relates to the making of the winding up petitions and enumerates the persons or classes of persons who are entitled to make a petition. Section 442 relates to the powers of the court in a winding up petition to stay any proceedings pending in any other court. Section 443 defines the powers of the court on hearing the petition. There is no provision in the Act dealing with procedural matters in relation to winding up petitions. This is left to rules to be made under section 643 of the Act to which we must now turn. ( 7 ) PART I of the Company (Court) Rules deals generally with applications. Rule 11 requires that applications made under the sections there referred to shall be made by petition, one of the sections being section 439. Rule 27 relates to the form and time of service of the notice. Rule 28 requires in case petition is presented against company that it shall be accompanied by a notice in the prescribed form together with a copy of the petition and a stamped envelop addressed to the company and that : "the Registrar shall immediately on the admission of the petition send the notice together with the copy of the petition to the company by registered post. "( 8 ) PART III deals with winding up petitions. Rule 95 relates to the form of the petition and rule 96 relates to admission of petition and directions as to advertisement. Rule 99 requires that subject to the directions of the court, the petition shall be advertised as provided by rule 24 in Form No. 48. Rule 96 directs that after the petition is filed, 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 and 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. A plain reading of the rule indicates that there is no right in a company to be issued a notice before a petition is admitted nor before the court fixes the date of hearing. As to giving of notice to the company before giving directions regarding advertisements there is a discretion left in the court. It is true that if the judge is not satisfied on reading the petition itself regarding the grounds for winding up he would be entitled to reject the same. There can, however, be no question of hearing the company at the stage of admission. ( 9 ) IN response to the notice under rule 96 the company may show cause why the petition should not be proceeded with or rejected. But then this could only be on grounds which do not involve facts. In the case referred to, at page 1242, the learned Chief Justice says while considering rule 733 of the old Rules :". . . In the winding up of a company the creditors are interested, the shareholders are interested, and therefore it is nut right that before the court makes a final order on the petition these parties should be heard. But that does not mean that the discretion of the court is taken away to dismiss a petition at an early stage if no answer is called for on the merits of the petition. If this is clearly borne in mind, then the practice followed by this court is a perfectly proper practice. . . . "( 10 ) THE subsequent observations of the court have to be read in the light of this principle. It is possible, therefore, that in response to such a notice the company may be able to show that the application does not lie or that without going into the merits the application ought to be dismissed and this is what is pointed out by the learned Chief Justice in the next paragraph of the judgment. He says (page 1242) : "in answer to the notice all that the respondent is entitled to urge is that for any justifiable reason the petition should not be proceed with and further steps should not be taken. "( 11 ) MR. Parpias contention that before admission of the petition the company ought to be heard cannot possibly be supported. Out reader, therefore, rightly admits the petition. We had only postponed the advertisement.

Decision reasoning: 1[ds]( 10 ) THE subsequent observations of the court have to be read in the light of this principle. It is possible, therefore, that in response to such a notice the company may be able to show that the application does not lie or that without going into the merits the application ought to be dismissed and this is what is pointed out by the learned Chief Justice in the next paragraph of the judgment. He says (page 1242) : "in answer to the notice all that the respondent is entitled to urge is that for any justifiable reason the petition should not be proceed with and further steps should not be taken. "( 11 ) MR. Parpias contention that before admission of the petition the company ought to be heard cannot possibly be supported. Out reader, therefore, rightly admits the petition. We had only postponed the advertisement.