Ramakrishna Industrials Private Limited vs P.R. Ramakrishnan and Others <BR>P.R. Ramakrishnan and Others Vs Ramakrishna Industrials Private Limited and Others

Balasubrahmanyan, J.—This appeal is from an interlocutory order of Shanmukham, J. The order directed the appointment of a number of

Advocates as Court Commissioners to take an inventory of the assets and accounts of a Company in Coimbatore. The Company is the appellant

before us. It contends that the order is wrong.

Mr. Vasantha Pai, learned Counsel appearing for the contesting respondents, raises a preliminary objection. He says that we should not

entertain this appeal.

The appeal is filed u/s 483 of the Companies Act, 1956. This section provides for an appeal against any order passed by a Court of first

instance in a winding up matter. The section says that an appeal is available against such an order in the same way as an appeal is available from

any other order of a Court for which the law provides. This is the substance of the words of the section. They are fairly wide words in which the

appeal provision is cast. But the Supreme Court in Shankarlal Aggarwal and Others Vs. Shankarlal Poddar and Others, , have said that a Court of

appeal cannot entertain any and every appeal in a winding up matter merely because the section provides for it. They said that the appellant must

show the appellate Court that some right has been affected by the order in question. Quoting this position, Mr. Vasantha Pai raised the query:

What is it that the Company has lost by this order? You do not lose any assets by counting them, he said, although by not counting them there is a

chance of some assets being lost sight of. He pursued this line of argument further, thus: The Company every year prepares inventories for its

balance-sheet. They are a necessary part of annual accounting. The inventory order passed by Shanmukham, J., cannot be unwelcome since it only

gives the Company a picture here and now, of its assets. Nobody need have to wait for the position to emerge by the year-end to fin d out an upto

date account of the assets.

We find Mr. Pai''s contentions extremely naive. Especially that bit about the learned Judge''s order being entirely to the good of the Company. It

sounds a little like a School Master claiming that caning a pupil is for his own good. In our judgment, there is no comparison between annual stock-

taking and what is involved in the order under appeal. Here is a company having a machine shop, a newspaper, printing press, and a textile mill, at

Coimbatore, all of them in full swing, not to speak, of the godowns. administrative offices, and other establishments. Into such places descended

the Advocate-Commissioners armed with the order under appeal, clamouring that all normal business be laid aside to let them enter into a

meticulous count of the stock, the machinery, and other bric-a-brac. We have no doubt that it not only affects the production for the duration; but

puts off the staff from transacting even pressing business with their customers. And because it is a court order that operates against the company,

the news of it tends to spread affecting the company''s name and credit in the market. Annual stocktaking does not have these harmful side-effects,

even though business is suspended while the stock is being taken. This is because the clientele knows that it would be so, because, just about the

same time, most of them would also be engaged in a similar pursuit. Closing the shop-doors during annual stock-taking does not evoke the wrong

kind of publicity.

We are for discouraging frivolous appeals u/s 483 of the Companies Act and also appeals against formal orders. But this order of Shanmukham,

J., is a hurt against the Company. The Company has a good cause for com. plaint, even if counting of assets by the Court Commissioners may not

diminish either the quantum of assets on their value. We hold that the preliminary objection fails.

In the appeal, the submissions were addressed by Mr. Biksheswaran, who argued the Company''s case. One was that, the order was much too

hasty. The other was that it was made barely within minutes of the admission of the winding up petition. It was urged that an interim order cannot

be made by a Company Court excepting when the main winding up petition is actually being taken up for hearing.

On the first head of criticism of the learned Judge''s order, there is no denying the speed which attended it. The winding up petition was admitted

by the learned Judge on 13th June, 1981. Closely following the admission, an application for appointment of Commissioners was moved before

the learned Judge as an urgent motion. The Company got wind of the winding up petition. It stationed a lawyer in the Company Court to take

notice and oppose an ex parte order. The order of Shanmukham, J. shows that Miss Bhanumathi, a member of the Bar, intervened and asked for

time till the next day morning for filing an affidavit in opposition. The learned Judge, however, turned down this request and proceeded to pass the

order. We are informed from the bar that it was about 4 p.m. on that day when the learned Judge passed the order. The request of Miss

Bhanumathi, if granted, would have meant deferring the hearing of the application by a few hours. Not more than that. But the learned Judge

proceeded on the footing that the matter did not brook even this little post ornament. It is Mr. Biksheswaran''s submission that the learned Judge

did not do the right thing when he hustled the interim order in this manner.

We are inclined to accept this criticism as legitimate. After all, the adjournment asked for was not a matter of days, but hours. The heavens were

not going to fall down, as the saying goes, in between one evening and the next morning. The learned Judge acted as though there was not a

moment to be lost. But the order does not point to any circumstance, even a prima facie belief, that there was a risk of the accounts or the assets

being spirited away by the company if given a breathing time. The learned Judge did not think that the Company had no case to put forward in the

interlocutory application. On the contrary, he gave ample time to file a counter affidavit. The learned Judge did not, and could not, say that the

request of the Company amounted to delaying tactics, for the Company had asked only for the barest minimum interval of time to prepare its

affidavit in opposition. The Company ha d to have copies of the petition for winding up and of the affidavit in support of the interlocutory

application. These had to be studied for the counter affidavit to be prepared. And yet, the postponement asked for was only till the next morning

when the Court assembled and commenced its work. The learned Judge was apparently willing to give a long time to the Company to file a

counter affidavit, after the Commissioners were appointed; but he was not prepared to give a short time for the same purpose before any such

order was made. This only shows the learned Judge''s overpowering sense of urgency for an interim order to be passed. There are times when

Courts must act swiftly, with the velocity of sound, if possible, if their acts should have any meaning at all. We do not, however, think that this was

one such occasion. We believe that in the Vast majority of cases justice would carry well, with self-imposed speed limits.

Mr. Pai said that the learned Judge did go into the case for urgency. The winding up petition was before him. The affidavit in support of the

application was before him. And he was entitled to act on the basis of his own individual judgment of the situation from what he gathered from the

papers before him. We agree that in the din and clamour of trial litigation, the trial Court is the best judge of the competing claims of urgency, on

the one hand,and deliberation, on the other. Even so, since the order can be passed only from what on record, and not from what is net on record,

an appellate Court is quite capable of finding out whether the record justifies the order. In this case, we do not find anything in the winding up

petition or in the supporting affidavit which would'' have compelled any reasonable mind to believe that between one evening and the next morning

the Company would have irretrievably altered the assets position.

Mr. Pai, reminded us that the order under appeal is a discretionary order passed by the learned Judge in an interlocutory application. There are

certain norms, he said, which Courts of Appeal should observe while dealing with a discretionary order of a Court of first instance. He urged that

we ought not to upset the order of Shanmukham, J., merely on the score that in his place we world have acted differently, given the chance.

This enunciation of the limit of, appellate review of discretionary orders is out of date. In the good old days it was thought that at appellate

Court will not set aside discretionary orders, unless the discretion was exercised in a non-judicial way. Appellate Courts, however, no longer treat

discretionary order with excessive respect.. They are just like any other orders. the appellate judges feel free to interfere with the discretion

exercised by the Court below not only where it had acted non-judicially but also where it had given wrong reason. This is the trend in England, the

home of the doctrine of judicial discretion (See, for example, Evans v. Bartlam (1937) A.C. 473 and Charles Ostention v. Johnson (1942) A.C.

130 Davies L.J. in the Court of Appeal in In re. O (1971) Ch. 748 went to the extent of remarking, ""I am quite un-able to subscribe to the view

that a decision must be treated as sacrosanct because it was made in the exercise of ''discretion; so to do might well perpetuate injustice."" Lord

Denning, M.R. in Ward v. James (1966) 1 Q.B. 273 said that an appellate Court can go into the grounds on which the trial Court has exercised its

discretion in order to find out if those grounds are tenable and if they support the order made. We are, therefore, satisfied that we not only have the

power, but we owe an obligation to our selves as an appellate Court to examine Shanmukham, J.''s order to see if the grounds stated by him

support his decision to appoint Commissioners.

The learned Judge has given three reasons for his order. They are (2) that Article 38 of the Company''s Articles clearly indicates an inventory

in winding up proceedings; (ii) that there were many serious charges levelled against the Company an d those who are running it now; and (iii) that

the Company is obliged to face a number of legal proceedings. Not one of these grounds, in our judgment, justifies an order for inventory.

Article 38, of the Company''s Articles, relied on by the learned Judge, does not, in our view, provide any justification for the order for

inventory. A mere provision in an article of this kind is by itself to proof of the existence of facts much less their urgency, which would justify an

order for inventory against the Company. What, after all, the article carries is nothing but a special provision to the effect that in the event of a

deadlock in the management leading to a winding up, the distributor of assets among members might be in specify or of the proceeds on realization

of the assets. This article might, in some measure, be regarded as an indication of the importance of safeguarding and properly accounting the

Company''s assets. But even in the ordinary modes of winding up, where the ultimate distribution is to be of the proceeds of assets, it is equally

important to have a proper account of the assets and to safeguard them for the duration of the winding up And yet, we have not heard of any

statutory provision, or statutory rule, or even a court ruling, which lays down that in every case which comes before it the winding-up court must

order an inventory forth with as an indispensable first step, before the Court decides upon anything else.

Another ground relied on by the learned Judge in his order is that there are serious allegations against the Company. The learned Judge does

not, however, state, even ever so briefly, what are the allegations which, in his opinion. make out a prima facie case for an urgent order of

appointment of Commissioners. We have studied the winding up petition to see if the allegations therein have a bearing on the demand for an

inventory of assets by Court Commissioners. Apart from a diffuse averment that those who now run the Company are attempting to sell or fritter

away the Company''s resources, the winding-up petition contains only two specific allegations against them. One relates to an actual transfer of a

block of certain shareholdings, held by the Company as an investment, in favour of Vysya Bank in discharge of the Company''s outstanding dues to

the Bank. The other is about the passing of a resolution by the Board proposing the sale of a building in Madras, a building site in Coimbatore and

some equity shares. The transfer of shares to Vysya Bank took place way back in 1976. As for the Beard resolution, it was circulated early in

1979. There is no knowing whether even this resolution was implemented, and, if so, how and when. Whatever importance these allegations might

assume in the winding-up petition ; can they, on any reasonable standard of judgment, justify the view that unless, an inventory is taken, there is

imminent danger of assets going underground and hence the order must go without a moments delay. In our view, such a conclusion, would not be

reasonable on any evaluation of the allegations.

The third and last reason, that weighed with the learned Judge is about the Company having to face even now, a number of legal proceedings.

This remark can hardly offer a justification, for the order under appeal. Practically anybody can be dragged to court now-a-days. That there are

collateral proceedings against the Company is, therefore, no reflection at all on it, in the absence of any indication of some a diverse remarks or

other against the Company in such proceedings which might tend to provide some prima facie support, at least for the issue of an interlocutory

order in the winding-up.

We must conclude, therefore, that and one of the reasons stated by the learned Judge in his order justifies it. Nor does the order carry

conviction when considered in juxta position with two other orders passed by the learned Judge on the same evening. One was in an application

for an interim injunction, in which he granted an interlocutory order as prayed for. The other was in an application for appointment of a pro-visional

liquidator, in which, he merely ordered notice. It is possible that the learned Judge was struck by the overlapping of the reliefs as between the three

interlocutory motions. Even so, the order under appeal does not evince any clear perception of priorities.

We like to imagine that if the learned Judge had given a reasonable and adequate opportunity to the Company to place its objections, there is

just a chance that he might have avoided passing an order for inventory or, at any rate, avoided relying on wrong reasons for an order for

inventory. In any case, there would have been no room for the comment that the decision was taken without due consideration.

In interlocutory matters the safest guide for a court to act on is not whether a prima facie case is made out for an interim order, but where the

balance of convenience lies, as between the parties. This latter test really provides the requisite safety value to the Court''s conscience, For it

always behaves the Court to make sure that any interim order it is about to make is capable of being unmade at the earliest opportunity if the

situation so demands, or if realization dawns on the Court that the interim order ought never to have been made in the first place. Judicial expiration

of this sort can be readily available in some kinds of inter, locutory orders. Interim injunctions; for example. For today''s injunction can always be

vacated tomorrow, or the day after, if it is found ill a devised or rash And the party, affected can afford to ignore the brief interlude. Not so an

order for taking out inventories. An order of this nature, when made, is made once and for all, even though it is called an interim order. Witness

what happened in. this case. Soon after the order was made, with the warrants of commission supplied to them the Commissioners went to

Coimbatore, visited the Company''s various establishments, and busied themselves taking out inventories. The Commissioners'' reports and their

lists of inventories have since been filed into Court. The company might cry hoarse about it all, as it is now doing, but it can only do so, ex post

facto. Things have been done under that order. They cannot now be undone. Indeed, even the setting aside of the learned Judge''s order in this

appeal would not matter a tittle now. It is said that after passing the interim order, the learned Judge gave a date for the final hearing of the matter

and also granted some weeks'' time to the Company for filing its counter affidavit. We wonder what good it would do to the Company to file a

counter affidavit when the Commissioners appointed by Court had already done their job and, as Mr. Biksheswaran would describe it, the damage

had already been done. Even if, at the final hearing, the Court comes to realize that the order was quite a mistake, that cannot restore the status

quo.

To the judicial mind it must forever be a matter for regret if it should commit a mistake not unavoidably, but owing to a procedural indiscretion.

But judicial regret without the means of setting right judicial error would be a frustrating experience. To adopt Katherine Mansfield out of context,

regret is an appalling waste of energy; you cannot build on it; it is only fit for wallowing in. We grant that where parties are fully heard and an order

is passed, that order too, if wrong, has the same effect on the party aggrieved, as much as a wrong order passed without hearing him. But, then, it

would at least save the Court from being stricken with conscience, if whatever is done is done after a full-blooded hearing. We, therefore, regard it

as quite a caution that where interim orders can do things which, afterwards cannot be undone, courts had better not pass such orders at all, or at

least not pass orders without hearing those who might be affected thereby.

These, then, are out reasons for holding that the order of Shanmukham, J. cannot be sustained. This conclusion of ours is enough to dispose of

the appeal in favour of the Company. We would, however, examine, the other argument of Mr. Biksheswaran wherein he questioned the very

jurisdiction of the learned Judge to pass the order at the time he did. Learned Counsel rested his contention on his interpretation of Section 443(1)

(c) of the Companies Act, 1956, and the impliestions he derived therefrom. According to this contention, the learned Judge was in error in passing

an interim order at the stage of admission of the winding up petition. The suggestion was that an order of this kind can issue, u/s 443(1)(c) of the

Act, only at the time of hearing the winding up petition, and not before.

A perusal of the section shows that it deals with the powers of the winding-up Court while hearing a winding-up petition. In that context,

Clause (c) of Section 443(1) provides that the Court ma y, instead of dealing with'' the winding up petition finally, one way or the other, prefer to

make some interim order or other, and call it a day. The actual words of Section 443(1)(c) are to the effect that ""on hearing a winding-up petition

the Court may make any interim order that it thinks fit"". Mr. Biksheswaran sought to read into this provision an implied bar of the Court''s

jurisdiction to pass interim orders at the stage of admission of the winding up petition.

Learned Counsel''s argument is seemingly based on the rule, ''expression unius est exclusio alterius''. What is expressed excludes what is left

unexpressed. Like any other cannon of constriction, this one will have to be handled with care; otherwise it will misfire. In our opinion, the rule has

a limited application. It will apply to exclude one of a pair of opposites whereone alone is expressly mentioned. Where, for instance, there is a

signboard ''women ''at the entrance to a place, everyone of us, laymen included, world readily recognize that it is no place for ''men'', but is meant

exclusively for the other sex. The logic of this rule of construction cannot, however, fit in with Section 443(1)(c). The section has to be construed in

the context of the mainsprings of Parliament''s resolve to entrust jurisdiction ir company matters to long-established common law Courts under the

existing dispensation, rather than to special tribunals set up or to be set up under the statute. This is one indication we must go by in construing the

relevant provision. Another is that, even while requiring the Court to be the forum for company law proceedings in certain matters, Parliament had

not said, or even hinted at, in any provision in the Companies Act anything which tends to disturb the Court''s traditional role and status.

Incidentally, this is in marked contrast to what the Tamil Nadu State Legislature did in some of the Estates Abolition Acts. Under these Acts the

final appeal lay to the High Court but, in the process, the High Court itself was downgraded in status as a mere tribunal with appellate powers. It is,

however, quite different with the Companies Act. Among the matters entrusted by this Act to the Court, the winding-up of companies is the most

important. In. our judgment, the investitute of the Court with the win ding-up jurisdiction"", as of other powers, must be interpretedas adding to the

gamut of the Court''s existing jurisdiction. It would be mistake to interpret the statute as stripping the Court of all its powers first and then

conferring on it only such powers as are permitted, say by Section 443(1) and other related provisions. We are satisfied that having regard to the

scheme of the Companies Act, we cannot read any provision in the statute which relates to jurisdiction of Courts, as being in derogation of the full

plenitude of the Court''s powers under the common law, unless we cap find in it a clearly expressed, or equally clearly implicit, bar of restriction of

the Court''s jurisdiction

We think it necessary for Courts to construe statutes, such as the Companies Act, according to the wisdom of Parliament and not according to

the folly of the draftsman. Section 443(1) is a case in point. The section sets about enumerating the different ways in which, the Court can tackle a

winding-up petition when it comes before it for hearing. The section, in this context, enumerates the Court''s powers. But there are certain things

which go without saying or ought to. Adjournment, for instance, is one of them, you cannot regard it as a remarkable aspect of judicial power. And

yet, Clause (b) of Section 443(1) very seriously mentions adjournment as one of the ways in which the Court can gives disposal to the petition on

the day of the hearing. This is quite an insane provision. Even without it nobody would contend and certainly not practising lawyers, that a winding-

up Court has no power to a Doerun the petition, but must get on with it even at the first hearing. Nor, for that matter, would anyone argue that

because of Clause (b) the Court has lost its power. to grant adjournments on other occasions. So too is the case with Clause (c) of Section 443(1)

which refers to the passing of interim orders. The presence of this clause in Section 443(1) cannot mean that, but for it, the Court will have no

power to pass any interim orders at any time, or, because of its presence in Section 443(1), its existence or exercise on other occasions must be

ruled out. Courts and lawyers should read Acts of Parliament sensibly. They should not match the denseness of the draftsman with a dithering

denseness or their part. We are satisfied that Section 443(1)(c.) has not the hidden meaning which Mr. Biksheswaran attributes to it, namely, that

no interim order can be passed by a winding-up Court at the time of admission of the winding-up application.

Mr. Vasantha Pai submitted before us that a winding-up Court has an inherent, power to pass interim orders at any time. This argument is

directed to answering Mr. Biksheswaran''s object on to jurisdiction but it really goes a long with Mr. Biksheswaran�s interpretation of Section

443(1)(c) and is in tacit acceptance of it, which we have earlier rejected. Mr. Pai referred to Rule 9 of the Companies (Court) Rules to spell out

the theory of inherent powers. Rule 9, it is plain to see, is of no help. It occurs in the statutory Rules, and is applicable only in so far as the Rules

are concerned. The text of the Rule itself clearly says so. If there is a lacuna in the statute, a mere rule cannot design to supply it. The Supreme

Court is the rule-making authority which has in a med the Companies (Court) Rules. As a judicial tribunal it might be open to the Supreme Court to

spell out the company Court''s powers from the statute, as we have done in the foregoing paragraphs. Paradoxically enough, however, what the

Supreme Court can do by way of interpretation in an activist manner, as a Court of construction, it cannot bring abort in subordinate Legislation, in

the same activist manner as a rule-making authority. Be that as it may, we would prefer to rest our decision, rather, on the scheme of the Act and

on the very words of Section 443(1)(c) to hold that the Court''s power to pass interim orders at any time it thinks fit in the course of winding up

proceedings is net expressly or impliedly barred-under the Companies : Act. Turning to the case on hand, our conclusion is, that whatever other

defects the learned Judge''s order under appeal might hold, it does not suffer from want of jurisdiction.

At the conclusion of his argument, Mr. Biksheswaran urged that in the event of our setting aside the order appointing Commissioners and the

direction for taking inventories, we might also consider the feasibility of making an added declaration that the reports and inventories filed by the

commissioners in the winding-up proceedings ought not to be treated as part of the record but must stand expunged. We do not think we should

accede to the learned Counsel''s request. For all that is before us in this appeal is the order of the learned Judge. We are setting aside that order.

What effect our judgment holds is not a matter on which we should animadvert. As an appellate Court we can only pass an appellate order. We

cannot be explaining what its consequences will be, either in law or on facts, in follow-up proceedings.

Having considered the order of Shanmukham, J., with the care and respect which it deserves, we are of the view that the grounds on which

that order is founded are untenable. What is more, the passing of the order without affording the Company an adequate hearing cannot be justified.

These defects in the order can only be cured by setting it aside. We accordingly do so. In the circumstances, however, there will he no order as to

costs.