S.P. Khanna, Dy. Official Liquidator, Laxmi Bank Ltd., Nagpur vs S.N. Ghosh

B.A. Masodkar, J.—Company Appeal No. 6 of 1975 taken up for hearing for admission. That appeal is filed by the Deputy Official Liquidator and questions the validity of the order of the learned Company Judge protecting the transaction of Rs. 7,000 u/s 536 (2) of the Companies Act, 1956, effected on May 30, 1960, followed by the transaction on 31st between Calcutta and Rajnandgaon branches of the Laxmi Bank taken in liquidation.

Mr. Khanna appearing for the appellant firstly submits that he has a right of appeal and as such at the admission stage merits cannot be decided. He submits that appeal be admitted and finally heard in view of the provisions of section 483 of the Companies Act, 1956, (hereinafter referred to as the Act) and the decision of the Supreme Court reported in the case of Golcha Investment (P) Ltd. Vs. Shanti Chandra Barna, . Secondly, he submits that on the merits the order of the learned Company Judge protecting the transaction in exercise of the power u/s 536 (2) of the Act is questionable as it is made after the winding up order and should be reversed.

The first submission made on the basis of the decision of Supreme Court is to the effect that we have no jurisdiction to reject the appeal at the admission stage. Reliance is placed on observations in paragraph 7 of the judgment of the Supreme Court. After careful consideration of these observations, we are inclined to take the view that from those such inference does not follow. The decision cannot be read as laying down that we have no authority as an appellate Court u/s 483 of the Act to hear the party-appellant on merits at the stage of admission and decide whether the controversy raised in appeal has any prima facie substance or not. If we were to read the observations in that manner, then the process of putting the appeals for admission would be rendered formal and would lose all its inherent efficacy. As we read the judgment, the observations in paragraph 7 have been made in the context of Rule 966A of the Bombay High Court Rules which provided for the matters to be placed for admission before the Court. Reading the rule as making it unnecessary to put the matter for admission and holding that order in question was appealable, the Supreme Court allowed that appeal. That is what on plain reading is the substance of that judgment

From this it is not possible to logically extend the scope of those observations that are primarily to be read in the context of that controversy as laying down the law u/s 483 of the Act itself, in that mechanically we have to treat an appeal petition instituted, as admitted. Surely the highest Court would not envisage such a process.

The jurisdiction to entertain an appeal flows from the principal provision of section 483 of the Act itself. That does not put any fetters to reject the worthless appeals at the initial stage, i.e. the admission stage, nor enacts the process that mere institution of the appeal would tantamount to its admission and must go for final hearing. That provision provides clearly for a remedy and is not intended to limit or control the exercise of the powers of the Court of appeal which has to be treated and proceeded with like any other civil appeal. In the constitution of such appeal and its procedure, the stage of admission, like the one of final hearing after issue of notice, appears to us as inherent. Matters are placed for admission with a view to enable the Court to apply its mind to controversy and to find out whether the order questioned calls for reconsideration by the higher Court. This is usually done by giving hearing to the party-appellant. It is implicit that at that stage, the Court may adjudicate by finding against the petitioning appellant and upholding the order impugned. Such adjudication at the stage of admission of appeal is part of the jurisdiction of the appellate Court and we have doubt whether that jurisdiction could be affected if it is explicitly granted by the statute by framing a rule of procedure. Placing the matters for admission before the Court are not mere matters of procedure but also involve exercise of judicial authority by the appellate Court. Normally if the authority is conferred by the statute, we would be loath to hold that its effectiveness would stand curtailed by any procedural rule disabling the Court, of the power of hearing the appeal and pronouncing at the stage of admission about the merits of the appeal by finding out whether the same deserves further consideration by the Court.

All this process involved in "admission" has clear juridical efficacy and recognition. It subserves the dynamics to have a speedy and sure disposal of matters brought before the higher forums in the judicial hierarchy. The CPC permits expressly the rejection of appeals at admission stage by enacting provision like Order 41, rule 11, Civil Procedure Code. Even without such a provision, we would think that it would be in built in the appellate jurisdiction enabling the Court to hear the appellant as to the matter brought before it and reject the appeal which may prima facie have no merit or may suffer from the defects of untenability, limitation as well of incompetency. This stage, which is treated as admission stage of an appeal, appears to protect the litigation from waste of costs as well of public and private time. That can effectively check meritless and vexatious litigations. All these considerations must be kept in view while considering the format of appeal provided by statute. Provisions of section 483 and the appeal thereunder cannot be treated as an exception and as erasing out all these juridical as well as judicious considerations inherent in the admission stage of an appeal. We can well observe that the stage of admission of appeals in Company matters is neither superfluous nor unnecessary. In fact that posits serious exercise of appellate authority full of judicial consequences. Unless there is something expressly dispensing with that stage, it would be neither just nor proper to hold that in the appeals u/s 483 there cannot be a hearing at the admission stage. We have already indicated that what was observed in M/s. Golcha''s case (supra) was with reference to the rule of this Court and nothing more. That observation cannot further be strained or logically extended as lying down that in an appeal u/s 483 of the Act the appellate Court is powerless at the stage of admission to find out the merit of the appeal or is disabled from rejecting it though it may be worthless. It is well settled that possible logical extensions from the ratio of a judgment surely are not part of the ratio itself and it is hazardous to apply precedents in that manner.

The presentation of appeals u/s 483 of the Act and the matters of procedure are akin and are governed by Chapter VI of the Bombay High Court Appellate Side Rules, 1960, which deal with Letters Patent Appeal. Section 483 by itself permits an appeal which will be governed as if it is an appeal in Letters Patent being from the order of the single Judge and to the Bench of this Court because of the phraseology used by that section. Rule 3 in Chapter VI specifically provides that such appeals are to be placed for admission before the Division Bench and rule 5 makes provisions of Order 41 of the CPC applicable to those appeals. Expressly, therefore, in these Rules, the stage of admission of the appeal by the Bench indicated and that would therefore suffice to indicate that the Court can exercise all the powers which the Court of appeal exercises at the stage of admission of the appeal including the one leading to decision that the appeal deserves to be dismissed and is not fit one to go in for final hearing.

Coming to the merits on which another submission of Mr. Khanna is based, the facts themselves show that there is no substance in them. On May 30, 1960, the Calcutta branch of the Bank in liquidation accepted the sum of Rs. 7000 and issued a draft directing payments thereunder to its Rajnandgaon branch. On 31st this draft was credited and honoured by the Rajnandgaon branch. It may be stated that at the time of making of the winding up order, all the transactions of May 30 have been expressly saved as valid and effective. The learned Company Judge under the impugned order has taken the view that the transactions of 30th and 31st are one and the same and, therefore, has proceeded to hold that he would protect the same by resort to his power u/s 536 (2) of the Act. It was not suggested at the time of argument that the transaction was in any manner colourable or there was even remotely lack of bona fides. What is being urged is that after the winding up order was made, the Court could not exercise the powers u/s 536 (2) of the Act and save the transaction.

Upon facts if the bona fides are established, then, the order made by the learned Judge cannot at all be attacked. The principle and policy underlying the provision of section 536 (2) of the Act, which declares certain transactions as void, is clearly enabling and the power has to be exercised in the interest of justice. Here a person paying the amount of Rs. 7000 on May 30th had taken a draft for cash consideration and on the very second day, the Rajnandgaon Bank had honoured that draft. Interests of justice, therefore, are in favour of saving such a transaction. It is not as if that they any old debt or old credit is being discharged on 31st. To protect such bona fide transactions, we feel, the power has been conferred by the statute. No exception can be taken, therefore, to the order made by the learned Judge in holding that the transaction would not be void. In fact, Company Jurisprudence and the principles involved in such matters would tend to indicate that all transactions bona fide made and shown to be fair, just and reasonable deserve to be protected because of clear equity involved in such matters. The provision of section 536 (2) declares the transactions after the commencement of the winding up void but leaves jurisdiction to the Court to make appropriate orders in that regard. That jurisdiction is equitable and is meant to be exercised as such. If even bona fide transaction for a consideration would not be protected, then the Company, only by the fact that the process of winding up has started, would benefit itself by unjust enrichment. Such a result has clearly to be avoided while exercising the power under this provision.

As to the other part of the submission that the Court could not under sub-section (2) of section 536 make the order, the appellant is clearly raising an erroneous issue. Sub-section (2) clearly permits making of such order after the commencement of the winding up proceedings by the Court. From the words "after the commencement of the winding up", a submission was made that the order could only be made before the actual winding-up order is made and not after that. The argument has to be noted to be rejected. Firstly by the word "after" the stage of commencement of winding-up u/s 441 of the Act is indicated and secondly this is not a case where winding-up has resulted in the final order of dissolution. Section 441 enacts how the commencement of winding up has to be construed. If it is a case under sub-section (1) wherein there is a resolution for voluntary winding up, then the date of passing of the resolution is the beginning, and in all other cases, if the winding up of the Company is by the Court, then the time of presentation of the petition for winding up is to be reckoned as commencement. In the body of sub-section (2) of section 536, there is no terminus quo stated of this period. The provisions of section 536 are themselves the part of Chapter V which is applicable to every mode of winding up. So while the proceedings of winding up are going on and the dissolution has not reached it is obvious that power u/s 536 (2) can be exercised by the Court.

For all these reasons, we hold that there is no merit in the present appeal and the same will stand dismissed.