1985 (8) TMI 271 - HC - Companies Law

Court dismisses appeals, vacates stay order, no costs awarded.

Naini Oxyzen & Acetylene Gas Ltd. Versus Bisheshwar Nath

Naini Oxyzen & Acetylene Gas Ltd. Versus Bisheshwar Nath - [1986] 60 COMP. CAS. 990 (ALL.) Issues Involved:1. Whether the order dated April 30, 1985, could be termed as a 'judgment' under Chapter VIII, rule 5 of the Rules of Court.2. Validity of clauses 9.1 and 9.2 of the compromise under sections 397 and 398 of the Companies Act, 1956.3. Requirement of board resolution under section 292 of the Companies Act for acknowledging liabilities under clauses 9.1 and 9.2.4. Applicability of section 46 of the Companies Act regarding the authority to sign the compromise.5. Necessity of following the procedure under section 391 of the Companies Act for the compromise.6. Compliance with sections 297 and 299 of the Companies Act regarding contracts by directors or their relatives or friends.7. The locus standi of two shareholders who filed an appeal.Issue-wise Detailed Analysis:1. Whether the order dated April 30, 1985, could be termed as a 'judgment' under Chapter VIII, rule 5 of the Rules of Court:The court held that the order dated April 30, 1985, even if treated as an interlocutory order, falls within the term 'judgment' because it decided certain points finally that could not be raised again during the execution of the decree. The court found no substance in the preliminary objection that the appeal was not maintainable.2. Validity of clauses 9.1 and 9.2 of the compromise under sections 397 and 398 of the Companies Act, 1956:The court observed that the decree dated January 9, 1984, had become final and no appeal was filed against it. The court noted that sections 397 and 398 confer wide powers to pass orders deemed fit in the interest of the company to remove oppression or mismanagement. The court cited precedents indicating that these sections allow for broad judicial discretion. The court found no merit in the argument that clauses 9.1 and 9.2 were beyond the scope of these sections.3. Requirement of board resolution under section 292 of the Companies Act for acknowledging liabilities under clauses 9.1 and 9.2:The court noted that the appellant's counsel could not demonstrate that the liabilities under clauses 9.1 and 9.2 fell under any of the categories in section 292(1)(a) to (e). Therefore, the absence of a board resolution did not invalidate these clauses.4. Applicability of section 46 of the Companies Act regarding the authority to sign the compromise:The court considered the argument that the compromise needed to be signed by an authorized person under section 46. It noted that the same group represented by Durga Prasad Agarwal, which filed the compromise, was now challenging it. The court emphasized that one cannot approbate and reprobate, and found no justification for not applying section 46 uniformly to the entire compromise.5. Necessity of following the procedure under section 391 of the Companies Act for the compromise:The court rejected the argument that the procedure under section 391 was required for the compromise. It highlighted that the purpose of sections 397 and 398 is to promptly address oppression and mismanagement, and the court has wide powers to take necessary actions in the company's interest. The court found no authority supporting the automatic application of section 391 to compromises under sections 397 and 398.6. Compliance with sections 297 and 299 of the Companies Act regarding contracts by directors or their relatives or friends:The court noted that these issues were not raised before the learned company judge and did not appear in the memorandum of appeal. These pleas involved questions of fact and could not be entertained at this stage. The court also pointed out that non-disclosure under section 299 results in a fine but does not render the contract void.7. The locus standi of two shareholders who filed an appeal:The court observed that the two shareholders appeared to have been set up by the group represented by Durga Prasad Agarwal. Their counsel merely adopted the arguments made by the company's counsel. The court noted that proceedings under sections 397 and 398 are representative in nature, and the interests of shareholders are represented by the concerned directors. The court found no reason to take a different view from the learned company judge regarding the objections filed by these shareholders.Conclusion:The court dismissed the appeals, finding no merit in the arguments presented. The interim order of stay was vacated, and no order as to costs was made.