1998 (9) TMI 427 - SC - Companies Law

Section 155 jurisdiction is summary; 'sufficient cause' tested against Companies Act and Rules; examine prima facie forgery disputes

Ammonia Supplies Corpn. (P.) Ltd. Versus Modern Plastic Containers (P.) Ltd.

SC held that jurisdiction under section 155 is summary in nature and 'sufficient cause' must be tested against the Companies Act and Rules; omission means ... Scope of section 155 and section 446 - power of the Court to rectify the register of members of a company under section 155 - Whether in the proceedings under section 155 of the Companies Act, the Court has exclusive jurisdiction in respect of all the matters raised therein or have only summary jurisdiction? Held that:- The word 'sufficient cause' is to be tested in relation to the Act and the Rules. Without sufficient cause entered or omitted to be entered means done or omitted to do in contradiction of the Act and the rules or what ought to have been done under the Act and the rules but not done. Reading of this sub-clause spells out the limitation under which the Court has to exercise its jurisdiction. It cannot be doubted in spite of exclusiveness to decide all matter pertaining to the rectification it has to act within the said four corners and adjudication of such matter cannot be doubted to be summary in nature. We conclude the principle of law as decided by the High Court that jurisdiction of Court under section 155 is summary in nature cannot be faulted. Reverting to the second limb of submission by the learned counsel for the appellant that court should not have directed for seeking permission to file suit only because a party for dispute sake states that the dispute raised is complicated question of facts including fraud to be adjudicated. The Court should have examined itself to see whether even prima facie what is said is complicated question or not. Even dispute of fraud, if by bare perusal of the document or what is apparent on the face of it on comparison of any disputed signature with that of the admitted signature the Court is able to conclude no fraud, then it should proceed to decide the matter and not reject it only because fraud is stated. Further on the other hand the learned counsel for the respondent totally denies any share having been purchased by the appellant-company or any amount paid to it. No transfer of any such share was ever approved by the Board of directors. It is urged the money even if advanced to Shri V.K. Bhargava by the appellant-company, if at all was a private transaction between the two to which respondent-company has no concern. So we find there is total denial by the respondent. As gone through the judgment of the High Court it has rightly held the law pertaining to the jurisdiction of 'Court' under section 155 and even referred to some of the documents of the appellant but concluded since they are disputed and said to be forged hence directed for seeking leave if advised for suit. We feel it would have been appropriate if the Court would have seen for itself whether these documents are disputed and any document is alleged to be forged whether it said to be so only to exclude the jurisdiction of the court or it is genuinely so. Similarly we feel appropriate while deciding this the court should take into consideration the submissions for the respondents, whether it would come within the scope of rectification or not in the light of what we have said above. Since the High Court has not examined this case in the aforesaid light, we feel it appropriate to direct the High Court to decide this question in the light of what we have said afresh Issues Involved:1. Jurisdiction of the Court under Section 155 of the Companies Act.2. Nature of the proceedings under Section 155 - whether summary or exclusive.3. Rectification of the register of members.4. Allegations of fraud and forged documents.5. Applicability of Section 446(2) for directing the appellant to seek remedy through a civil suit.Issue-wise Detailed Analysis:1. Jurisdiction of the Court under Section 155 of the Companies Act:The primary issue raised by the appellant was whether the Court has exclusive jurisdiction in proceedings under Section 155 of the Companies Act or if it only has summary jurisdiction. The appellant argued that the jurisdiction should be exclusive, citing conflicting decisions from various High Courts. The Full Bench of the Delhi High Court, however, decided that the jurisdiction under Section 155 is summary in nature, rejecting the appellant's claim of exclusive jurisdiction.2. Nature of the Proceedings under Section 155 - Whether Summary or Exclusive:The judgment extensively discussed the nature of the jurisdiction under Section 155. It was noted that various High Courts, including Delhi, Punjab, and Calcutta, have held that the jurisdiction is summary in nature. The Supreme Court reaffirmed this view, stating that the remedy provided by Section 155 is indeed summary. The Court emphasized that the term 'rectification' implies correcting an error or removing defects, which inherently suggests a summary process.3. Rectification of the Register of Members:The appellant-company sought rectification of the register of members, claiming that it had invested in shares of the respondent-company, which were not duly recorded. The Court examined the procedural requirements for rectification, highlighting that any claim for rectification must show compliance with the statutory requirements for registering shares. The Court concluded that the scope of rectification is limited to correcting errors in the register and does not extend to adjudicating complex disputes over title or other substantive issues.4. Allegations of Fraud and Forged Documents:The respondent-company vehemently disputed the appellant's claim, alleging that no such investment was made and that several documents presented by the appellant were forged. The Court noted that such allegations of fraud and forgery complicate the matter, making it unsuitable for summary jurisdiction under Section 155. The Court emphasized that if the dispute involves complex questions of fact or allegations of fraud, it may be necessary to direct the parties to seek remedy through a civil suit.5. Applicability of Section 446(2) for Directing the Appellant to Seek Remedy Through a Civil Suit:The Court discussed the interplay between Section 155 and Section 446(2) of the Companies Act. It was noted that while the jurisdiction under Section 155 is summary, Section 446(2) allows the Company Judge to entertain or dispose of any suit or proceeding by or against the company under winding-up. The Court concluded that if the issues raised are beyond the scope of rectification and involve complex disputes, the Company Judge has the discretion to direct the parties to seek remedy through a civil suit.Conclusion:The Supreme Court upheld the view that the jurisdiction under Section 155 is summary and not exclusive. It directed the High Court to re-examine the matter in light of the principles laid down, particularly whether the issues raised fall within the scope of rectification or require adjudication through a civil suit. The appeal was partly allowed, with the High Court instructed to decide afresh without prejudice to any party.