2004 (2) TMI 390 - HC - Companies Law

Respondent found guilty of contempt for disobeying court order, ordered to pay costs.

Magna Graphics Ltd. Versus Prakash Sabde

The High Court found the respondent guilty of contempt of court for wilfully disobeying its order dated 1st November 2001. The respondent's decision to ... Deemed Company Issues Involved:1. Wilful disobedience of the High Court's order dated 1st November 2001.2. Interpretation of the change of name under section 43A(1A) of the Companies Act, 1956.3. Validity of the demand for unearned profit by the Collector.4. Contempt of Court by a quasi-judicial authority.Detailed Analysis:1. Wilful Disobedience of the High Court's Order Dated 1st November 2001:The petitioner claimed that the respondent had wilfully disobeyed the High Court's order dated 1st November 2001, which clarified that the change of the petitioner's company name was due to the operation of law under section 43A(1A) of the Companies Act, 1956, and not a voluntary act. Despite this, the respondent rejected the appeal on 25th February 2002, arguing that the petitioner did not seek prior permission from the Collector before changing its name, thus justifying the demand for unearned profit. The High Court found that the respondent's decision was in contravention of its earlier ruling, constituting wilful disobedience.2. Interpretation of the Change of Name Under Section 43A(1A) of the Companies Act, 1956:The High Court had ruled that the change in the petitioner's company name from Magna Graphics (India) Pvt. Ltd. to Magna Graphics (India) Ltd. was due to the operation of law as per section 43A(1A) of the Companies Act, 1956, which mandates that a private company with an annual turnover exceeding Rs. 10 crores automatically becomes a deemed public limited company. This ruling was based on the undisputed fact that the petitioner's annual turnover had exceeded Rs. 10 crores, thus necessitating the name change by law and not by any voluntary act of the company.3. Validity of the Demand for Unearned Profit by the Collector:The Collector's demand for 50% of the unearned profit was based on the argument that the petitioner had changed its name without prior permission, as required by the original lease conditions. The High Court, however, clarified that the change in the company's name was not a voluntary act but a statutory requirement under section 43A(1A) of the Companies Act, 1956. The respondent's insistence on prior permission and the subsequent demand for unearned profit were found to be unjustified and contrary to the High Court's earlier ruling.4. Contempt of Court by a Quasi-Judicial Authority:The High Court examined whether the respondent's actions amounted to contempt of court. It was established that the respondent, while exercising quasi-judicial powers, was bound by the High Court's declaration that the name change was due to the operation of law. The respondent's failure to comply with this ruling and his decision to uphold the demand for unearned profit constituted wilful disobedience. The respondent's argument that there was no specific direction in the High Court's order to refrain from demanding unearned profit was rejected, as the declaratory nature of the order was binding and clear.Conclusion:The High Court found the respondent guilty of contempt of court for wilfully disobeying its order dated 1st November 2001. The respondent's decision to demand unearned profit was in direct contravention of the High Court's ruling that the name change was due to the operation of law. Although the respondent tendered an unconditional apology, which was accepted, he was ordered to pay costs to the petitioner-company. The proceedings were closed with the notice discharged and the contempt petition disposed of.