2008 (10) TMI 358 - HC - Companies Law

Legal heirs must obtain succession certificates for dividend payments under Rule 280. Court emphasizes creditor safeguards.

Hariganga Alloys Steel Ltd., In re

Hariganga Alloys Steel Ltd., In re - [2010] 101 SCL 85 (BOM.) Issues Involved:1. Entitlement of legal heirs to receive dividend payments without succession certificates.2. Applicability of inherent powers of the Court under Rule 9 of the Companies (Court) Rules, 1959.3. Interpretation and application of Rule 280 of the Companies (Court) Rules, 1959.4. Previous judgments and their relevance to the current case.Issue-wise Detailed Analysis:1. Entitlement of Legal Heirs to Receive Dividend Payments Without Succession Certificates:The legal heirs of deceased workers of Hariganga Steel & Alloys Ltd., a company in liquidation, filed applications seeking directives for the Official Liquidator to pay them the dividend amounts without insisting on succession certificates. The Official Liquidator had calculated the total entitlement of each worker and declared a 14 percent dividend payable to them. The heirs argued that the insistence on succession certificates was arbitrary and unsustainable, especially given the small amounts involved and the hardships faced by the dependents of the deceased workers.2. Applicability of Inherent Powers of the Court Under Rule 9 of the Companies (Court) Rules, 1959:The applicants contended that the Court should exercise its inherent powers under Rule 9 to allow payments to be made to the legal heirs without succession certificates. Rule 9 states that nothing in the Rules shall limit or affect the inherent powers of the Court to give directions or pass orders necessary for the ends of justice or to prevent abuse of the process of the Court. The applicants argued that the inherent powers should be invoked to do justice in the present case.3. Interpretation and Application of Rule 280 of the Companies (Court) Rules, 1959:Rule 280 deals with the payment of dividends or return of capital due to a deceased creditor or contributory. It allows the Official Liquidator to apply to the Court for sanctioning such payments without a succession certificate if the amount is Rs. 500 or less, provided the Official Liquidator is satisfied with the claimant's right and title. The Court must then scrutinize the correctness of the Official Liquidator's satisfaction and sanction the payment upon obtaining a personal indemnity from the payee. The Court found that Rule 280 does not permit the Company Court to sanction payments directly to claimants without the Official Liquidator's intervention and compliance with the safeguards prescribed in Rule 280.4. Previous Judgments and Their Relevance to the Current Case:The applicants cited various judgments to support their case, including a Division Bench judgment in Company Appeal No. 8 of 2007, which held that Rule 164 does not bar applications made beyond the prescribed period if justified. However, the Court distinguished this case from the present one, noting that Rule 280 expressly restricts the Official Liquidator's power to make payments without a succession certificate and does not provide for the Court to waive this requirement. The Court also considered other unreported judgments and orders but found them inapplicable to the present issue.Conclusion:The Court concluded that it could not deviate from the procedure prescribed in Rule 280, which safeguards the interests of genuine creditors. The applications were rejected, but the Court directed that if the applicants move for succession certificates or similar authority, the concerned competent Court or authority should decide such proceedings expeditiously.