1945 (4) TMI 12 - HC - Companies Law

Court limits jurisdiction under Section 38 of Companies Act, dismisses receiver application.

Jagadhri Light Railway, In re

The Court dismissed the application for the appointment of a receiver under Section 38 of the Indian Companies Act, emphasizing that the Court's ... Power of court to rectify register of members Issues Involved:1. Jurisdiction of the Court under Section 38 of the Indian Companies Act.2. Validity of the appointment of a receiver under Section 38 of the Indian Companies Act.3. Applicability of Order 40, Rule 1, read with Section 141 of the Civil Procedure Code in the context of Section 38 of the Indian Companies Act.Detailed Analysis:1. Jurisdiction of the Court under Section 38 of the Indian Companies Act:The Court's jurisdiction under Section 38 of the Indian Companies Act is limited to rectification of the register of members and, in some cases, payment of damages by the company to any aggrieved party. The section does not grant the Court the authority to interfere with the management or business of the company. The Court cannot remove directors or restrain them from managing the company's affairs under this section. The relief provided is strictly concerning the correction of the register and does not extend to the broader management of the company.2. Validity of the appointment of a receiver under Section 38 of the Indian Companies Act:The Court concluded that the appointment of a receiver to manage the company's affairs and property is not justified under Section 38 of the Indian Companies Act. The section is concerned with the individual rights of shareholders regarding their entry in the register of members and does not encompass the management of the company's property or business. The Court emphasized that shareholders do not have the right to interfere with the management of the company's property or business during the proceedings for rectification of the register. The Court's jurisdiction under Section 38 ends once the rectification order is made, and it does not extend to appointing a receiver to manage the company's affairs.3. Applicability of Order 40, Rule 1, read with Section 141 of the Civil Procedure Code:Order 40, Rule 1, allows the Court to appoint a receiver for any property if it is just and convenient. However, this rule does not authorize the Court to remove a person from the possession or custody of the property if the party to the suit does not have a present right to do so. In the context of Section 38 of the Indian Companies Act, shareholders do not have the right to remove directors from managing the company's property. The directors, as agents of the company, are not necessary or proper parties to an application under Section 38. The Court held that the provisions of Order 40, Rule 1, read with Section 141 of the Civil Procedure Code, do not apply to applications under Section 38 of the Indian Companies Act.The Court referenced several cases to support its view, including the case of Haribans Prasad-Ajodhya Prasad v. The National Sugar Mills, Delhi (In Liquidation), where it was held that the Court possesses ample powers to pass interim orders for the protection and preservation of the subject matter in dispute. However, these powers do not extend to appointing a receiver under Section 38 of the Indian Companies Act.Conclusion:The Court dismissed the application for the appointment of a receiver, emphasizing that the jurisdiction under Section 38 of the Indian Companies Act is limited to rectification of the register and does not extend to managing the company's affairs or property. The case was remitted to the learned company Judge for proceeding with the original application, with costs to abide by the event.