TaxTMI 
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TaxTMI 
1945 (4) TMI 12
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....der the United Provinces Encumbered Estates Act for relief in respect of these debts. On the 30th April 1937 the Special Judge passed a decree in favour of the creditors against the family. In execution of the decree the shares held by all the members of the family were sold. Three hundred shares were purchased by Hari Ram, petitioner in Civil Original No. 43 of 1943, and 150 shares were purchased by Rattan Lal, Mahabir and Bakhtawar Singh, petitioners in Civil Original No. 71 of 1943. The purchasers of these shares made an application to this Court under the provisions of section 38 of the Indian Companies Act and prayed for rectification of the registers of members by substituting in the register the names of the petitioners in place of the names of the seven members of the family. The decree that the Judge exercising jurisdiction under the United Provinces Encumbered Estates Act made was also in favour of the company itself against all the seven members of the family. In other words, one of the decree-holders was the Jagadhri Light Railway Company, Limited. The company did not take out execution proceedings. Under article 49 of the articles of association it had a first and pa....
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....ich the following observations were made:- "But I must say that it is the first time that I have heard of a Court assuming jurisdiction to appoint a receiver to conduct the business of a company unless the receiver is appointed in a debenture-holders' action when the business and assets of the company have been charged with payment of the claims of the debenture holders." My learned brother who heard this matter doubted the correctness of these observations, particularly in view of the provisions of Order 40, rule 1, Civil Procedure Code, read with section 141 of the same Code. In view of the importance of the matter, he however, referred the case to a Division Bench for decision. The short question for decision before us is whether a company Judge exercising jurisdiction under the provisions of section 38 of the Indian Companies Act has jurisdiction to appoint a receiver to take over the management and business of the company and also take over possession of its property pending decision of that application, and whether in such a situation the provisions of Order 40, rule 1, read with section 141, Civil Procedure Code, have application. The general question whether a Judge exer....
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....6 L.R. Equity Cases 298 and the case of Trade Auxiliary Company v. Vickers [1873] 16 L. R. Equity Cases 303. These were no doubt cases in which the receiver was appointed in an action and not in summary proceedings. But I see no difference in the exercise of Court's powers to appoint a receiver whether the matter comes to it in exercise of its ordinary civil jurisdiction or in the exercise of its summary jurisdiction. Therefore, in my view, it is possible in suitable cases under the Indian Companies Act to appoint a receiver who may take up the business of the company and the management of its property and its affairs pending the decision of the Court in that litigation. The matter, however, in my view is different so far as the exercise of jurisdiction under section 38 of the Indian Companies Act is concerned. That section lays down that:- "(1)If- (a)the name of any person is fraudulently or without sufficient cause entered in or omitted from the register of members of a company; or (b)default is made or unnecessary delay takes place in entering on the register the fact of any person having ceased to be a member, the person aggrieved, or any member of the company, or the compa....
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....er decree; (b)remove any person from the possession or custody of the property; (c)commit the same to the possession, custody or management of the receiver; and (d) upon the receiver all such powers, as to bringing and defending suits.......... (2) Nothing in this rule shall authorize the Court to remove from the possession or custody of property any person whom any party to the suit has not a present right so to remove." A share-holder has no right to remove a director from the possession and custody of any property when he himself is claiming entry on the register of members by recourse 10 the provisions of section 38 of the Indian Companies Act. As a matter of law the directors of a company who are in charge of the management and business of the company are not necessary or proper parties to an application made under section 38 of the Indian Companies Act. In this connection reference may be made to the case, In re Keith Prowse & Co., Limited [1918] 1 Ch, 487. This was a case under section 32 of the Companies (Consolidation) Act, 1938, for rectification of the register and it was held that directors of the company were not properly joined as respondents notwithstanding that....
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....icants as share-holders after the rectification order. In my judgment any person applying for rectification of the register of members under section 38 of the Indian Companies Act cannot disturb the business of the company or its management during those proceedings. Once he acquires a status he may be able to take appropriate proceedings for bringing about a change in the business and the management of the company but not till then. It is clear that the Court's jurisdiction under section 38 of the Indian Companies Act comes to an end as soon as the rectification order is made. It is obvious that its order in the receivership application would also terminate at that stage. I asked Mr. Ved Vyas as to whom the Court would order the receiver to hand over the business or the property on that date. All that Mr. Ved Vyas could say was that the Court should wait till his clients had taken some action in the matter of the removal of the directors. He went to the length of suggesting that the receiver himself may have to call a meeting of the share-holders to elect new directors to whom, when elected, the receiver will hand over the management of the affairs and the property of the company.....
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....ffect that the scope of sub-rule (2) of Order 40, rule 1, is limited to persons who are strangers to the suit. That proposition again is unexceptionable but does not apply to the present case because, as already pointed out, the directors are strangers in the eye of law to applications made under section 38 of the Indian Companies Act. Lastly Mr. Ved Vyas placed reliance on two English cases. Both of them are reported in L.R. XVI Equity Cases and they have already been mentioned. The first case. Trade Auxiliary Company v. Vickers [1873] L.R. 16 Equity Cases 303, was one in which a bill was filed to the effect that a lequisition signed by a number of share-holders to hold an extraordinary meeting of the company in order to constitute a proper governing body had not been honoured by the directors. In this, motion was made for the appointment of a receiver till a proper board of directors could be constituted. In this case Sir R. Maliins, V.C, ordered the appointment of a receiver. In order to give relief to the plaintiff in that case it was necessary also to rectify the register, but the rectification of the register was not the relief claimed in the action. The relief claimed to th....