PETITIONER:
COSMOSTEELS PRIVATE LTD.
Vs.
RESPONDENT:
JAIRAM DAS GUPTA & ORS.
DATE OF JUDGMENT16/12/1977
BENCH:
DESAI, D.A.
BENCH:
DESAI, D.A.
BEG, M. HAMEEDULLAH (CJ)
BHAGWATI, P.N.
CITATION:
1978 AIR 375 1978 SCR (2) 422
1978 SCC (1) 215
CITATOR INFO :
R 1980 SC 517 (11)
ACT:
Companies Act, (Act 1 of 1956), SS. 77, 100-104. 397, 398 &
402–Distinction between the procedures u/s 100-104 and (u/s
402-While granting relief u/s 402, for reduction of share
capital protanto, the procedures u/s 100-104 are not
necessary–Objects behind procedures prescribing the Court
to give notice-Notice u/s 400 is not necessary at appellate
stage-No injury has been caused to the interveners by non-
issue of the notice.
HEADNOTE:
In Appeal No. 1347(N) 1977 by special leave against the
interlocutory orders dated 21-4-1977 of the Company Judge of
the Calcutta High Court in the company petition No. 85/75,
filed by the respondents u/ss. 397/398 of the Companies Act,
’1956, complaining of oppression by majority and praying for
certain reliefs against the appellants and also the orders
dated 25-4-1977 of the Division Bench against that order,
this Court made an order on 31-5-1977, in terms of an
agreement reached between the par-ties. By one such term
the company was directed to purchase 1300 shares held by the
respondents- petitioners. The price of the shares was to be
determined by Messrs. Price Water House and Peet, Chartered
Accountants and Auditors, as on the date of the filing of
the petition u/ss. 397-398, on the basis of the existing as
also contingent and anticipated debts, liabilities, claims,
payments and receipts of the’ company. The Chartered
Accountants were to determine the value of the shares after
examining accounts and calling for necessary explanations
and after giving opportunity to both the groups to be heard
in the matter and the determination of the value by the
Chartered Accountants was to be final and binding and not
open to any challenge by either side on any ground
whatsoever. After such determination of the value the
company has to purchase the shares, and, on such purchase,
the share capital of the company was to stand reduced
protanto. The order made it ;fear that if the value of the
shares is more than Rs. 65/- per share, the company will
have to pay the balance, and, if it is less than Rs. 65/-
per share, the respondents who have to sell the shares, will
have to refund the difference between. the price of the
shares calculated at the rate of Rs. 65/- per share and the
rate determined by the Chartered Accountants and Auditors
within four weeks from the date of determination. After the
appeal was thus disposed of, the interveners, claiming to be
the creditors of the company to the extent of 40 lakhs, in
their petition dated 22-8-1977 requested the Court (i) to
permit them to be heard and (ii) to postpone the purchase of
shares by the company until such time as the company adopts
proceedings in a competent court by following the procedure
laid down by the Companies Act, 1956, particularly in
Sections 100 to 104 for reduction of the share capital. In
the alternative they prayed for safeguarding their
interests by modifying the Court’s order dated 31-5-1977.
Rejecting the petition to interfere with its order dated 31-
5-1977, the Court, after hearing the interveners,
HELD : (i) Section 77 envisages that, on the purchase by a
company of its own shares, reduction of its share capital
may be effected and sanctioned in either of two different
modes : (i) according to the procedure prescribed in
Sections 100 to 104; or (ii) under section 402, depending
upon the circumstances in which reduction becomes necessary.
[427E-F]
(ii) Section 77 of the Companies Act, 1956 prohibits the
company from buying its own shares unless the consequent
reduction of capital is effected and sanctioned in pursuance
of Sections 100 to 104 or Section 402. It places an embargo
on the company purchasing its own shares so as to become its
own member, but the embrago is lifted, if the company
reduces its share capital protanto. [427E]
423
(iii) Section 77 leaves no room for doubt that reduction
of share capital may have to be brought about in two
different situations by two different modes. Undoubtedly,
where the company has passed a resolution for reduction of
its share capital and has submitted it to the Court for
confirmation, the procedure prescribed by Sections 100 to
104 will have to be followed, if they are attracted. On the
other hand, where the Court, while disposing of a petition
under Ss. 397 and 398, gives a direction to the company to
purchase shares of its own members, consequent reduction of
the share capital is bound to ensue, and, before making such
a direction it is not always necessary to give notice of the
consequent reduction of the share capital to the creditors
of the company. No such requirement is laid down by the
Act. The two procedures ultimately bringing about reduction
of the share capital are distinct and separate and stand
apart from each other; and one or the other may be resorted
to according to the situation. That is the clearest effect
of the disjunctive ‘or’ in S. 77. [428H, 429AB]
(iv) Where the reduction of share capital is necessitated by
directions given by the Court in it petition under ss. 397
and 398, the procedure prescribed in Sections 100 to 104 is
not required to be followed in order to make the direction
effective. [428G]
(v) It would not be correct to say that, whenever it
becomes necessary to reduce the capital of a company, the
reduction can be brought about only by following the
procedure prescribed in Ss. 100 to 104. Sections 100 to 104
specifically prescribe the procedure for reduction of share
capital where the Articles of the company permit and the
company adopts a special resolution which can only become
effective on the Court according sanction to it. Reduction
of share capital may also take pursuant to a direction of
the Court requiring the company to purchase the shares of a
group of members while granting relief u/s 402. Both the
procedures, by which reduction of capital of a company may
be effected, are. distinct and separate and stand apart from
each other. [427F-H]
(vi) The scheme of Ss. 397 to 406 is to constitute a code by
itself for granting relief to oppressed minority
shareholders and for granting appropriate relief, a power of
widest amplitude, inter alia, lifting the ban on company
purchasing its share under Court’s direction, is conferred
on the Court. When the Court exercises this power by
directing a purchase of its shares by the company, it would
necessarily involve reduction of the capital of the company.
Such a power of the Court is not subject to a resolution to
be adopted by the members of the company which, when passed
with, statutory majority, has to be submitted to Court for
confirmation. No canon of construction would permit such an
interpretation in which the statutory power of the Court for
its exercise depends upon the vote of the members of the
company. [428C-E]
(vii) If reduction of share capital can only be brought
about by resorting to the procedure prescribed in Ss. 100 to
104, it would cause inordinate delay and the very purpose of
granting relief against oppression would stand self-
defeated. [428E-F]
(viii) When minority shareholders complain of oppression
by majority and seek relief against oppression from the
Court under Ss. 397 and 398 and the Court, in a petition of
this nature, considers it fair and just to direct the com-
pany to purchase the shares of the minority shareholders to
relieve oppression, if the procedure prescribed by Ss. 100
to 104 is required to be followed, the resolution will have
to be first adopted by the members of the company, but that
would be well nigh impossible because the very majority
against whom relief is sought would be able to veto it at
the threshold and the power conferred on the Court would be
frustrated. That could never have been the intention of the
Legislature. [428F-H]
(ix) The object_behind prescribing this procedure requiring,
in special circumstances as contemplated in Section 101(3),
the court to give notice to the creditors is that the
members of the company may not unilaterally act to the
detriment of the creditors behind their back. If such a
procedure were not prescribed, the Court might, unaware of
all the facts, be persuaded by the members to confirm the
resolution and that might cause, serious prejudice to the
creditors. But such a situation would not be likely to
arise in a petition
424
under Ss. 397 and 398. In such a petition the Court would
be in a better position to have all the relevant facts and
circumstances before it and it would be the Court which
would decide whether to direct purchase of shares of the
members by the company. Before giving such a direction, the
Court Would certainly, keep in view all the relevant facts
and circumstances, including the interest of the creditors.
Even if the petition is being disposed’ of on a compromise
between the parties, yet the Court, before sanctioning the
compromise, would certainly satisfy itself that the
direction proposed to-be given by it pursuant to the consent
terms, would not adversely affect or jeopardise the interest
of the creditors. Therefore, it cannot be said that merely
because s. 402 does not envisage consent of the creditors
before the Court gives direction for reduction of share
capital consequent upon purchase of shares of some of the
members by the company. there is no safeguard for the
creditors. [430EH]
In the instant case, there is no scope for apprehension on
behalf of the interveners that the reduction of share
capital to be effected under the Court’s direction, without
reference or notice to creditors, would adversly affect
their interests because : (1) As per the order of the Court
dated 31st May, 1977 while ascertaining the break-up value
of the shares on the date of filing the petition under
Sections 397 and 398, the Chartered Accountants and Auditors
will have to take into account the assets of the company as
also the existing, contingent and anticipated debts,
liabilities, claims, and demands etc., as revealed in the
accounts of the company for the last five years, which would
indisputably include the claims made by the interveners in
the two suits filed by them to the extent to which they
appear genuine and well founded and. (ii) the order of the
Court did not fix any minimum price at which the shares
shall be purchased by the company. [431A-C, D]
(x) A right to notice by reason of any rule of natural
justice, which a party may establish, must depend for its
existence upon proof of an interest which is bound to be
injured by not hearing the party claiming to be entitled to
a notice and to be heard before an order is passed. If the
duty to give notice and to hear a party is not mandatory,
the actual order passed on a matter must be shown to have
injuriously affected the interest of the party which was to
be given no notice, of the matter. [431G]
In the instant case, after hearing the intervener-, it was
found that no interest of theirs has been injured by not
hearing them before the order was passed. The order passed
by this Court on 31st May, 1977, is not vitiated on the
ground of non-issue of notices to them under the inherent
powers of the Court under Rule 9 of the Company (Court)
Rules, 1959, even though there was no statutory duty to hear
them. [431H. 432A]
(xi) Undoubtedly, when a petition is made to the Court under
Ss. 397 and 398, it is obligatory upon the Court to give
notice u/s 400 of the petition to the Central Government and
it would be open to the Central Government to make a
representation and if any such representation is made, the
Court would have to take it into consideration before
passing the final order in the proceeding. But Section 400
does not envisage a fresh notice to be issued at the
appellate stage. [432C-D]
(The Court directed to expedite the suit Nos. 729/74 and
933/76 filed by the interveners in the Bombay High Court and
dispose off within a period of six months).
JUDGMENT:
CIVIL APPELLATE JURISDICTION: Civil Misc. Petition No. 7962
of 1977.
(Application for Intervention)
Civil Appeal No. 1347(N) of 1977
Shankar Das Ghosh, J. B. Dadachanji, K. J. John and Shri
Narain for the Appellants in the Appeal and Opp. party in
CMP. 7962/77.
A. K. Sen, R. P. Bhatt, E. C. Agrawala, S. S. Khanduja and
S. Sahni for Respondents Nos. 1-6.
425
Niren De and S. V. Tambvekar for the applicant/Interveners
(Bharat Refineries).
The Judgment of the Court was delivered by
DESAI, J.-This miscellaneous petition by Interveners raises
a short but interesting question in the field of Company
Law.
Briefly stated, the facts leading to the present
miscellaneous petition are that Company Petition.No. 85 of
1975 was filed by Jairam Das Gupta and others (for short
‘Gupta Group’) in the Calcutta High Court under ss. 397-398
of the Companies Act, 1956, complaining of oppression by the
majority, and praying for various reliefs. Respondents in
this petition were Cosmosteels Private Limited (for short
‘the Company’) and three others who would be referred to in
this judgment as ‘Jain Group. By an order made by the
Company Judge on 21st April 1977 the Board of Directors of
the Company was superseded and one Mr. Sachin Sinha,
Advocate, was appointed as Administrator to discharge
various functions set out in the order. The Court also
appointed Mr. N. Chakraborty, a Chartered Accountant and
Auditor to investigate into the accounts of the Company and
one Mr.’ A. K. Dey, Engineer and Surveyor for valuation of
the assets of the Company and further the Auditor and the
Surveyor after investigation of the accounts and evaluation
of the assets of the Company were to determine the break-up
value of the shares as on the date of the petition and on
the determination of such break-up value the Administrator
was to call upon the Jain Group to purchase the shares
belonging to the Gupta Group within a period of three months
from the date of service of notice failing which the
Administrator was directed to purchase the shares of the
Gupta Group for the Company at the break-up value determined
as hereinabove mentioned. A further, ,direction was given
that if the Company was required to purchase the shares of
Gupta Group on the failure-of the Jain Group, the capital of
the Company would protanto stand reduced. There were also
some other directions which are, not relevant for the
purpose of this judgment. Against this Order made by the
Company Judge, the Jain Group and the Company preferred an
appeal under the Letters Patent and certain interim reliefs
were sought. On an undertaking given on behalf of the Jain
Group, the order superseding the Board of Directors and
payment of Rs. 7 lacs to certain parties was stayed but the
order directing valuation of the shares was not stayed and
the proceeding for valuation was to go on. The Company was
restrained by an injunction of the Court from creating any
encumbrance on the assets of the Company and dealing with or
disposing of its assets or spending any of its money except
in usual course of business with a certain ceiling fixed.
This, interim relief was modified by the order made on 25th
April 1977 by which the Company was directed to carry out
the order for payment of Rs. 7 lacs to the persons named in
the order under appeal within a fortnight from the date of
the order failing which the Administrator appointed by the
learned trial Judge was to take over possession for the
purpose of making payment of Rs. 7 lacs. The direction for
investigation of the accounts of the Company was stayed and
simultaneously the proceeding for evaluation was also
426
stayed. This order dated 25th April 1977 was, challenged in
Special Leave Petition No. 2042 of 1977 preferred by the
Company and the Jain Group. CMP. 3801/77 was moved on
behalf of the appellants, for certain interim reliefs. This
Court by an order dated 12th May 1977 granted stay of the,
order of the Division Bench dated 25th April 1977 directing
refund of Rs. 7 lacs by the Company and in default by the
Administrator. The order of injunction granted by the
learned trial Judge and confirmed by the Division Bench was
kept alive subject to the same condition about not
encumbering the assets of the’ Company. The appellants then
sought liberty to amend the Special Leave Petition by
including a prayer for special leave against the order of
the learned Company Judge dated 21st April 1977 which was
granted by the Court and also special leave to appeal was
granted.. The appeal came to be numbered as Civil Appeal No.
1347(N) of 1977. The parties settled the dispute as per the
consent terms and requested this Court to make an order in
terms of the consent terms. The Court accordingly made an
order on 31st May 1977 disposing of the appeal in terms of
the consent terms. The only term relevant for the present
purpose is the one by which the Company was directed to
purchase 1300 shares held by the Gupta Group. The price of
the shares was to be determined by Messrs. Price Water
House and Peet, Chartered Accountants and Auditors, as on
the date of the filing of the petition under sections 397-
398 on the basis of the existing as also contingent and
anticipated debts, liabilities, claims, payments and
receipts of the Company. The Chartered Accountants were to
determine the value of the shares after examining accounts
and calling for necessary explanations and after giving
opportunity to both the groups to be heard in the matter and
the determination of the value by the Chartered Accountants
was to be final and binding and not open to any- challenge
by either side on any group whatsoever. On the value being
so determined the Company had to purchase the shares and on
such purchase, the share capital of the Company was to stand
reduced protanto.
After the appeal was thus disposed of on 31st May 1977, the
interveners filed the present miscellaneous petition on 22nd
August 1977 requesting the Court to permit them to intervene
in the proceedings pending in Civil Appeal No. 1347 of 1977
and to postpone the purchase of shares by the Company until
such time as the Company adopts proceedings in a competent
Court by following the procedure laid down by the Companies
Act, 1956, and particularly sections 100 to 104 for
reduction of the share capital. In the alternative there
was a prayer for safeguarding the claims of interveners by
modifying the order dated 31st May 1977.
The interveners claim to be the creditors of the Company to
the tune of Rs. 40 lacs. They say that the ‘Cosmos
Pioneer’, an Oil tanker belonged to the Company. By a
Tanker Time Charter Party executed on 21st November 1972
between the Company on the one hand and Burmah, Shell Oil
Storage and Distribution Co. of India Ltd., and ESSO Eastern
Inc., on the other the vessel ‘Cosmos pioneer, was chartered
in Indian Coastal waters for carriage of petroleum products.
Pursuant to this contract the vessel was loaded at Bombay
Port on,
42 7
15th June. 1973 for carrying cargo to the port of Kandla.
On the voyage the vessel ran aground and was stranded on
18th June 1973 and the vessel and the cargo were abandoned.
Intervener No. 2 is the underwriter with whom the charterers
had effected an insurance, covering the marine adventure of
the aforesaid cargo and presumably on payment of the loss
the underwriter has been subrogated. The interveners have
filed two suits being Suit No. 729/74 by the inter-
vener/petitioners and another suit No. 933/76 by Bharat
Refineries Ltd. and Hindustan Petroleum Corporation against
the Company and the total amount sought to be recovered in
the two suits comes to Rs. 40 lacs. Both the suits are
pending. The interveners say that they are thus creditors
of the Company and before any reduction in the share capital
of the Company is effected, the creditors are entitled to
notice because by the reduction they are likely to be
adversely affected.
There was some dispute before us whether there was any subs-
tance in the claims of the. interveners and whether they
could be said to be creditors of the Company but for the
purpose of this judgment we will proceed on the assumption
that they are creditors of the Company. But even on this
assumption, can it be said that the order of this Court
dated 31st May 1977 directing the Company to purchase the
shares of the Gupta Group and providing that consequent upon
this purchase, the share capital of the Company would
protanto be reduced, is bad for want of notice to the,
interveners and other creditors of the Company ?
Section 77 prohibits the Company from buying its own shares
unless the consequent reduction of capital is effected and
sanctioned in pursuance of sections 100 to 104 or s. 402.
This section places an embargo on the Company purchasing its
own shares so as,, to become its own member but the embargo
is lifted if the Company reduces its share capital protanto.
It is clear that this section envisages that on purchase by
a Company of its own shares, reduction of its share capital
may be effected and sanctioned in either of two different
modes : (i) according to the procedure prescribed in ss. 100
to 104; or (ii) under s. 402, depending upon the
circumstances in which reduction becomes necessary.
Sections 100 to 104 specifically prescribe the procedure for
reduction of share capital where the Articles of the Company
permit and the Company adopts a special resolution which can
only become effective on thee Court according sanction to
it. On the, other hand, reduction of share capital may have
to be done pursuant to a direction of the Court requiring
the Company to purchase the shares of a group of members
while granting relief under s. 402. Both the procedures by
which reduction of Capital of a Company may be’ effected are
distinct and separate and stand apart from each other. It
would not, therefore, be correct to say that whenever it
becomes necessary to reduce the capital of a Company the
reduction can be brought about only by following the
procedure prescribed in ss. 100 to 104. There is another
independent procedure prescribed in s. 402 and recognised by
s. 77, by which reduction of the share capital of a Company
can be effected.But both these
2-1146 SCI/77
428
procedures have one feature in common, namely, that there is
Court’s intervention before the Company can reduce its share
capital, and this is of vital importance from the stand
point of creditors of the Company.
Sections 100 to 104 provide a detailed procedure for
reduction of share capital. Without being exhaustive s. 100
mentions three modes of reduction of share capital, viz.,
(i) extinction or reduction of the liability on any of the
shares in respect of share capital not paid up, (ii)
cancellation of any paid up share capital which is lost or
is unrepresented by available assets, and (iii) paying off
any paid up share capital. Section 101 provides that a
Company which has adopted a special resolution for reduction
of share capital has to move the Court by a petition for an
order confirming the reduction. A detailed procedure is
prescribed which the Court should ordinarily follow before
confirming the resolution. This procedure has to be
followed where the proposed reduction of share capital
involves- either the dimunition of liability in respect of
unpaid share capital or payment to any shareholder of any
paid up share capital and in any other case if the Court so
directs. But even in first mentioned two cases, sub-section
(3) confers a discretion on the Court to dispense with the
procedure if the Court having regard to any special
circumstances, thinks proper to do so. The procedure
envisages a Est of creditors to be settled and a notice to
be published which will enable the creditors whose names are
included in the Est to object to the reduction and a
provision has to be made in respect of dissenting creditors.
Sections 397 and 398 enable the minority shareholders to
move the Court for relief against oppression by majority
shareholders. In a petition under ss. 397 and 398, section
402 confers power upon the Court to grant relief against
oppression, inter alia, by providing for the purchase of
shares of any of the members of the Company by other members
thereof or by the Company and in the case of purchase of its
shares by the Company, the consequent reduction of the share
capital of the Company. Rule 90 of the Companies (Court)
Rules, 1959, provides-that where an order under ss. 397 and
398 involves reduction of capital, the provisions of the Act
and the Rules relating to such matter shall apply as the
Court may direct.
The question is: whether when on a direction given by the
Court, while granting relief against oppression to the
minority shareholders of the Company, to the Company to
purchase the shares of some of its members which would
ipso facto bring about reduction of the share capital
because a Company cannot be its own member, is it obligatory
to serve a notice upon all the creditors of the Company ? It
was conceded that the procedure prescribed in sections 100
to 104 is not required to be followed where reduction of
share capital is necessitated by the direction given by the
Court in a petition under- ss. 397 and 398. Section 77
leaves no room for doubt that reduction of a share capital
may have to be brought about in two different situations by
two different modes. Undoubtedly, where the Company has
passed a resolution for reduction of its share capital and
has submitted it to the Court for confirmation the procedure
prescribed by ss. 100
429
to 104 will have to be followed, if they are attracted. On
the other hand, where the Court, while disposing of a
petition under ss. 397 and 398, gives a direction to the
Company to purchase shares of its own members, a consequent
reduction of the share capital is bound to ensue, but before
granting such a direction it is not necessary to give notice of the
consequent reduction of the share capital to
the creditors of the company. No such requirement is laid
down by the Act. Two procedures ultimately bringing about
reduction of the share capital are distinct and separate and
stand apart from each other and one, or the other may be
resorted to according to the situation. That is the
clearest effect of the disjunctive or in section 77.
The scheme of sections 397 and 406 appears to constitute a
code by itself for granting relief to oppressed minority
shareholders and for granting appropriate relief, a power of
widest amplitude, inter alia, lifting the ban on company
purchasing its shares under Court’s direction, is conferred
on the Court. When the Court exercises this power by
directing a purchase of its shares by the Company, it would
necessarily involve reduction of the capital of the Company.
Is such power of the Court subject to a resolution to be
adopted by the members of the Company which, when passed
with statutory majority, has to be submitted to Court for
confirmation ? No canon of construction would permit such an
interpretation in which the statutory power of the Court for
its exercise depends upon the vote of the members of the
Company. This would inevitably be the situation if
reduction of share capital can only be brought about by
resorting to the procedure prescribed in ss. 100 to 104.
Additionally it would cause inordinate delay and the very
purpose of granting relief against oppression would stand
self defeated Viewed from a slightly different angle, it
would be impossible to carry out the directions given under
s. 402 for reduction of share capital if the procedure under
ss. 100 to 104 is required to be followed. Under ss. 100 to
104 the Company has to first adopt a special resolution for
reduction of share ,capital if its articles so permit.
After such a resolution is adopted winch, of necessity must
be passed by majority, and it being a special resolution, by
a statutory majority, it will have to be submitted for con-
firmation to the Court. Now, when minority shareholders
complain of oppression by majority and seek relief against
oppression from the Court under ss. 397 and 398 and the
Court in a petition of this nature considers it fair and
just to direct the Company to purchase the shares ,of the
minority shareholders to relieve oppression, if the
procedure prescribed by ss. 100 too 104 is required to be
followed, the resolution will have to be first adopted by
the members of the Company but that would be well nigh
impossible because the very majority against whom relief is
sought would be able to veto a at the threshold and the
power conferred on the Court would be frustrated. That
could never have been the intention of the Legislature
Therefore, it is not conceivable that when a direction for
purchase of shares is given by the Court under s. 402 and
consequent reduction in share capital is to be effected the
Procedure, prescribed for reduction of share capital in ss.
100 to 1-04 should be required to be followed in ,Order to
make the direction effective.
430
A very serious apprehension was voiced by Mr. De that if the
Court directs the Company to purchase the shares of some of
its. members while granting relief against oppression, the
Company would part with its funds which would jeopardise the
security of the creditors of the Company and that if such a
direction for reduction of share capital can be, given by
the Court behind the back of the creditors, the Creditors
would be adversely affected and therefore, it was contended
that, even though, while giving direction under s. 402
directing the Company to purchase the shares of its
members, it is not obligatory upon the Court to give notice
to the creditors, such notice ought to be given in the
interests of the creditors. This apprehension is, in our
opinion, unfounded. Even when the Court is moved to confirm
the resolution for reduction of share capital under ss. 100
to 104,. the Court may in its discretion dispense with the
procedure prescribed in that group of sections [devide s.
101(3)]. Undoubtedly, the Court would use the discretion
only upon proof of special circumstances as contemplated by
s. 101(3), but when such discretion is used, the creditors
would have no opportunity to object to the reduction. The
opportunity to object would thus depend upon the Court
exercising its discretion one way or the other. It may be
noticed that until the Company submits its resolution for
reduction of share capital to the Court, the creditors have
no say in the matter and, therefore, the Court is empowered
to ascertain the wishes of the creditors by following the
procedure prescribed in sections 101 to 104. The object
behind prescribed this procedure requiring save in special
circumstances as contemplated in section 101,(3), the Court
to give notice to the creditors is that the members of the
Company may not unilaterally act to the detriment of the
creditors behind ‘their back. If such a procedure were
not prescribed, the Court might, unaware of all the facts,
be persuaded by the members to confirm the resolution and
that might cause serious prejudice to the creditors.
But such a situation would not be likely to arise in a
petition under ss. 397 and 398. In such a petition the
Court would be better in a position to have all the relevant
facts and circumstances before it and it would be the Court
which would decide whether to direct purchase of shares of
the members by the Company. Before giving such a direction
the Court would certainly keep in view all the relevant
facts and circumstances, including the interest of the
creditors. Even I the petition is being disposed of on a
compromise between the parties, yet the Court, before
sanctioning the compromise, would certainly satisfy itself
that the direction proposed to be given by it pursuant to
the consent terms, would not adversely affect or jeopardise
the interest of the creditors. Therefore, it cannot be said
that merely- because s. 402 does not envisage consent of the
creditors before the Court gives direction for reduction of
share capital consequent upon purchase of shares of some of
the members by the Company, there is no safeguard for the
creditors.
But quite apart from that, it is clear on the facts of
this case that the apprehension of Mr. De is not well
founded. The order of the Court dated 31st May 1977 clearly
provides that the Chartered Accountants and Auditors will
determine the value of the shares as on
431
the date of filing of the petition under ss. 397 and 398 on
the basis of the existing as also contingent and
anticipated debts, liabilities claims, demands and receipts
of the Company (underlining is ours) and for the purpose of
determining the value, they will be at liberty to examine
the accounts of the Company for the last five years. There-
fore, while ascertaining the break-up value of the shares on
the date of filing of the petition under ss. 397 and 398,
the Chartered Accountants and Auditors will have to take
into account the assets of the Company as also the existing,
contingent and anticipated debts, liabilities, claims,
demands, etc.
This would indisputably include the claims made by the
interveners in the two suits filed by them to the extent to
which they appear genuine and well-founded. They need not,
therefore, have the slightest apprehension that their interests
are not safeguarded by the direction given by the Court. It
must also be made distinctly clear that the order of the
Court does not fix any minimum price at- which the shares
shall be purchased by the company. The order makes it clear
that if the value of the shares is more than Rs. 65 per
share, the Company will have to pay the balance and if it is
less than Rs. 65 per share the Gupta Group who have to sell
the shares, will have to refund the, difference between the
price of the shares calculated at the rate of Rs. 65/- per
share and the rate determined by the Chartered Accountants
and Auditors within four weeks from the date of such
determination. This pragmatic and flexible approach clearly
safeguards the interests of the creditors including the
interveners. There could have been a legitimate
apprehension if some minimum price were fixed at which the
company was bound to purchase the shares. Then it could
have been plausibly argued that if such minimum price were
higher than the real value of the shares, the company would
have to part with some of its funds jeopardising the
security of the creditors. Such not being the position,
there is no scope for apprehension on behalf of the
interveners that the reduction of share capital to be
effected under the Court’s direction without reference or
notice to creditors would adversely affect their interests.
We may also point out that a right to notice by reason of
any rule of natural justice, which a party- may establish,
must depend for its existence upon proof of an interest
which is bound to be injured by not hearing the party
claiming to be entitled to a notice and to be heard before
an order is passed. If the duty to give notice and to hear
a party is not mandatory, the actual order passed on a
matter must be shown to have injuriously affected the
interest of the party which was given no notice of the
matter. The facts discussed above by us show that no
interest of the interveners, on whose behalf we have heard
Mr. De at length, has been injured by not hearing them
before the order was passed. They have not shown us how the
order could be different if they had been heard by
issuing notices to them under the inherent powers of the
Court under rule 9 of the Company (Court) Rules, 1959, even
though there was no statutory duty to hear them. Hence, we
hold that the order passed by this Court on 31st May 1977 is
not vitiated on such a ground.
432
It was also urged that the Court was in error in making the
order without notice to the Central Government. Section 400
provides. that the Court shall give notice of every
application made to it under ss. 397 or 398 to the Central
Government and shall take into consideration the
representation, if any, made to it by that Government before
passing a final order under that section. It was urged that
before this Court made the final order dated 31st May 1977,
the record does not show that any notice was given to the
Central Government and, therefore, also the order is
vitiated. We see no merit in this contention. Undoubtedly,
when a petition is made to the Court under Ss. 397 and 398
it is obligatory upon the Court to give notice of the peti-
tion to the Central Government and it would be open to the
Central Government to make a representation and if any such
representation is made, the Court would have to take it into
consideration before passing the final order in the
proceeding. But s. 400 does not envisage afresh notice to
be issued at the appellate stage. The present petition
under ss. 397 and 398 was made to the Calcutta High Court
and it was not disputed that before the learned single Judge
finally disposed of the petition inter alia directing
purchase of shares of the Gupta Group by the Company, notice
was issued to the Central Government. as envisaged by s.
400. The Central Government apparently did not appear
and make any representation. The matter came
before this Court initially against the interim order made
by the appellate Bench of the Calcutta High Court in the
appeal against the order of the learned single Judge, but
subsequently special leave was obtained for appealing
against the order of the learned single Judge also and it
was after this special leave was granted that this Court
made the final order. Therefore, there was no
question of issuing fresh notice to the Central Government
under s. 400 and the contention must be negatived.
Accordingly, we find no merits in the Civil Miscellaneous
Petition and it must be rejected.
Before parting with this case we would like to point out
that, unfortunately, though Suit Nos. 729/74 and 933/76 have
been filed’ by the interveners in the High Court at Bombay
as far back as 1974,the written statements in these suits
have not been filed though more than 3 years have elapsed.
The decision in the suits may have a bearing on the value of
shares to be determined under the directions of
this Court dated 31st May 1977. We, therefore, direct
that Suit Nos. 729/74 and 933/76 may be expedited and they
may be heard and disposed of without delay at any rate,
within a period of six months.
S. R. Petition rejected-
433