Patna High Court
In Re: Chotanagpur Banking Association ... vs Unknown on 17 November, 1967
Equivalent citations: AIR1969PAT188, 1969(17)BLJR328
Author: N.L. Untwalia
Bench: N.L. Untwalia
ORDER N.L. Untwalia, J.
1. The Official Liquidator filed his statement of accounts for the period commencing from 1-10-1966 to 31-3-1967 in accordance with Rule 298 of the Companies (Court) Rules, 1959 --hereinafter called the Rules -- framed by the Supreme Court of India under Section 643 of the Companies Act, 1956 hereinafter to be referred to as the Act.
2. The accounts have got to be audited as required by Sub-section (3) of Section 462 of the Act. So far the half-yearly accounts of this Company filed under the said section of the Act were being audited by the Examiner of Local Fund Accounts as directed by this Court under Rule 302 of the Rules. The Official Liquidator filed the report which is at flag 725 dated the 30th of June, 1967 wherewith he appended a letter from Messrs. R.N. Rudra and Company, Chartered Accountants, Patna which have been carrying on the work of auditing the accounts of various companies in liquidation either under orders of this Court or under its supervision. The amount of fees which Messrs. R.N. Rudra and Company have been getting for auditing the liquidator's accounts under rule 304 of the Rules has been, rather, low according to them, since in accordance with that rule the Company being small and small sums of money being involved in the Official Liquidator's account, they were not entitled to get more than the fee prescribed therein.
The Chotanagpur Banking Association. Limited is a big company. The figures involved in the account of the official Liquidator are rather substantial and much more compared to the figures involved in the accounts of small companies. The said Chartered Accountants, therefore, approached the Official Liquidator through, their letter of June 13, 1967--which letter in original is appended to the Official Liquidator's report--to allow them to audit bigger companies like the Chotanagpur Banking Association Ltd., which would enable them to earn more fees as prescribed under Rule 304. Thus, they thought they would be compensated for the loss which they had to suffer because of the small amount of fees which they were getting for the audit of the Official Liquidator's account in respect of smaller companies. In their letters Messrs. R.N. Rudra and Company have further stated that they would be agreeable to deviate from the rate of fees prescribed by Rule 304 and would be prepared to accept any reasonable fees which may be fixed by the Hon'ble Company Judge.
3. When this report of the Official Liquidator with the letter aforesaid was placed before me on 7-8-1967, a question arose as to whether this Court was competent to vary the manner or the fees prescribed for audit of the Official Liquidator's account in Rules 301 to 304 of the Rules, In this connection a decision of the Calcutta High Court in "In Re: Fire & General Insurance Co. of India Ltd.", 66 Cal WN 566 was brought to my notice. S.P. Mitra, J., has held in that case that the Supreme Court has no power to prescribe rules relating to the manner in which the Court shall cause the Liquidator's account to be audited and hence rules 301 to 304 of the Rules dealing with the manner of auditing are beyond the rule-making power of the Supreme Court; they have been struck down as being ultra vires and void as they contradict the express provisions of the Act.
I, therefore, directed by my order No. 241(6) dated 7-8-1967 as modified by order no. 242 dated 25-8-1967 to issue a show cause notice to the Central Government as also to the Registrar of Supreme Court to give them an opportunity to have their say in the matter and to show cause as to why the said rules should not be declared ultra vires. In response to the said notice, Mr. Bajrang Sahay, learned Government Advocate of the State of Bihar, has appeared for the Union of India to support the vires of the rules. The Registrar, Supreme Court, has not instructed anybody to appear in the matter. Mr. Shreenath Singh, learned Advocate for the Official Liquidator, has placed before me all that could be said in support of the vires of the rules as also against it as said by the Calcutta High Court in the case referred to above. Mr. S.C. Ghosh who appears in this case on behalf of certain depositors submitted that the rules are beyond the rule-making power of the Supreme Court. The point is not free from difficulty. Having given my due consideration to the matter, I have come to the conclusion that the rules are not ultra vires, but even then they are subject to the order which the Court may pass under Sub-section (8) of Section 462 of the Act either in regard to the manner of auditing which would include as to who is to be appointed for auditing the accounts or the fees to be paid for auditing or any other matter connected therewith.
4. Mitra, J. has referred in his judgment to the various rules of the Companies (Court) Rules, 1959 and the relevant provisions of the Act. His Lordship has also compared them with the relevant rules framed under, and the sections of the English Companies Act, 1940. The conclusion to which his Lordship has arrived at is to be found at page 573 (Column 1), which runs thus --
"It is clear from Section 462 that the Supreme Court may prescribe by rules the number of times the liquidator has to present an account to the Court but not less than twice in each year. And the Supreme Court must prescribe the form in which the accounts shall be presented. But the manner in which the account is to be audited has been left to the Court having jurisdiction under the Act. The Supreme Court has no power to prescribe rules relating to the manner in which the Court shall cause the liquidator's account to be audited. There is no doubt that Rules 301 to 304 deal with the manner of auditing and the Supreme Court has in this respect gone beyond the powers conferred on it by Section 643 of the Companies Act.
The reasons given in support of the view expressed by Mitra, J., in his judgment were so persuasive and cogent that in the first instance I felt inclined to respectfully agree with that view. But on a further consideration of the matter I regret my inability to do so.
5. Under Section 641 of the Act the Central Government has been authorised to alter certain schedules, etc. by notification in the Official Gazette, The rule-making power of the Central Government is to be found in Section 642, Sub-section (1) of which says --
"In addition to the powers conferred by Section 641, the Central Government may, by notification in the Official Gazette, make rules --
(a) For all or any of the matters which by this Act are to be or may be, prescribed by the Central Government; and
(b) Generally to carry out the purposes of this Act."
It is to be noticed that the Central Government is authorised to make rules for all or any of the matters which are to be, or may be prescribed by the Central Government by the Act or under the Act. Over and above that, they have been given under Clause (b) of Sub-section (1) of Section 642, a general power to make rules to carry out the purposes of the Act. This general power, however, will be subject to the special rule-making power of the Supreme Court to make rules under Section 643 in respect of the matters provided therein. On reference to this section, it Would be noticed that the rule-making power of the Supreme Court is in respect of those matters which are connected with or in relation to, the proceedings in Court either for winding up or for any other purpose. But the difference between the wordings of Clause (a) of Sub-section (1) of Section 643 and Clause (a) of Sub-section (1) of Section 642 of the Act does not seem to have been noticed in the Calcutta Case. Section 643(l)(a) reads as follows --
"The Supreme Court, after consulting the High Courts,
(a) shall make rules providing for all matters relating to the winding up of companies which, by this Act, are to be prescribed; and may make rules providing for all such matters as may be prescribed, except those reserved to the Central Government by Sub-section (5) of Section 503, Sub-section (3) of Section 550, Section 552 and Sub-section (3) of Section 555 ..... "
It would be seen that the Central Government may make rules for all or any of the matters to be, or which may be, prescribed by the Act. In other words, the expression "by this Act" governs both the expressions, namely, "to be prescribed" or "may be prescribed". If the intention of the Legislature was identical, i. e. to confer power on the Supreme Court to make rules providing for all matters relating to the winding up of a company, which by the Act are to be prescribed or may be prescribed. I do not see any reason as to why the same kind of phrases in the same jurisdiction could not have been used in Clause (a) of Sub-section (1) of Section 643. In other words, if the intention of the Legislature was to confer on the Supreme Court, as has been the view of the Calcutta High Court in the case referred to above, the power to make rules providing for all matters relating to the winding up of companies, which are to be prescribed or may be prescribed by the Act, the wordings of Clause (a) of Section 643 (1) would have been "shall make rules providing for all matters relating to the winding up of companies, which, by this Act, are to be prescribed and may make rules providing for all such matters as, by this Act, may be prescribed."
But the phrase "by this Act" has not been repeated in the second part of Clause (a) of Sub-section (1) of Section 643. In absence of such a phrase in the second part, by a rule of construction. I do not feel persuaded to read that expression in that part. In my opinion, it is imperative for the Supreme Court to make rules providing for all matters relating to the winding up of companies, which, by the Act, are to be prescribed, and the Supreme Court may make rules providing for all such matters, meaning thereby matters relating to the winding up of the companies, as may be prescribed, not necessarily by the Act, but as may be prescribed by the Supreme Court in the rules in connection with that matter, because without the governing phrase "by this Act" the word 'prescribed' as defined in Section 2(33) would mean "as respects the provisions of this Act relating to the winding up of companies . . . . . prescribed by rules made by the Supreme Court in consultation with High Courts."
6. The second reason which I want to give in support of the vires of the rules is that the general power to make the rules for all matters relating to the winding up of companies has been given to the Supreme Court under Clause (a) of Sub-section (1) of Section 643 of the Act and without prejudice to the generality of the foregoing power, it has been provided in Sub-section (2) that the Supreme Court may, by such rules, enable or require all or any of the powers and duties conferred and imposed on the Court by this Act in respect of the matters enumerated under Clauses (a) to (e) to be exercised or performed by the Official Liquidator. In the said clauses, there are matters which are referable to the provisions of the Act not specifically provided to be prescribed; to wit, Clause (b) of Sub-section (2) speaks about the settling of lists of contributories or the rectifying of the register of members. Section 467 which refers to the settlement of lists of contributories does not use either of the expressions "as prescribed" or "as may be prescribed".
Again it would be seen that the wordings of Clause (c) are referable to Section 468 of the Act, in which also is not to be found either of the two expressions aforesaid. To my mind, it is an established proposition of law that in the statute when power is conferred on any authority or body to frame rules in general terms, the matters which, without affecting the generality of the power, are enumerated in relation to which power may be exercised, are mere matters by; way of illustration to the exercise of the general power. The illustrations do not confer any new power. The power is to be and must be found in the first subsection which confers the rule-making power in general terms and if that subsection does not cover the power, the enumerated power given in the second sub-section cannot confer it. In the background of this rule of interpretation, it would be noticed that many powers which have been enumerated in respect of which Supreme Court may frame rules in Sub-section (2) will vanish, if it were to be held that second part of Clause (a) of Sub-section (1) does not confer in general terms power on the Supreme Court to make rules providing for all matters relating to the winding up but it confers power on that Court to make rules only in respect of those matters which under the Act may be required to be prescribed.
7. Mitra, J., in his judgment, has referred to Section 249 of the English Act and the relevant rules framed in relation to acccunts and audit in a winding up by the Court. The provisions of Section 249 of the English Act are practically the same as those of section 462 of the Act except that in Indian law the liquidator is concerned not with the Board of Trade or any other similar authority but with the court having jurisdiction. After quoting the English rules 174 to 178 his Lordship has said that in England no rules have been framed relating to the procedure of audit at the instance of the Board of Trade, I may point out in this connection that Section 365(1) of the English Act says --
"The Lord Chancellor may, with the concurrence of the President of the Board of Trade, make general rules for carrying into effect the objects of this Act so far as relates to the winding up of companies in England, and the Court of Session may by Act of Sederunt make general rules for carrying into effect the objects of this Act so far as relates to the winding up of companies in Scotland."
The power, therefore, conferred on the Lord Chancellor to make general rules for carrying into effect the objects of this Act, so far as relates to the winding up of companies in England, is in wide and general terms. Of course, the Legislature in its wisdom has further provided in Sub-section (5) of Section 365 that the powers conferred by this section on the Lord Chancellor shall be exercisable by statutory instrument, and the statutory instrument containing general rules shall be laid before Parliament after being made. Our Legislature did not think it necessary to do so. It conferred absolute power on the Supreme Court after consulting High Courts to make rules providing for all matters relating to the winding up of companies. The process of screening those rules by laying them before Parliament was not thought necessary. But that by itself is not sufficient to enable me to say that the power conferred on the Supreme Court under the second part of Clause (a) of Sub-section (1) of Section 643 of the Act must be confined to such matters as may be prescribed by or under the Act. I am, therefore, of the view that the Supreme Court has not gone beyond its power in making Rules 301 to 304 of the Rules.
8. But this necessitates laying down a further proposition of law on which no opinion was expressed by Mitra, J., in the Calcutta case, and that is this. There may be occasions of conflict between the power conferred on the Court under Section 462 (3) and the manner of audit including audit fees prescribed in Rules 301 to 304. As for example, rule 302 provides that the account shall be audited by one or more Chartered Accountants appointed by the Court or if the Court so directs, by the Examiner of Local Fund Accounts of the State concerned. As pointed out by Mitra, J., in the Calcutta case, there may be occasions where the Court may not feel it expedient to get the accounts of the Official Liquidator audited by either any Chartered Accountants or Examiner of Local Fund Accounts but may get them audited by any other competent persons as the Court may think fit Further, in a given case, the Court may feel that the audit fee prescribed under Rule 304 works out to be either too excessive or too low which in one case will not be in the interest of the company in liquidation or in the other may not be in the interest of the auditor. A question arises under these circumstances: Whether the Court, even in face of the wide power conferred on it under Sub-section (3) of Section 462, will be under an impediment to exercise that power in the manner as it thinks fit because of the provision contained in Rules 301 to 304? Here my answer is in the negative. The Court will not be under such an impediment. Ordinarily and generally, the procedure and the audit fees prescribed under those rules will be followed but it will be open to the Court in a given case under special circumstances to exercise its general power conferred under the statute in variation of the procedure and the fees prescribed for audit of the Official Liquidator's account in Rules 301 to 304. Thus viewed, the harmony is brought about the rules remain intra vires and valid but they are subjected to the general and wide power of the Court conferred on it by Sub-section (3) of Section 462 of the Act
9. Although I do not wish to illustrate my point by referring to other provisions of the Act or the Rules, I may state in passing to lend some support to the view I have expressed above in regard to the vires of Rules 301 to 304 that if the interpretation which I have given to the second part of Clause (a) of Sub-section (1) of Section 643 of the Act is not correct, many other rules will have to be struck down as being ultra vires as it would be difficult to find in the corresponding provisions of the Act any express terms to say that those rules were prescribed because they may be prescribed under the Act. This chaotic or anomalous situation, if it is possible to be saved by a reasonable interpretation, as I think it is, must be saved.
10. In view of the principle of law which I have enumerated above, I direct the Official Liquidator to have quotation from Messrs. R.N. Rudra and Company as also from some other Chartered Accountants' Firms in Patna regarding the scale of fees at which they would be agreeable to do the audit work of his accounts of this Company. On submission of further report by the Official Liquidator, necessary orders will be passed in this connection.