Indian Kanoon - Search engine for Indian Law

Leave granted.

The short question which arises for determination in these Civil Appeals is whether an application filed by the Company under Section 391 (1) of the Companies Act, 1956 (for short the `1956 Act') seeking directions to convene a meeting of creditors and members to consider a scheme of amalgamation is required to be heard and decided ex-parte as per Rule 67 of the Companies (Court) Rules, 1959?

To answer the above question we need to quote hereinbelow the relevant Rules.

80. Date and notice of hearing.- The Court shall fix a date for the hearing of the petition, and notice of the hearing shall be advertised in the same papers in which the notice of the meeting was advertised, or in such other papers as the Court may direct, not less than 10 days before the date fixed for the hearing."

We also quote hereinbelow Form No.33 and Form No.34:-

[See Rule 67] [Heading as in Form No. 1] Company Application No. ............... of 19.....

At the outset, it may be stated that the Companies (Court) Rules, 1959 are enacted in exercise of the powers conferred by Section 643(1)(2) of the Companies Act, 1956. They have force of an Act passed by the Parliament. The said Rules 1959 have statutory force of law. The said Rule 67 in unequivocal terms states that an application under Section 391(1) for an order for convening a meeting of creditors and/or members or any class of them shall be by a Judge's Summons supported by an affidavit. Rule 67 further requires the proposed compromise or arrangement to be annexed to the affidavit as an exhibit. Rule 67 is, however, subject to Rule 68 (which deals with a case where the Company is not the applicant). If one reads Rule 67 with Form 33 and Form 34, one find that essentially the Court while issuing such summons is required to apply its mind to checklist indicated in Rule 69 and it needs to be prima facie satisfied about the genuineness and bonafides of the application. One aspect needs to be highlighted. Hearing of the Motion ex-parte does not mean that the Court had not to apply its mind or that the Court is not required prima facie to be satisfied about the genuineness or bonafides. However, it is a preliminary step. One more aspect needs to be mentioned. If hearing is required to be given to contributors, creditors and share-holders, then the entire scheme of Section 391 (which is a Code by itself) would become unworkable. Further, when Rule 67 categorically states that Summons for Directions shall be moved ex- parte, the question of prejudice or rule of natural justice does not come into play. However, there is a rationale for stating that the Summons shall be moved ex-parte and that rationale is that it is an Application for an Order for Meeting as a preliminary step at the threshold stage and at that stage it is not necessary for the Company to give notice of hearing to the creditors, members and share-holders (see: Palmer's Company Law). Further, if one examines Rule 67 in the context of Rule 73, one finds that after Summons for Direction are issued as and when the meeting is ordered to be convened, the notice of the meeting is required to be given to the creditors and/or members or such other classes enumerated in Rule 73. Similarly, under Rule 74 advertisement of the notice of meeting is also required to be published in such newspapers and in such manner as the Judge may direct. This is to be supported by affidavit of service under Rule 76.

In the impugned judgment, reliance is placed on the earlier judgment of the Allahabad High Court in the case of Hind Auto Indo Ltd. v. M/s Premier Motors (P) Ltd. reported in AIR 1970 Allahabad 165. From a bare reading of that judgment we find that the said case related to interpretation of Section 394A of the Companies Act with which we are not concerned in this case. Be that as it may, there are observations in the said judgment, with respect, with which we do not agree, both on the interpretation of Rule 67 and 69 on one hand as also on the basis of the practical effect of the interpretation given by the High Court in the present case. If at the threshold stage of directions to convene a meeting hearing is required to be given to the members as held in the impugned judgment the scheme of the Companies (Court) Rules 1959 will become unworkable. For the above reasons, with respect, we disagree with the view expressed by the Allahabad High Court in the case of Hind Auto Indo Ltd. (supra) and we agree with the judgment of the Bombay High Court in the case of Sakamari Steel & Alloys Ltd. (supra).