The settled principle is that powers of attorney must be strictly construed, the rationale behind that principle being that the powers given are not abused by the agents and the actions are restricted within and only to the extent the power is indicated or given.
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Bombay High Court
Shantilal Khushaldas And Bros. ... vs Smt. Chandanbala Sughir Shah And ... on 14 February, 1992
Equivalent citations: 1993 77 CompCas 253 Bom
1. This application is made in judge's summons praying for the dismissal of the Company Petition No. 5/S/91 instituted by the respondents for winding up the applicant-company under section 433 of the Companies Act, 1956.
2. The petition for winding up of the applicant-company is on the grounds that the company is unable to pay its debts. It is averred on their behalf that by virtue of the agreement dated February 10, 1987, the company had to repay the amount deposited by the respondents; that despite statutory notice dated January 23, 1991, under section 434 of the Companies Act no steps towards repayment were taken and, therefore, the company be wound up under the directions of the court.
3. On notice being issued, the applicant-company opposed the winding up petition by its affidavit. In the judge's summons a contention is taken that the petition for winding up is liable to be rejected in limine on the ground that the petition has been signed and verified by a constituted attorney which is not maintainable and is incompetent under the law and, secondly, on the assumption that a petition can be instituted by a duly authorised agent, it is urged that a attorney who has instituted the winding up petition has no authority under the power of attorney to do so.
4. To complete the narration it may be mentioned that respondents Nos. 1 and 2 claim that under for agreement dated February 10, 1987, the applicant-company has failed to return the amount deposited with the company. The petition has been sworn by Pravinkumar Gosalia claiming to be the constituted attorney of the respondents. The affidavit in support has also been filed and sworn by the aforementioned Pravinkumar Gosalia, under power of attorney dated October 29, 1990.
5. Mr. S. K. Kakodkar, learned counsel for the applicant-company, contends that having regard to the special nature of the proceedings, unlike an ordinary lis, a constituted attorney of any creditor or contributory or a shareholder has no locus standi to file a petition for winding up under section 433 of the Companies Act. The embargo according to him is self-evident when one reads the provisions of sections 433, 434 and 439 of the Act read with rules 6 and 21 of the Companies (Court) Rules, 1959.
6. Section 433 sets out predicates under which a company may be wound up. Admittedly, what is pressed is clause (e) of section 433, viz., inability of the company to pay its debts.
7. Section 434 speaks about presumption as to when a company shall be deemed to be unable to pay its debts. More particularly clause (a) of sub-section (1) of section 434 lays down that the company shall be deemed to be unable to pay its debts if a creditor by assignment or otherwise to whom the company is indebted in a sum exceeding Rs. 500 has served on the company a demand under his hand requiring the company to pay the sum so due and the company has for three weeks thereafter neglected to pay the sum due and/or to secure or compound for it to the reasonable satisfaction of the creditor. The emphasis is that the demand must be under the hand of the creditor.
8. In so far as section 439 is concerned, it says that an application to the court for winding up of a company shall be by a petition presented subject to the provisions of clauses (a) to (f) and sets out categories as to who can present a petition and they are (a) a company, (b) any creditor, including any contingent or prospective creditor, (c) any contributory (d) by all or any of the parties specified in clauses (a), (b) and (c) whether together or separately, (e) by the Registrar, and (f) in a case falling under section 243, by any person authorised by the Central Government in that behalf.
9. Mr. Kakodkar now says that having regard to the persons or authorities specified as to who can present applications to the court for winding up of a company under section 439(1), it is just not possible for any constituted attorney of any such person or authorities to present any winding up petition. He now says that he is fortified in this view of the matter by rules 6 and 21 of the Companies (Court) Rules. Though the practice and procedure of a court and the provisions of the Code of Civil Procedure are made applicable they are nevertheless saved to the extent provided for by the Act or by the rules. But when one turns to rule 21, it is clear that when any agent of a petitioning party wants to make and file an affidavit leave has to be obtained by that agent either from the court or the Registrar of the court. For better understanding of the matter, rule 21 comes under the heading "affidavit verifying petition". There can be no controversy that every petition for winding up must be accompanied by an affidavit which must verify the petition for winding up. That rule says that every petition shall be verified by an affidavit made by the petitioner or by one of the petitioners where there is more than one and in case the petition is presented by a body corporate, by a director, secretary or other principal officer thereof, and that such affidavit shall be filed along with the petition and shall be in Form No. 3. The proviso, however, reads thus :
"Provided that the judge or Registrar may, for sufficient reason, grant leave to any other person duly authorised by the petitioner to make and file the affidavit."
10. Mr. Kakodkar now points out that in the case of any other person who may be duly authorised by the petitioning party to file an affidavit verifying the petition or when the petition for winding up is presented on behalf of a creditor by the agent, leave must necessarily be obtained either from the judge or the Registrar. This constraint according to him clearly goes to point out that no petition for winding up can be filed by an agent.
11. He, therefore, urges that even by necessary implication it is only those parties who ar specified who can lodge the petition after they themselves file the affidavit verifying the petition and according to him this is necessary because these are matters of a special nature, unlike a lis. In that he points out that the process of winding up of a company is not merely a lis between the so-called creditor and the company and more often a large number of other people are involved whose rights may be affected one way or the other, including the rights of the other creditor or creditors. On many occasions, he points out that winding up matters involve public interest and even in cases where a case is made out that the company is unable to pay yet the company court may decline to wind up the company for several good reasons and it is not that the court is bound to direct winding up even when the presumption of inability of the company under section 434 per se arises. Even when the court or the Registrar is required to grant leave to any duly authorised agent of a petitioning party he says that the proviso to rule 21 demands sufficient reason and if there are no sufficient reasons such leave can be refused. Referring to rule 6 he points out that the application of the Code of Civil Procedure is not wholesale to the proceedings before a company court and the fact that that rule itself begins by saying "save as provided by the Act or by these Rules, the practice and procedure of the court and the provisions of the Code so far as applicable, shall apply to all proceedings under the Act and these rules" is enough pointer in that behalf.
12. On the scope and parameters of the winding up proceedings, Mr. Kakodkar says that what is required to be seen by a company court is that the petitioning party under section 439 must personally verify the pleadings by an affidavit so that material statements made against the company are within his knowledge and the agents of the petitioning party are kept out may not be in the know of the facts or the special relationship between the two. He now says that if an agent is permitted to lodge winding up proceedings after verifying the pleadings by an affidavit the hearsay statements made therein may lead to undesirable results and in that behalf places reliance on rule 100 to say that once a petition for winding up is filed, the petitioning party is not permitted to withdraw the same unless sanctioned by the court. Under rule 100 even when the petitioning party seeks leave to withdraw the petition which has been directed to be advertised, such an application cannot be heard before the date fixed in the advertisement. This is obviously so for the reason that once the petition is lodged before the company court it no longer remains a res between the petitioning party and the company and these proceedings can be utilized by other creditors for getting redress or opposing the proceedings for winding up. In other words, the res is not restricted between the parties thereto and the inquiry gets enlarged depending upon the claims made against the company sought to be wound up.
13. Mr. Kakodkar says that such a matter cannot be looked on as a suit or equated with one. A suit is restricted between the parties or litigants before an ordinary court and proceedings for winding up are entirely different and have different dimensions. For the observation that a civil suit is different from winding up proceedings he relies upon the decision in State Bank of India v. Hegde and Golay Ltd. [1987] 62 Comp Cas 239 (Kar).
14. Turning to Order 3 of rule 1 of the Code of Civil Procedure, he says that the reference to the expression "any court" obviously does not and cannot include a special court or a company court under the provisions of the Companies Act, 1956. Rule 1 of Order 3 permits appearance, application or act in or to any court which is required to be made or done by a party in such court, can be done by the party in person or by his recognized agent or by a pleader duly appointed by the party except when the court has otherwise directed the party to remain personally present in court.
15. This has been pointed out to show that it is not permissible for any recognized agent which includes a duly constituted agent to represent a petitioning party in a company court.
16. For a correct definition of a court, this court will have to rely on the definition mentioned in the Companies Act itself urges Mr. Kakodkar. Section 2(11) of the Companies Act defines "the court" to mean "with respect to any matter relating to a company (other than any offence against this Act) the court having jurisdiction under this Act with respect to that matter relating to that company, as provided in section 10". Section 10 provides under the heading "Jurisdiction of the courts", that under the Act the High Court will have jurisdiction in relation to a place at which the registered office of the company concerned is situated except to the extent to which jurisdiction has been conferred on any District Court subordinate to the High Court and that too in pursuance of sub-section (2). Sub-section (2) empowers the Central Government by a notification to empower a District Court to exercise all or any of the jurisdiction conferred under the Act, except as otherwise provided thereunder. It is, therefore, clear that the jurisdiction conferred under the Companies Act is on the High Court and where the same is specifically conferred, it is to that extent on the District Court subordinate to the High Court.
17. Mr. Usgaokar, however, insists that the expression "any court", in rule 1 of Order 3 includes and must include company court because rule 6 of the Companies (Court) Rules in the matter of practice and procedure clearly says that the provisions of the Code so far as applicable apply to all proceedings under the Act and the Rules.
18. In so far as civil suits and proceedings before ordinary courts are concerned, the parties are permitted to be represented by their agents and for that matter, as noticed earlier, the agent has authority not only to appear and file applications but to act or take all such steps as may be possible for a party himself. The recognized agents are those who are holding powers of attorney authorizing them to do or make such appearance, applications, acts as the case may be. For that matter, the other categories or persons included are spoken to in clause (b) of rule 2 of Order 3. Even service of a process on a recognized agent is permitted and such service on the agent is equally valid. In the matter of pleadings under rule 15, Order 6, persons acquainted with the facts of the case are permitted to verify them, which are otherwise required to be verified by the parties themselves.
19. We have already seen that the affidavit verifying the petition for a winding up can be sworn by a duly authorised person of a petitioning party, on obtaining leave from the judge or Registrar of the Companies Court for sufficient reasons. It, therefore, stands to reason that it is permissible for a petitioning party to be represented by his authorised agent or duly constituted attorney. It if is accepted as a proposition that a constituted attorney has no locus to file a petition for winding up, then such proviso could not have found its place in the rule.
20. Mr. Kakodkar, however, indeed pointed out that when the Act does not provide for a constituted attorney to verify the petition or swear the affidavit verifying the petition, the provision in the rules cannot run counter to the Act. Though as a broad and general proposition this cannot be faulted, I have not been able to see any express/implied prohibition in the Companies Act prohibiting the constituted attorney from verifying the petition or filing an affidavit in that behalf. Had there been an express provision in the Act prohibiting the attorney, then Mr. Kakodkar would have been right, in which event the proviso to rule 21 would run counter to the parent Act and would, therefore, be ultra vires the Act. I am, therefore, unable to hold that the classes of persons who can file petitions under section 439 cannot be represented by their authorised agents or duly constituted attorneys. It otherwise stands to reason that a party can always be represented by an authorised agent, provided the authority is full and complete, clear and unambiguous. I would, therefore, reject the first contention of Mr. Kakodkar that constituted attorneys have no locus to present petitions for winding up under section 433 of the Companies Act in respect of persons specified under clauses (a) to (f) of sub-section (1) of section 439 of the Act.
21. Merely because the matter deals with winding up of a company, therefore, the petitioning party is in the special know of things and events and, therefore, he alone is required to file the petition and swear the affidavit and if attorneys are permitted to do so it may have disastrous results or that such a petition would be based upon hearsay evidence, cannot be accepted as a principle for the simple reason that sometimes it is possible that the power of attorney holder knows more than what the party himself knows. Such occasions are not rare, and will depend upon the facts and circumstances in a given case.
22. The Code of Civil Procedure does not define a court. As mentioned earlier, section 2(11) of the Companies Act defines "court" to mean with respect to any matter relating to any company (other than the offence against the Act), the court having jurisdiction thereunder, with respect to that matter related to the company as provided under section 10. We have already seen that section 10 under the heading "Jurisdiction of the court" provides that the High Court is the court having jurisdiction in relation to the place at which the registered office of the company concerned is situated except to the extent the jurisdiction can be has been conferred on any District Court subordinate to the High Court. There is also an enabling section by which the same jurisdiction can be specifically conferred on a District Court in regard to matters falling within the scope of jurisdiction so conferred, provided, however, that the companies have a registered office within the district.
23. Coming back to Order 3 of the Code of Civil Procedure, rule 1 says that appearance may be by the person or his recognized agent or by a pleader and in terms provides that any appearance, application or act in or to any court authorised by law which requires to be made or done by a party in such court, may, except where otherwise expressly provided by any law for the time being in force be done or made by the party in person or by his recognized agent or by a pleader, unless the court otherwise directs the party to appear in person.
24. The question to be decided now is whether the reference to any court in rule 1 would include a company court. I am unable to accept Mr. Kakodkar's argument that in view of the definition of the court under the Companies Act read with section 10 thereof, that expression does not include a company court. In my view inasmuch as the Code of Civil Procedure itself has not defined what a court means, there is no difficulty in holding that the reference to any court includes a company court and this is clear from several angles.
25. In the first place, rule 6 of the Companies (Court) Rules, speaks of practice and procedure of the court and the applicability of the provisions of the Civil Procedure Code. Except as provided by the Act or by the Rules the practice and procedure of the court and the provisions of the Code so far as applicable shall apply to all proceedings under the Companies Act and the rules made thereunder. I see neither any contravention nor any contradiction that in proceedings of this type the Code of Civil Procedure does not apply. As mentioned earlier, the reference to "any court" in rule 1 of Order 3 includes a company.
26. Looking at this aspect of the matter in another way, I fail to understand as to why the expression "any court" must be held to exclude a company court merely because the jurisdiction under the Companies Act has been conferred on the High Court or on the District Court. The effect of the conferment of jurisdiction of the High Court or District Court, as the case may be, is the ouster of the jurisdiction of other courts subordinate thereto and there is nothing to indicate that the High Court or the District Court on which the jurisdiction has been conferred by the Companies Act is excluded from the expression "any court" in rule 1 of Order 3.
27. Mr. Kakodkar indeed pointed out that the proviso to rule 21 of the Companies (Court) Rules is an indicator that leave from the court or the Registrar is required for any recognized agent or constituted attorney to make and file the affidavit verifying petitions. I have already made abundant reference to this proviso earlier and in my view it is clear indication in support that it is permissible for the constituted attorney to make and file an affidavit verifying the petition on obtaining leave of course which, therefore, supports the theory that a petition for winding up can be instituted by a recognized agent. This is, however, not to say that a constituted attorney can file the affidavit without obtaining leave.
28. I have already seen that even when Orders 3, rule 1, provides for appearance or act by a recognised agent yet the court is empowered to direct the party to remain present in person in court and this is found in the proviso to rule 1 despite the fact that a party can be represented by its agent. Now, the proviso to rule 21 of the Companies (Court) Rules speaks of leave either from the Registrar or the court when the authorised agent wants to file the affidavit on behalf of the petitioning party. These are more or less in the nature of safeguards, so that nothing is abused.
29. Mr. Usgaokar, learned counsel appearing for the respondents, indeed urged that this application made in judge's summons be not entertained on the ground that it is belated. He pointed out that after several adjournments were obtained on behalf of the company at last an affidavit opposing the winding up was filed and the respondents (original petitioners) filed their rejoinder. According to him no point was raised that the petition is liable to be dismissed on the ground that the same is instituted by the power of attorney of the petitioning party. He, therefore, says that at this stage and for the reasons set out this court ought not to show any indulgence in this judge's summons. He says that the whole attempt of the company is to make the court lose sight of the merits of the matter.
30. He next pointed out that there is correspondence on record to show that at some stage the company had offered the payment and what is more called upon the respondents to come and collect the money, however, with a rider that they shall not be entitled for interest as no demand had been earlier made and, therefore, the question of payment of interest does not arise. This according to him, is a clear admission and, therefore, on this ground no rule is required to be made in the judge's summons.
31. The court is presently dealing with a judge's summons and it is not possible at this stage to go into the merits of the matter and the question to be examined is whether Pravinkumar Gosalia has been duly authorised to institute winding up proceedings. If it is held that by virtue of the power of attorney the said Gosalia has no authority to institute proceedings no matter how strong the respondent's case on merits is, it would be irrelevant to the controversy.
32. Undoubtedly, Pravinkumar Gosalia has instituted the petition claiming to be the duly constituted attorney. A copy of the power of attorney executed in his favour by the respondents (petitioning parties) dated October 29, 1990, is on record. After the recital which speaks of the advance or money lying in deposit with Shantilal Khushaldas and Bros. Pvt. Ltd. and some more companies it is mentioned that they are entitled to receive the said deposit on terms and conditions agreeable to the attorney and after expressing their desire to appoint Pravinkumar Gosalia, the powers are enumerated under clauses 1 to 6 which read thus :
"1. To execute, sign, enter into, acknowledge, prefect and do all such contract, agreements, deeds of surrender, releases, assurances, acts and things as shall be requisite or as our said attorney may deem necessary or proper for or in relation to or any of our aforesaid deposits lying with the said companies or any of them.
2. To receive every sum of money whatsoever which may become due or payable to us from the aforesaid companies or any of them and on receipt thereof to make, sign, execute and give good and sufficient receipts, releases, acquittances or other discharges for the same.
3. To demand and to recover from the aforesaid companies any amounts that may become due or payable to us, and to give valid and effective receipts therefor.
4. To file suits and/or proceedings against the aforesaid companies or any of them for recovery of the amounts that may become due or payable to us; and also to affirm plaints, affidavits, and other pleadings that may be necessary and our said attorney may think fit and proper and to engage solicitors, advocates, pleaders and lawyers in any such matters and also to appear before any court and to give evidence or statements on oath or otherwise, as also to defend any suits that may be filed against us by the said companies or on behalf of the said companies.
5. To give valid and proper discharge, receipts, releases, waiver for the aforesaid deposits on such terms and conditions as our attorney may deem fit and proper.
6. Generally to do all acts, deeds, matters and things and to incur all necessary expenses for the same as may be required to give effect to those presents fully according to their true meaning and intentions."
33. Mr. Kakodkar is correct in pointing out that the power to file suits and/or proceedings for the recovery of the amounts due or becoming due cannot be held to embrace the power to institute proceedings for winding up under the Companies Act. Proceedings for winding up under section 433 of the Companies Act can by no stretch of imagination be equated to suits or for that matter suits for recovery of money. I have already pointed out earlier that in the winding up proceedings, the lis is not merely between the petitioning party and the company sought to be wound up. Once the petition is admitted, creditors, contributories, shareholders, etc., seek redress in the proceedings and even oppose the winding up. The company is directed to be wound up depending upon a case made out whereupon the assets are taken over and distributed in accordance with the provisions of the Companies Act and the Rules.
34. A suit for recovery of money is essentially a suit between the parties where no third party can seek any indulgence or impleadment. The proceedings under the Companies Act for winding up are entirely different, a special remedy provided for and the idea is not to restrict the proceedings to the parties alone and its range is widened and all steps taken in winding up proceedings are in public interest. Sometimes the relief for winding up is denied when it is against public interest.
35. Mr. Usgaokar indeed pointed out that clause 4 alone cannot be read in isolation but the power as a whole be read and once the power is found to recover money or amounts due under the agreement nothing can be faulted. Finally, what is there in a winding up proceeding, urges Mr. Usgaokar. The assets are taken over and distributed amongst the creditors and that is how the element of recovery is definitely involved in winding up proceedings also. He, therefore, says that in reading the power of attorney the court should not reject it for lack of power as long as the constituted attorney has been duly authorised to recover the money due under the agreement.
36. In the matter as to how the powers construed strictly, Mr. Kakodkar placed reliance on Jiwibai v. Ramkuwar Shriniwas Murarka Agarwala, AIR 1947 Nagpur 17, P. M. Desappa Nayanim Varu v. Ramabhaktula Ramiah, , H. Ezekiel v. Carew and Co. Ltd. and D. H. M. Framji v. Eastern Union Bank Ltd., AIR 1951 Punj 371. He also relied upon the decision in Mt. Inderwati v. Hari Ram, AIR 1937 Lahore 318, to suggest that even when power is given to prefer an appeal, such power cannot be read to authorize the power of attorney to file an application in 'forma pauperis'.
37. The settled principle is that powers of attorney must be strictly construed, the rationale behind that principle being that the powers given are not abused by the agents and the actions are restricted within and only to the extent the power is indicated or given.
38. Even when one reads the power as a whole what it boils down to is this : that the constituted attorney, Gosalia, is authorised to file suits and/or proceedings against the company for recovery of the amount and also to affirm plaints, affidavits and other pleadings that may be necessary. It will be difficult to read that the word "proceedings" would include winding up proceedings. As mentioned earlier, this being a special remedy under the Companies Act, in my view unless Pravinkumar Gosalia had been specifically authorised to lodge company petitions for winding up it is not possible to read such power. In the absence thereof, it must be held that he had no authority to do so.
39. I have already considered the matter of the proviso to rule 21 of the Companies (Court) Rules. I have already said enough on the subject. Had it been a fact that the power given by the respondents in favour of Pravinkumar Gosalia authorised him to lodge winding up proceedings, I would have even at this stage granted leave to the constituted attorney to validate the proceedings. That step clearly would have been in tune with the events and the requirements of justice, but once I hold that the power itself is lacking then the question of going into that aspect of the matter does not arise.
40. Accordingly judge's summons made absolute in terms of prayer (a). Petition is rejected; however, parties are directed to bear their own costs.
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