In Re: Jindal (India) Ltd. vs Unknown
1992 Latest Caselaw 514 Del

JUDGMENT

Y.K. Sabharwal, J.

1. By this application filed under section 391(1) of the Companies Act, 1956 (for short "the Act"), the applicant seeks directions for convening, holding and conducting meeting of its equity shareholders and, if necessary, of its secured and unsecured creditors for the purpose of considering and if thought fit approving with or without modifications the proposed scheme of amalgamation of Mehrotra Properties Ltd. with the applicant.

2. The only question for consideration for the present is whether at this stage notice is required to be issued to the Central Government so that the court may take into consideration the representation, if any, made by the Government before passing any order under section 391(1) of the Act. Mr. Khaitan submits that at this stage notice is not required to be issued to the Central Government and in support of the submission reliance is placed upon two decisions, one of the Calcutta High Court and another of the Madras High Court. The further submission is that in such matters, in the past, this court has not been directing issue of notice to the Central Government at this stage. This court, in the past, has been issuing notice to the Central Government on filing of a petition under section 391(2) of the Act and, therefore, as per past practice, at the stage of consideration of an application under section 391(1) notice to the Central Government is not required to be issued.

3. The requirement to send a notice to the Central Government is contained in section 394A of the Act which reads as under :

"394A. The court shall give notice of every application made to it under section 391 or 394 to the Central Government, and shall take into consideration the representations, if any, made to it by that Government before passing any order under any of these sections."

4. A plain reading of section 394A does not show that notice to the Central Government is required to be sent only on the filing of a petition under section 391(2) and not at the stage of consideration of an application under section 391(1) of the Act. A plain reading of section 394A shows that notice of every application made to the court under section 391 or 394 should be sent to the Central Government. The Calcutta High Court, however, in the matter of Bangeswari Cotton Mills Ltd. [1967] 37 Comp Case 195, while interpreting section 394A has held that notice to the Central Government need not be given at the initial stage when the court makes an order on an application under section 391(1) for calling a meeting of the creditors and members and that notice to the Central Government is to be given only before the court makes a final order sanctioning the compromise or arrangement on an application under section 391(2) of the Act. According to the opinion of the Calcutta High Court, there was conflict between the rules made by the Supreme Court in exercise of the powers under section 643 of the Act on the one hand, and the newly inserted section 394A on the other, on the question of giving notice to the Central Government. The Companies (Court) Rules, 1959, were framed in the year 1959. Section 394A was inserted in the Act by the Companies (Amendment) Act, 1965, with effect from 15th October, 1965. The learned single judge of the Calcutta High Court has held that the rules give a right to a petitioner to move the court ex parte and if notice of every application under section 391(1) or 391(6) is given to the Central Government to comply with the provisions of section 394A of the Act, the petitioner's right to move the court ex parte would be completely taken away. It has been further held that section 394A gives no indication the deprivation of that right and thus a conflict has been created between the rules and section 394A. With a view to avoid the said conflict the learned judge held the notice to the Central Government was not required learned judge held that notice to the Central Government was to be given before the court sanctions a compromise or arrangement on an application under section 391(2) of the Act. The learned judge held that the words "every application" in section 394A means an application under section 391(2) or section 394 and the words "any order" under section 394A were construed to mean "any final court order". This decision was followed by the Madras High Court in W. A. Beards ell and Co. (P) Ltd., In re [1968] 38 Comp Case 197.

5. The provisions of section 394A are unambiguous and clear. A plain reading requires sending of notice of every application under section 391 or section 394 to the Central Government. The words "every application...under section 391 or 394" in section 394A necessarily includes an application under section 391(1) of the Act. In my view, there is no conflict between the Rules and section 394A of the Act. The mere right to move summons ex parte as provided in the rules does not necessarily mean the passing of an ex parte order on an application moved by means of summons. In view of the clear and unambiguous language of section 394A, I find it difficult to limit the ambit of section 394A by reading words in the said section which do not exist. Section 394A, inter alia, mentions "section 391". It cannot be read as section "391(2)". Likewise for the words "any order" used in section 394A, the words "any final order" cannot be read. I do not see any compelling or overriding need to adopt the course of interpretation adopted by the learned judges of the Calcutta and the Madras High Courts. With respect, I cannot subscribe to the opinions expressed in the cited decisions of the Calcutta and the Madras High Courts. For the view I have taken I am fortified by a decision of the Allahabad High Court in Hind Auto Industries Ltd. v. the Allahabad High Court, on notice being given to the Central Government on an application under section 391(1), the Central Government may draw the attention of the court to certain matters which may make the holding of the proposed meeting or meetings necessary or unnecessary. The Central Government may also show that the company proposed to be amalgamated with another is not being run in a satisfactory manner and is liable to be wound up. It may also point out that there is no need for holding a meeting because the Central Government itself was about to p ass an order under section 396 of the Act. Light may be thrown by the Central Government on these and many other matters if notice is given to the Central Government of an application under section 391(1) as required by section 394A of the Act.

6. No decision of this court has been cited taking any view one way or the other on the applicability of section 394A on its plain reading or on its restricted reading. Regarding the contention that in the past this court in most of the matters at the stage of consideration of an application under section 391(1) has not been directing issue of notice to the Central Government, in my opinion, if the past practice or procedure is contrary to the mandate of law, it cannot be argued that the court should continue to follow it.

7. For the reasons stated above, I hold that notice to the Central Government is necessary to be issued before making an order under