Bentex Exports Private Limited & ... vs Bentex Towers Private Limited
2009 Latest Caselaw 656 Del

*             IN THE HIGH COURT OF DELHI AT NEW DELHI

+                   CO. APPEAL No. 30/2008

                                   Date of Decision : February 26, 2009

IN THE MATTER OF THE COMPANIES ACT, 1956 (1 OF 1956)

                                  AND

IN THE MATTER OF AMALGAMATION OF :

BENTEX EXPORTS PRIVATE LIMITED & ORS.
                            .......Appellants/Transferor Companies

                              Through : Mr. Ashish Middha, Advocate

                                  WITH

BENTEX TOWERS PRIVATE LIMITED
                                     .......Appellant/Transferee Company

                              Through : Mr. A.K. Chaturvedi, Official
                                        Liquidator in person
                                        Mr. S.K. Luthra & Ms.Manisha
                                        Tyagi, Advs. for the Official
                                        Liquidator
CORAM :

HON'BLE MR. JUSTICE SANJAY KISHAN KAUL
HON'BLE MR. JUSTICE SUDERSHAN KUMAR MISRA

1.     Whether Reporters of local papers may be allowed to see the
       judgment?

2.     To be referred to the Reporter or not?

3.     Whether the judgment should be reported in the Digest?

SANJAY KISHAN KAUL, J. (ORAL)

1. The present appeal raises an interesting and important question

of law as to whether the learned Company Judge can impose

conditions in the form of mandatory contribution to the General Pool

Fund of the Official Liquidator or to anyone else as a condition for

entertaining/allowing a petition under Section 391 and 394 of the

Companies Act, 1956 (hereinafter referred to as the „said Act‟).

2. The appellants had filed a joint petition under the aforesaid

provisions for approval of a scheme of amalgamation. Learned

Company Judge passed a detailed impugned order dated 12.08.2008

coming to the conclusion that there was no impediment to the grant of

sanction to a scheme of amalgamation and approved the same. It was

further directed that the transferor company shall stand dissolved

without undergoing the process of winding up as a consequence

thereof.

3. The grievance of the appellant arises from the direction

contained in para 26 of the impugned order in the following terms:

"26. Petitioners are directed to deposit Rs. 50,000/- each in the Common Pool Fund of the Official Liquidator, as costs."

4. The learned counsel for the appellant pleads that the cost of

Rs.50,000/- imposed on each of the six appellants to be deposited in

the Common Pool Fund of the Official Liquidator is without any

authority of law and that there is no sanction either under the said Act

or the Companies (Court) Rules, 1959 (hereinafter referred to as the

„said Rules‟). In fact the plea raised is that similar "costs" have been

imposed in other matters also where such schemes have been

approved to be paid to either the Official Liquidator or to other entities

like the Prime Minister‟s Relief Fund, without any of the parties being

in default.

5. It is the submission of the learned counsel for the appellant that

the paid-up capital of the transferee company is approximately Rs. 5

lacs and the income of the five transferor companies is NIL. The

object of amalgamation is of economy and saving costs. The

appellants have, thus, unreasonably been burdened with costs of Rs. 3

lacs. Learned counsel also submits that the job of scrutiny of books

and submission of report by the Official Liquidator is in the maximum

range of about Rs. 5,000/- to 10,000/-. Learned counsel, along with

the written synopsis, has placed on record notice issued by the Official

Liquidator calling upon the parties to furnish necessary information in

triplicate and submits that even for carrying out photocopying, charges

are recovered from the company for which a sample receipt has been

filed. Thus, there are really no out of pocket expenses.

6. Learned counsel for the appellant seeks to rely upon certain

orders passed by the learned Company Judge in different matters to

plead that there is no consistent policy in regard to such imposition of

costs. It is his submission that till the year 2007, no such costs were

being imposed and that he has been appearing in a number of similar

proceedings. As a proof of the same, he has filed the status of cases

where orders/judgments had been passed in matters in which the

learned counsel had appeared for the petitioners. Learned counsel has

referred to an order passed on the same date of 12.08.2008 as the

impugned order in Company Petition No. 64/2008 in the matter of

amalgamation of M/s. Lakshman Exports Private Limited with

M/s Phoenix Contact India Private Limited where no such costs have

been imposed. In the said case, the subscribed paid-up capital of the

transferor company was Rs.3,40,59,600/-.

7. Learned counsel has also referred to the fact that in Company

Petition No. 144/2008, decided on 22.10.2008, M/s. Hillstone Finance

Private Limited and another being amalgamated with M/s. Bhaktawar

House Private Limited where the authorized share capital of the

transferor companies was Rs. 55 lacs in total, costs to be paid to the

Common Pool Fund have been quantified at Rs. 5,000/- each. In

Company Petition No. 79/2008, dealing with the scheme of

amalgamation of EDM Mall Management Private Limited with CCPL

Developers Private limited, decided on 26.09.2008, where the

subscribed share capital of the transferor company was Rs. 1,50,000/-

while of the transferee company was Rs. 24,89,00,000/-, each of the

companies was directed to pay Rs. 1 lac towards costs. The wordings

in para 20 of the order is that the counsels for the petitioners submit

that they would pay costs but it is pleaded that this is really in the

nature of a direction as this amount of Rs. 2 lacs has been bifurcated

into Rs.50,000/- for SOS Children‟s Villages of india, Rs.50,000/- in

the Chief Minister‟s Relief Fund at Patna, Rs. 25,000/- to the Advocate

Welfare Fund, Delhi Bar Council, Rs. 25,000/- for the Common Pool

Fund and Rs. 50,000/- to the Delhi Bar Association Employees Welfare

Fund. Similarly, in Company Petition No. 175/2008 dealing with the

scheme of amalgamation of M/s. HPL Protection Technologies Limited

with M/s. HPL Socomec Private Limited decided on 22.10.2008, the

subscribed capital of the transferor company was approximately Rs.

6.4 crores while of the transferee company was Rs. 3.5 crores, a

contribution has to be made of Rs. 5 lacs towards costs to be

deposited in the Common Pool Fund.

8. The aforesaid examples have been given by reference to order

sheets by learned counsel for the appellant to contend that the

directions passed in matters of such amalgamation cannot be used to

generate funds towards the Common Pool Fund for the running of the

office of the Official Liquidator nor for charitable purposes like the

Prime Minister‟s Relief Fund or SOS Village. It is submitted that

whether an organization wants to make a charitable contribution or

not, is for that organization to decide but the same cannot form a part

of a condition in an order or otherwise giving an impression that unless

such contributions are made, the petitions will not be allowed.

9. At the stage when the aforesaid issue was raised before us on

17th February, 2009, learned counsel for the Official Liquidator had

pleaded that there were rules in place for such imposition of costs at

the discretion of the learned Company Judge for scrutiny of the

records by the Official Liquidator and such practice has been followed

in the past. He also submitted that the costs have also in fact been

imposed even in other matters payable either to the Common Pool

Fund or to other entities.

10. We have heard learned counsel for the parties at length.

11. The principle behind the imposition of costs is the maxim in

expensarum causa victus victori condemnandus est which

encapsulated the rule that the loser must pay the expenses of the

successful party. In English law, this rule developed from the 13th

century onwards (See, Sir William Holdsworth, A History of English

Law, Volume IV, Sweet and Maxwell, 3rd Edition 1966, at page 536).

Eventually, it appeared that in some actions in which damages were

claimed, a successful plaintiff might often, under the name of

„damages‟, obtain a compensation which would cover the costs of

litigation as well as all other harm that he had sustained (See, Pollock

and Maitland, the History of English Law, Volume 2, Cambridge

University Press, 2nd Edition, 1968, at page 597). Later on, in

England, the Statute of Gloucester (1275) allowed damages and costs

to the successful plaintiff in certain real actions, and laid down the rule

that a plaintiff who recovered damages should always be entitled to

costs. Statutes of 1531 and 1565 allowed successful defendants to

recover costs in certain specified actions and courts, and in 1607

defendants were allowed to recover costs in all actions in which the

plaintiff was entitled to costs [See, Sir William Holdsworth, A History

of English Law, Volume IV, Sweet and Maxwell, 3rd Edition, 1966].

Ultimately, the same principles have made their way to India in

various Statutes and Rules. In Black's Law Dictionary, 8th Edition,

costs have been defined as, "the charges or fees taxed by the court,

such as filing fees, jury fees, courthouse fees, and reporter fees. -

Also termed court costs. ...... The expenses of litigation, prosecution, or

other legal transaction, esp. those allowed in favour of one party

against the other." Thus traditionally, costs are termed as the

pecuniary allowance made to a successful party, to be recovered from

the losing party, for expenses incurred by him during the course of

litigation. In addition, amounts fixed by Statute or Rule of the Court

as payable towards fees and charges to the Courts or to some officers

of the Court are also termed as costs. In India also, the same position

prevails. An essential feature of costs, which is necessary for the

purpose of this case, is that there must be requisite legal sanction for

the court to impose costs upon a party appearing before it.

12. Learned counsel for the Official Liquidator has drawn our

attention to the provisions of Section 394 of the said Act which

contains the following proviso:

"Provided further that no order for the dissolution of any transferor company under clause (iv) shall be made by the Tribunal unless the Official Liquidator has, on scrutiny of the books and papers of the company, made a report to the Tribunal that the affairs of the company have not been conducted in a manner prejudicial to the interests of its members or to public interest."

13. Learned counsel thus submits that the Official Liquidator is cast

with a statutory duty of scrutiny of books and papers of the company

and to make a report to the learned Company Judge. It is submitted

that money is expended in such scrutiny and thus the learned

Company Judge is well within his powers to make an order as to costs.

14. We put the question to the learned counsel that under what

authority of law is such a cost imposed, since indisputably such

imposition is in the nature of a court fee or a tax as it is not a case

where the party is in default and is being penalized by imposition of

costs. It is also not a case where a party has lost in some legal

proceedings and costs have been imposed to compensate the opposite

party. These observations do not suggest that the Court is devoid of

powers to impose costs on a defaulting party and direct such cost to

be deposited but the pre-condition is that there has to be a defaulting

party, failing which, the imposition will take the colour of a court

fee/tax even if it is labeled as costs.

15. Learned counsel thereafter drew our attention to the said Rules.

In this behalf, learned counsel referred to Rule 291. The relevant

portion of the same is as under:

"291. Fees to be credited to Central Government. - In every winding-up where the Official Liquidator becomes or acts as Liquidator, there shall be paid into the public account of India in the Reserve Bank of India to the credit of the Central Government from out of the assets of the company in liquidation (or by the petitioner as provided in clause (1) below), the fees determined in accordance with the following provisions-

.................

(6) When the Official Liquidator performs any special duties not provided for above"

16. We may note that though we have not quoted the fees provided

in the said Rule for different acts, the reason for the same is that the

reliance by the learned counsel is on sub-Rule (6) of the said Rules.

Learned counsel submits that the task provided for in the second

proviso to Section 394 of the said Act is akin to "special duties" and

thus under sub-Rule (6) of Rule 291 of the said Rules, imposition can

be made.

17. We are unable to accept the aforesaid plea for the reason that

Rule 291 refers only to winding up petitions and after setting out the

various fees, sub-Rule (6) provides for performance of any special

duties. It is applicable only to the winding up petitions.

18. We may also note that the Rules are split up under different

parts. Part III deals with winding up. Rule 291 is under Part III of the

said Rules. This, thus, leaves no doubt whatsoever.

19. Learned counsel, at this stage, fairly conceded that the relevant

provision, which would apply in the present case, would be Rule 79

which deals with petitions for confirming compromise or arrangement.

This would fall in Part II of the said Rules, which is under the heading

"Proceedings in matters other than winding up". Rule 79 reads as

under:

"Petition for confirming compromise or arrangement. - Where the proposed compromise or arrangement is agreed to, with or without modification, as provided by sub-section (2) of section 391, the company, (or its liquidator, as the case may be), shall within 7 days of the filing of the report by the Chairman, present a petition to the Court for confirmation of the compromise or arrangement. The petition shall be in Form No. 40.

Where a compromise or arrangement is proposed for the purposes of or in connection with a scheme for the reconstruction of any company or companies, or for the amalgamation of any two or more companies, the petition shall pray for appropriate orders and directions under Section 394.

Where the company fails to present the petition for confirmation of the compromise or arrangement as aforesaid, it shall be open to any creditor or contributory as the case may be, with the leave of the Court, to present the petition and the company shall be liable for the costs thereof.

Where no petition for confirmation of the compromise or arrangement is presented, or where the compromise or arrangement has not been approved by the requisite majority under section 391(2) and consequently no petition for confirmation could be presented, the report of the Chairman as to the result of the meeting made under the preceding rule shall be placed for consideration before the Judge for such orders as may be necessary."

20. Learned counsel for the appellant has also pointed out that in

the same Chapter II under the heading, "Restoration of the name of a

company to the Register of Companies" a specific provision has been

made in Rule 94, which is as under:

"94. Registrar's costs of petition. - Unless for any special reasons the Court shall otherwise order,

the order shall direct that the petitioners do pay to the Registrar of Companies his costs of, and occasioned by, the petition."

21. The aforesaid, thus, makes it clear that where costs have to be

compensated, a special provision has been made under the said Rules.

In case of change of name of a company, Rule 94 specifically provides

for payment to the Registrar of Companies. Similarly, in winding up

petitions forming part of Part III, provisions have been made in Rule

291 as discussed aforesaid.

22. Learned counsel for the Official Liquidator sought to emphasize

that Rule 307 provides for legal assistance to an Official Liquidator,

Rule 308 for employment of additional or special staff and Rule 309 for

apportionment of expenses of common staff. Once again, all these

Rules form part of Part III, which deals with the winding up of the

companies.

23. The result of the aforesaid is that under the said Rules, there is

no provision made whatsoever for recovery of costs expended by the

Official Liquidator in complying with his statutory obligations under the

second proviso to Section 394 of the said Act. This is so, as neither

under the specific Part III dealing with the petitions under Section 391

and 394 of the said Act nor under any general Rules under Part IV, has

any provision been made in this behalf.

24. We have also scrutinized the Rules relating to special jurisdiction

in Delhi High Court forming part of Volume II of the High Court Rules

and Orders. Chapter No. 1 is dealing with the duties to be performed

under the said Act and the manner thereof has been provided but no

provision had been brought to our notice whereby such an imposition

is authorized.

25. We wanted to explore the origination of such Common Pool Fund

but learned counsel for the Official Liquidator has only stated that the

same was established number of years ago by an administrative order

of the learned Company Judge. It is pleaded that the same was so

established in furtherance of Rule 309 which reads as under:

"Apportionment of expenses of common staff. - Where any staff is employed to attend to the work of more than one liquidation, or any establishment or other charges are incurred for more than one liquidation, the expenses incurred on such staff and the common establishment and other charges, shall be apportioned by the Official Liquidator between the several liquidations concerned in such proportions as he may thing fit, subject to the directions of the Judge, if any."

26. The perusal of the aforesaid shows that Rule 309 is under Part

III dealing with the winding up of companies and only refers to

expenses incurred on such staff and common establishment when the

work is carried out for more than one company in liquidation and

apportionment of expenses has to take place between the several

liquidations. We need not go further into this except to state that

indisputably it has nothing to do with any scheme of amalgamation or

expenses for the same.

27. We do appreciate the contention of the learned counsel for the

Official Liquidator that over a period of time the duties to be performed

by the Official Liquidator and its office have grown by leaps and

bounds. Special jurisdiction has been created in different Forums.

The Official Liquidator is required to attend to proceedings before such

Forums apart from the High Court and the courts subordinate to it.

This would naturally require proper infrastructure and manpower. It

is, however, necessary that such provisions are either made by the

Department of Company Affairs which deals with the appointment of

the Official Liquidator and setting up of its office and/or there is any

provision made in accordance with law for contribution to the Common

Pool Fund to defray the expenses. The task to be performed of

scrutiny under the second proviso to Section 394 of the said Act is a

specific one. It would, thus, be feasible if a special provision can be

considered to be made for defraying of such expenses. Unfortunately,

the said Rules, as framed and existing (stated to have been made

under the directions of the Hon‟ble Supreme Court) do not make any

such provision nor the Delhi High Court Rules and Orders provide so.

28. We find that no origination of this Common Pool Fund of the

Official Liquidator is available. At best it can be said to be a fund

created by the administrative orders of the learned Company Judge in

furtherance of the objects of Rule 309 of the said Rules and nothing

more. In the absence of any legal authority, no direction can be

passed to deposit, as costs or otherwise, amounts for

entertaining/allowing petitions under Sections 391 and 394 of the said

Act. The written synopsis filed by the appellant appears to show that

there has been no such past practice of directing deposits and the

practice seems to have developed in the year 2008. In any case, this

practice is without any authority of law. We also find from the orders

referred to by the learned counsel for the appellant that even while

directing such amount to be deposited, there has been no consistent

policy. The appellant had shown before us that normally, the costs for

such scrutiny is in the range of Rs. 5,000/- to 10,000/-. In fact in CP

No. 144/2008, only Rs. 5,000/- each was directed to be so deposited.

The out of pocket expenses are taken separately by the office of the

Official Liquidator. The funds required for running the office cannot be

generated through this process of forced contribution to the Common

Pool Fund by making directions to deposit amounts which have no

sanction in law. We fail to appreciate how even if this amount was

towards meeting the expenses of scrutiny, the amount would vary

from Rs. 5,000/- to Rs. 3 lacs! Even if the said Rules are amended or

practice directions passed under the High Court Rules and Orders, it

would be only towards the expense of such scrutiny as and when they

come into being.

29. The Supreme Court had occasion to examine a similar question

in the case of Hindustan Times Vs. State of Uttar Pradesh (2003)

(1) SCC 591, whilst examining the legality of a government order

directing newspapers of a certain class to deposit a percentage of their

advertising revenue to a social security scheme for full-time journalists

in the absence of any Statute compelling such payment. There, it was

held that the State cannot make any compulsory exaction from any

citizen unless there exists a specific provision of law operating in that

field. When viewed from the point of view of a citizen who is

compelled to pay, any order passed by a Court under similar

circumstances, i.e. without statutory basis, would be judged similarly.

In Gupta Modern Breweries Vs. State of J&K and Others (2007) 6

SCC 317, the Supreme Court was examining the validity of a Rule

empowering the Department to levy charges on the management on

account of salary of the Excise Department staff and the nature of

such a levy. There, the Supreme Court held that in the absence of

statutory authorization, such a Rule was ultra vires the Act and that

the same was manifestly unjust, unfair, impermissible, arbitrary and

unjustifiable. Significantly, in paragraph 28 thereof, the Supreme

Court held that the imposition of administrative charges is a tax and

that such imposition without backing of Statute is unreasonable and

unfair. We have considered it necessary to advert to this authority in

view of the submissions of learned counsel for the respondent that the

office of the Official Liquidator is in need of funds to defray

administrative expenses and salaries of staff and therefore, for that

reason, any orders directing deposit of money to the Common Pool

Fund, be upheld. It may be noticed that in Gupta Modern Breweries

(supra), even a rule permitting levy of charges towards salary of the

excise department staff on the Management was struck down because

the requirements of Article 265 of the Constitution of India were not

followed; here in this case, there is not even a semblance of any Rule

or bye-law for this appropriation. In the decision of the Supreme

Court in Ahmedabad Urban Development Authority Vs.

Sharadkumar Jayantikumar Pasawalla and Others AIR 1992 SC

2038, it was argued that the imposition of development fee was

incidental and/or ancilliary to the purpose for which the Development

Authority had been constituted under the Town Planning Act and,

therefore, the power to impose that fee ought to be implied. There, it

was held that, such power of imposition of tax and/or fee must be very

specific and there is no scope for implied authority in such matters. In

Sellappa Gounder Vs. State of Tamil Nadu (2004) 4 M.L.J. 726,

the impugned order had dismissed an interlocutory application for the

appointment of a Commissioner to ascertain the age of coconut trees

and imposed costs of Rs. 2,000/- payable to a temple. The High Court

set aside that order while observing that;

"4.The courts have no unfettered power to impose costs; that power to impose costs cannot be used whimsically....."

30. We may also notice that the directions to deposit these amounts

are not only to the Common Pool Fund but even to other entities like

the SOS Children‟s Village, Chief Minister‟s Relief Fund, Advocate‟s

Welfare Fund, Delhi Bar Association Employees Welfare Fund etc.

Such directions, in any case, could never have been passed. In the

instant case, looking to the circumstances thereof, and in the light of

the aforegoing discussions, we feel that the expression „costs‟

employed by the learned Single Judge in the impugned order is used

rather loosely. The payments directed cannot be termed as, "costs" at

all.

31. We may notice that these are not cases where a defaulting party

is penalized by costs to be deposited to the other party. These cases

are also not one where the Court finds it necessary to penalize a party

for violating directions/schedules laid down by the Court but does not

deem it appropriate to award the same to the opposite party but direct

such deposit to welfare funds, the object being to send a signal that

directions of the Court should be adhered to. In the present case, the

party for no fault of his, gets burdened with such costs. Even if the

direction to deposit the costs is with entities doing voluntary and

charitable work, in such cases, it is not sustainable. Such charity

cannot be done at the cost of the litigant who approaches the Court

and has not violated any directions. Even if the order seeks to give a

colour as if it is a voluntary act, the fact remains that the order

suggests that such deposits are really being made as a pre-condition

for passing the orders. It is always open to anyone to make

contributions towards a charitable cause of his own, but that cannot

form part of an order, as a pre-condition or otherwise.

32. In view of the fact that these directions to deposit costs, passed

in different matters, have been brought to our notice, it becomes

necessary for us to issue the following general directions. It is not

within domain of the judiciary or the executive to levy a fee or a tax.

As has been held by the Supreme Court in Gupta Modern Breweries

and Ahmedabad Urban Development Authority (supra) no such

fee or tax can thus be collected without authority of law. This was also

observed in Mafatlal Industries Limited and others vs. Union of

India and others (1997) 5 SCC 536. In State of Karnataka and

others v. V.S. Narayana Swamy (1991) 4 SCC 268 also it was held

that for imposition of a license fee, authority of a Statute or a Rule is

mandatory, failing which it would be ultravires the Constitution of

India. In the present case, there is, in fact, neither any Act nor any

Rule enabling such impositions. There has been not even a past

practice which in any case would not give it a cloak of legality. In

other words, nothing has been brought to our notice that might

demonstrate the availability of any power available to the company

court to direct the appellants to pay the impugned amounts.

33. We, thus, conclude as under:

(i) There cannot be any imposition in furtherance

of the second proviso of Section 394 of the said Act

for defraying the expenses till such authority is

vested by law.

(ii) There cannot be any direction to make deposit

in the Common Pool Fund or to any other entity

whether by way of charity or otherwise, either at the

stage of entertaining, or at the stage of passing of

final order on a petition under Section 391 and 394

of the said Act.

(iii) The aforesaid observations are made in the

context that no party is in default and does not take

away the power of the learned Company judge to

impose appropriate costs on the defaulting party as

per law.

              (iv)       The directions contained in para 26 of the

              impugned order is consequently set aside.

              (v)        In order to avoid any multiplicity of litigations,

we direct and make it clear that if in other matters,

such an imposition has been made, the non-

compliance of that direction will not visit the

concerned parties with any adverse consequences,

whether directions are made with consent or

otherwise. If any party seeks to deposit any amount

in the Common Pool Fund in pursuance to such a

direction, it shall be the duty of the Official Liquidator

to bring this order to the notice of such a party.

(vi) In view of our aforesaid observations regarding

the absence of legal authority and the need of the

Official Liquidator, it is open for the Official

Liquidator to approach the concerned authorities in

that behalf to take appropriate steps.

34. The appeal is allowed in the aforesaid terms leaving the parties

to bear their own costs.

Sanjay Kishan Kaul, J.

Sudershan Kumar Misra, J.

February 26, 2009 rd