M.A. Panjwani vs Registrar Of Companies & Anr.
2013 Latest Caselaw 5561 Del

* IN THE HIGH COURT OF DELHI AT NEW DELHI

                                           Reserved on: 27th November, 2013
%                                       Date of decision: 2nd December, 2013

+      CO. PET. No.174/2013

       M.A. PANJWANI                                        ..... Petitioner
                             Through:     Mr. Ateev Mathur with Mr. Pankaj
                                          Gupta, Advocates.

                    versus

       REGISTRAR OF COMPANIES & ANR.            .....Respondents
                     Through: Mr. K.S. Pradhan, Dy. ROC.
                              Ms. Maneesha Dhir with Ms.
                              Mithu Jain, Advocates.

CORAM:
HON'BLE MR. JUSTICE R.V.EASWAR

                                JUDGMENT

R. V. EASWAR, J.:

1. This is a petition filed by the petitioner i.e. M.A. Panjwani under

Section 560 (6) of the Companies Act, 1956 read with Rules 9 & 92 of

the Company Court Rules, 1959. The prayer in the petition is for

directions to the Registrar of Companies, who is the respondent No.1, for

restoring the name of respondent No.2 i.e. M/s. Alfa Impex Pvt. Ltd.

(hereinafter referred to as "Company") to the register of companies

maintained by respondent No.1.

2. It is necessary to briefly refer to the events that resulted in filing

the present petition. The petitioner was residing in the United Kingdom.

In the year 1979 he wanted to settle down in India. With this end in view,

he engaged the services of respondent No.3 i.e. Mr. D.C. Singhania for

searching a suitable house in Delhi. Singhania identified a property

known as "Jodhpur Gardens" in village Gadaipur, Tehsil Mehrauli. On

his request, the petitioner remitted a sum of Rs.3,00,000/- in November,

1979 in favour of Singhania for the purchase of the aforesaid property.

Singhania took possession of the property as agent of the petitioner and

confirmed the same in writing to the petitioner. In January, 1980, the

petitioner remitted further sums from England in favour of Singhania,

being the balance of the purchase price of the property. In the same

month, he visited Delhi with his family and stayed in the property. While

at Delhi, he requested Singhania to give him the conveyance deed in

respect of the property but was told by Singhania that it would take some

time to get the original document. Trusting his word, the petitioner

returned to England and between the years 1981 and 1986, repeatedly

inquired about the conveyance deed with D.C. Singhania, who, under

some pretext or the other kept deferring the issue and giving evasive

answers.

3. His suspicion having been excited, the petitioner made inquiries in

Delhi through persons known to him who informed him that the property

was registered in the name of the company and was in the possession and

personal use of D.C. Singhania since January, 1980. On being so

informed, the petitioner filed a suit for declaration, mandatory injunction

and damages. On 16.11.1989, the Civil Court granted stay in favour of

the petitioner and restrained the defendants (the company, D.C. Singhania

& Solicitor Firm in which he was a partner) from alienating the property

known as "Jodhpur Gardens" in any manner. In the written statement

filed by Singhania in the suit, he stated that the total amount of

Rs.4,50,000/- remitted by the petitioner was used for allotting shares of

the company in favour of the petitioner, thereby enhancing the share

capital of the company.

4. After the proceedings in the suit had commenced, Singhania would

appear to have liaised with one Mr. S.A. Quli, who was an employee of

the petitioner but had been dismissed in the year 1981 for misconduct.

Pursuant to this, when the petitioner was away from U.K., Mr. Quli

obtained an ex-parte order from the Chancery Division of the High Court

of Justice in London claiming a sum of money for work which he claimed

to have done for the petitioner. The judgment of the Court of the

Chancery Division was sought to be executed by Mr. Quli against the

petitioner in India by filing Execution Proceedings No.40/1989. In the

execution proceedings, the Court was informed that the matter was settled

between the parties and the shares allotted to the petitioner in the

company were transferred to Mr. Quli who had obtained the ex-parte

decree from the Court in England. The settlement was also confirmed by

one Mr. J.K. Gupta, who claimed himself to be a director of the company.

5. The result was that the petitioner was deprived of both the property

known as "Jodhpur Gardens" as well as the shares allotted to him in the

company.

6. In March, 1998, the Addl. District Judge directed that the shares

which were transferred to Mr. Quli should be released in favour of the

petitioner, consequent to the ex-parte judgment obtained by Mr. Quli

from the Chancery Division in London having been set aside, apparently

at the instance of the petitioner.

7. On 14.05.2003, the suit was listed before the Civil Court for

leading plaintiff's evidence. The counsel for the plaintiff (the petitioner

herein) sought time to lead evidence but the trial court rejected the

request and closed the plaintiff's evidence. The suit was also dismissed

on that date. The petitioner preferred an appeal before this Court in RFA

No.42/2004 on 15.02.2012. This Court set aside the judgment and decree

dated 14.05.2003 passed by the Civil Court and remanded the suit for

trial. When the suit was taken up on 07.05.2012, counsel for the

company, which was the first defendant in the suit (respondent No.2

herein) informed the trial court that the name of the company has been

struck off the records by the Registrar of Companies and therefore the

suit cannot proceed.

8. The present petition has been filed by M.A. Panjwani, the

petitioner, under sub-section (6) of Section 560 of the Companies Act

seeking restoration of the name of the company to the register of

companies maintained by the ROC on the ground that it is "just" to do so

having regard to the facts narrated above. It is pointed out that unless the

name of the company is restored, the suit filed by the petitioner would be

rendered meaningless or infructuous and there would be no effective

remedy available to the petitioner to proceed against the company for the

loss caused to him. It was contended on behalf of the petitioner that the

respondents would get away with the property which rightfully belongs to

the petitioner, if the name of the company is not restored to the register.

9. Counsel appearing for the Registrar of Companies took up a

preliminary objection to the effect that a petition for restoration of the

name of the company can be filed only by the company, member or

creditor in terms of Section 560(6) of the Act and that the petitioner does

not fall under any of these three categories. My attention was drawn to

the annual return as on 30.09.2004 filed by the company with the

Registrar of Companies in which only two persons were shown as

shareholders - (i) Singhania Foundation Education Trust holding 29,999

shares and (ii) Sameer Rastogi, holding one share. Attention was also

drawn to the director's report for the year ended 31.03.2004 in which it

was stated that during the year, the company has not carried on any

business which statement is also confirmed in the auditors' report and the

annexure appended thereto. It is accordingly submitted on behalf of the

Registrar of Companies that the Registrar of Companies was well within

his rights in striking off the name of the company from the register, since

admittedly the company was not carrying on any business which was the

only condition for the applicability of Section 560. As regards the

argument of the petitioner that it was "just" that the company be restored

to the register having regard to the events narrated earlier, counsel for the

Registrar of Companies submitted that the word "just" appearing in sub-

section (6) of Section 560 has to be given a limited or restricted meaning

having regard to the context and construed ejusdem generis with the

requirement that the company should be carrying on business and should

be in operation, and the said word cannot be given any broader meaning.

10. In support of the contention that the petitioner had no locus to seek

relief under Section 560(6) as he was not a creditor of the company at the

time of the striking off of the name of the company, counsel for the

Registrar of Companies referred to the judgment of the Chancery

Division in Re, Aga Estate Agencies Ltd. : (1986) BCLC 346 (Ch. D.)

and that of the Calcutta High Court in Re: U.N. Mandal's Estate : (AIR

1959 Calcutta 493).

11. On a careful consideration of the matter, I am of the view that the

petition must succeed.

12. Under sub-section (6) of Section 560 of the Companies Act, 1956

the company court has the power to order restoration of the company's

name to the register of companies on the application made by the

company itself or its member or creditor. Such an application can be

made at any time before the expiry of 20 years from the publication of the

notice for striking off the name published in the official gazette. There

are only two circumstances in which the company court can exercise the

power. The first is when it is satisfied that the company was, at the time

of the striking off of its name from the register, carrying on business or

was in operation. The second circumstance is when it appears to the

company court that it is "otherwise just" that the name of the company be

restored to the register. Obviously the petitioner is not the company itself

and, therefore, he has to be either a member or creditor. It was submitted

on behalf of the ROC that the petitioner is neither a member nor a

creditor of the company.

13. Section 2(27) of the Act defines "member", in relation to a

company in a negative manner by saying that it does not include a bearer

of a share warrant of the company issued in pursuance of Section 114.

The definition does not assist in the resolution of the present controversy

much, nor is the definition in section 41 helpful. Prima facie it would

appear that a member of a company is a person who holds shares in the

company as on the date on which the petition was filed. Undoubtedly the

petitioner did not hold any share certificate of the company. However,

shares had been allotted to him in the year 1989-90 for the amount of

Rs.4,50,000/- which was remitted by him to the third respondent for the

purpose of purchasing Jodhpur Gardens. The petitioner was allotted

5,150 equity shares and for this purpose the share capital of the company

was enhanced to Rs.15,00,000/- divided into 15,000 equity shares of 100

each in the year 1987. The annual report of the company filed with the

ROC, Delhi on 30.12.1987 did show that the petitioner was holding 40%

shares out of the total paid-up share capital. A copy of the said annual

report is at Annexure-P6 filed with the petition. Thereafter, in the course

of the Execution Proceedings No.40/1989 filed by Mr. Quli in order to

execute the ex-parte order which he had obtained against the petitioner

from the Chancery Division of the High Court of Justice in London, the

shares held by the petitioner were transferred in the name of Mr. Quli, on

the basis of a "no-objection" given by one J.K. Gupta, who was a director

of the company at that time. However, the ex-parte judgment obtained by

Mr. Quli against the petitioner was set aside, and therefore, the execution

proceedings became non est. In the order passed by the Addl. District

Judge on 18.03.1998, a direction was given that the shares transferred in

the name of Mr. Quli be released in favour of the petitioner. This

direction, however, was not given effect to by D.C. Singhania who

proceeded to remove the name of the petitioner from the list of

shareholders in the annual return of the company, which is Annexure P-7

to the petition. In these circumstances, when the shares allotted to the

petitioner were without his knowledge and consent transferred, it cannot

be stated that the petitioner ceased to be a member of the company on his

own volition. There is nothing in Section 41 of the Companies Act,

which also defines "member", which would militate against this view. It

is pertinent to note that in the order passed by this Court on 27.03.2000 in

Suit No.3340/1989, it was observed that the trial court and this court were

"misled to believe there was in fact a settlement between the plaintiff and

Mr. S.A. Quli with regard to the subject matter of the suit when there was

none and as such not only the settlement was void but the said order

passed by this Court was non est and nullity in the eyes of law". The

transfer of shares from the petitioner to Quli having been held by this

Court to be collusive and the orders under which it was done having been

declared to be a nullity, the petitioner never ceased to be a member of the

company.

14. Even if the petitioner cannot be considered as a "member" of the

company, he is certainly a "creditor" who can file the petition. On this

aspect of the matter I may refer to the judgment of a learned Single Judge

(A.S. Pachhapure, J.) of the Karnataka High Court in Velu B. Pethi v.

Kayesess Constructions Pvt. Ltd. & Ors. : (2011) 163 Comp Cas 176.

In this case the essential facts are somewhat similar to the facts of the

present case. In that case, the petitioner purchased a residential site from

the respondent-company for a price. Sale deeds were also executed by

the company in his favour. Later it was found that the company did not

have title to the plots since the plots had been acquired by the City

Improvement Trust Board 23 years earlier to the sale of the plot to the

petitioner. The petitioner was, however, unaware of the acquisition

proceedings. After buying the plot he had also put up a construction on

the same. The company's challenge to the acquisition proceedings was

dismissed in the year 2008. The authorities pulled down the fences put

up by the company upon the plot and also the construction put up by the

petitioner. Later, based on the closure of the company, its name was

struck off from the register by the ROC on the ground that it was not

carrying on any business. The petitioner in his petition under Section

560(6) seeking to have the name of the company restored to the register

contended that he was a creditor, entitled to recover the loan due to him

from the company and the company was liable to make good the loss

sustained by the petitioner. The petition was opposed on the ground that

the petitioner was not a creditor and, therefore, had no locus standi to file

the petition. The learned Single Judge of the Karnataka High Court

rejecting the contention of the respondent, held that since there was no

effective conveyance of any title over the land by the respondent in

favour of the petitioner, the petitioner was entitled to claim the loss

occasioned due to the sale transaction. The petitioner, it was held,

acquired a right to recover damages from the respondent-company since

the latter had no title to the property which it sought to sell to the

petitioner. The Court noticed that the petitioner intended to initiate

proceedings against the company for recovery of damages and it was just

and proper to restore the name of the respondent-company to the register

maintained by the ROC. It is significant to note that the Karnataka High

Court referred to the judgment of the Chancery Division in Harvest Lane

Motor Bodies Ltd. In Re : (1968) 2 All ER 1012, wherein the word

"creditor" used in Section 353(6) of the Companies Act, 1948 (of

England) was held to include a person who has a claim for the loss

sustained at the instance of the company. Relying on this judgment, the

Karnataka High Court held that the case of the petitioner fell in the

category of "creditor".

15. Quite apart from the above position, the sub-section recognises that

if the Court is of opinion that it is "otherwise just" that the company be

restored to the register, restoration can be ordered. The argument

addressed on behalf of the ROC to the effect that the word "just" has to

be understood in the background of the specific language of the sub-

section on the basis of the principle of ejusdem generis does not appeal to

me. As I read the sub-section, there are two situations in which the

company court can order restoration. One is when the company was

carrying on business or was in operation at the time of striking off its

name. The second situation, which is an alternative situation, is one

where it appears "just" to the company court that the name of the

company be restored to the register. I do not see any scope for the

application of the rule of ejusdem generis because of the presence of the

words "or otherwise" between the words providing for the two types of

situations. The presence of the words "or otherwise" denotes that even if

the company was not carrying on any business or was not in operation at

the time of striking off, it is still open to the company court to order

restoration if it appears to the Court to be "otherwise just". I may add

that the words "or otherwise" have not been generally construed ejusdem

generis as seen from the judgments of the Supreme Court in Lilawati Bai

vs. State of Bombay : (AIR 1957 SC 521) and Kavallappara Kottarathil

Kochuni v. State of Madras : (AIR 1960 SC 1080).

16. In Helen C. Rebella vs. Maharashtra S.R.T.C. : (1999) 1 SCC 90,

it was observed by the Supreme Court that the word "just" denotes

equitability, fairness and reasonableness having a large peripheral field.

In understanding its scope, one must take into account all the facts and

circumstances of the case and then decide what would be just and

equitable. In M.A. Rahim and Anr. vs. Sayari Bai : (AIR 1973 Mad.

83) it was held by a Division Bench of the Madras High Court that the

word "just" connotes reasonableness and something conforming to

rectitude and justice, something equitable and fair. In Sidhant Garg and

Anr. vs. Registrar of Companies & Ors. : (2012) 171 Comp. Cas. 326 it

was held by this Court (Manmohan, J.) that the word "just" would mean

that it is fair and prudent from a commercial point of view to restore the

company and that the Court has to examine the concept of "justness" not

exclusively from the perspective of a creditor or a member or a debtor,

but from the perspective of the society as a whole. The special facts of

the present case attract this principle. The respondent has received

monies from the petitioner. He was entrusted with the job of finding a

house for the petitioner in Delhi. The averments in the petition prima

facie indicate that the property "Jodhpur Gardens" was purchased not in

the name of the petitioner but in the name of the company. The shares

held by the petitioner in the company were also taken away from him

without his knowledge or consent. The settlement entered into between

Quli and Singhania by which the shares were transferred to Quli was held

by this Court to be collusive. These are disputes which are pending in the

trial court. The company is a defendant in the trial court. If its name is

not restored, it would cause injustice to the petitioner and also cause

prejudice to the trial as a whole. The message sent to the society as a

whole, if the name of the company is not restored to the register, would

be quite disturbing. The petitioner has to be protected in the litigation

pending before the trial court. As observed by the Indore Bench of the

Madhya Bharat High Court in Bhogi Lal Chiman Lal vs. Registrar, Joint

Stock Companies : AIR 1954 M.B. 70, the effect of the order of the

Registrar of Companies striking off the name of the company from the

register would be that the company will be deemed to be dissolved and it

may be difficult for the petitioner to obtain any relief in the suit pending

before the trial court. It is not also known whether the company had

brought to the notice of the ROC about the pendency of the litigation in

the trial court. If it had, perhaps the ROC would not have struck off the

name from the register.

17. It was submitted on behalf of the Registrar of Companies that in

striking off the name of the company, the procedure prescribed in Section

560 of the Act was followed. That may be so. Sub-section (6) of Section

560 gives power to the company court to order restoration of the name of

the company if it finds that such a course was "just". The fact that the

ROC did follow the due procedure prescribed by law while striking off

the name cannot, therefore, be an answer to a petition filed on the ground

that it would be "just" to restore the name of the company.

18. On the facts of this case there is every reason to hold that it would

be "just" to restore the name of the company to the register of companies.

The Registrar of Companies is directed to do so. The observations made

herein are only for the purpose of disposal of the petition and shall not be

taken as any expression on the merits of the suit pending in the trial court.

19. The company petition is allowed.

(R.V. EASWAR) JUDGE DECEMBER 2, 2013 hs