Case Note & Summary
This civil appeal by special leave arose from a judgment of the Rajasthan High Court which held that the appellant was not entitled to file an appeal against an order of the Company Judge directing sale of leasehold rights of Golcha Properties (P) Ltd. (in liquidation) in land belonging to the appellant. The appellant, Smt. Jatan Golcha, was the owner of land measuring 42,900 square feet at Bhagwandas Road, Jaipur. On November 5, 1960, an agreement was entered into between the appellant and the respondent company allowing the company to construct a cinema theatre within three years from the issue of a No Objection Certificate. The company deposited Rs. 5 lakhs as security. In October 1963, a No Objection Certificate was issued for construction of a cinema theatre. In 1966, a petition for winding up of the company was filed in the Rajasthan High Court, and on May 10, 1968, an order for winding up was made and a liquidator appointed. On July 11, 1969, the Official Liquidator made a report to the Company Judge for sale of the leasehold rights and structures. On July 21, 1969, the Company Judge, without hearing anyone or issuing notice to the appellant, ordered that the leasehold rights and structures be auctioned. On October 3, 1969, the appellant's attorney sent a letter to the Official Liquidator stating that the licence granted to the company under the agreement stood revoked and called upon him to deliver possession and pay compensation of Rs. 10 lakhs. On February 9, 1970, the Official Liquidator replied claiming that the company was entitled to a lease for 20 years. On March 14, 1970, a notice was issued in a newspaper regarding the proposed auction sale. The appellant enquired from the Official Liquidator under whose authority the property was being sold, but no reply was sent. On April 3, 1970, the appellant applied for a certified copy of the July 21, 1969 order, which was sent on April 24, 1970. On the same date, the appellant filed an appeal before the High Court. The High Court rejected the appeal summarily, holding that under Rule 139 of the Companies (Court) Rules, 1959, since the appellant had not appeared before the Company Judge, she was not entitled to maintain the appeal, and that her only remedy was by way of a suit after obtaining leave under Section 446 of the Indian Companies Act, 1956. The Supreme Court allowed the appeal, holding that an appeal lies under Section 483 of the Act from any order made or decision given in the matter of winding up, and that the appeal was competent against the Company Judge's order. The Court observed that the Official Liquidator and the Company Judge were bound by the rules of natural justice to issue notice to the appellant and hear her before making the order. It held that Rule 103 of the Companies (Court) Rules, 1959, which provides for summons for directions, implicitly requires notice to any person whose rights may be prejudicially affected. The Court stated that it would be a travesty of justice if a party is driven to file a long and cumbersome suit when an order directly affects that party and an appeal is permitted by law. The Court also noted that a person not a party to a suit may prefer an appeal with leave of the appellate court if prejudicially affected. Accordingly, the Supreme Court set aside the High Court order and remanded the case to the High Court for disposal of the appeal in accordance with law, with costs to abide the event.
Headnote
A) Company Law - Winding Up - Sale of Assets - Indian Companies Act, 1956, Section 457(1) - Official Liquidator's power to sell immovable and movable property by public auction or private contract with court sanction - Court directed auction of leasehold rights and structures without hearing or issuing notice to the owner of the land, who had rights affected by the order - Held that exercise of power under Section 457(1)(c) falls within ambit of Rule 103 and notice is required to persons prejudicially affected (Paras 249 D, 250 A). B) Company Law - Appeals - Indian Companies Act, 1956, Section 483 - Right to appeal against company judge's orders in winding up - An appeal lies from any order made or decision given in the matter of winding up to the same court, in the same manner, and subject to same conditions as appeals from ordinary jurisdiction - Held that an appeal was competent against the order of the Company Judge, and the High Court erred in holding otherwise because the appellant had not appeared before the Company Judge (Paras 249 D, 250 C). C) Natural Justice - Notice and Hearing - Companies (Court) Rules, 1959, Rule 103 - Implicit requirement of notice to persons prejudicially affected before directions under Section 457(1) or any other matter requiring court directions - Official Liquidator and Company Judge were bound by rules of natural justice to issue notice to the appellant and hear her before making the order - Held that default in following correct procedure cannot deprive the appellant of her right to appeal (Paras 250 A, 250 C). D) Civil Procedure - Appeals by Non-Parties - Leave of Appellate Court - Person who is not a party to a suit may prefer an appeal with leave of appellate court and such leave should be granted if he would be prejudicially affected by the judgment - Held that the appellant, as owner of the land in which leasehold rights were sought to be sold, would be prejudicially affected and was entitled to maintain the appeal (Paras 250 C).
Issue of Consideration
Whether the appellant, who was not served with notice and did not appear before the Company Judge, had a right to appeal under Section 483 of the Indian Companies Act, 1956 against an order for sale of leasehold rights; whether Rules 103 and 139 of the Companies (Court) Rules, 1959 required notice to the appellant before passing the order; and whether the appellant's only remedy was by way of a suit under Section 446 of the Act.
Final Decision
The appeal was allowed. The Supreme Court set aside the Rajasthan High Court order and remanded the case to the High Court for disposal of the appeal in accordance with law. Costs were to abide the event.
Law Points
- appeal lies under Section 483 of Indian Companies Act
- 1956 from any order made in winding up
- natural justice requires notice to persons prejudicially affected before directions under Rule 103 of Companies (Court) Rules
- 1959
- failure to issue notice does not debar affected person from filing appeal
- a person not party to a suit may prefer an appeal with leave of appellate court if prejudicially affected
- remedy of appeal is not barred merely because party did not appear before company judge
