PETITIONER:
OFFICIAL LIQUIDATOR
Vs.
RESPONDENT:
DHARTI DHAN (p) LTD.
DATE OF JUDGMENT10/02/1977
BENCH:
BEG, M. HAMEEDULLAH (CJ)
KAILASAM, P.S.
CITATION:
1977 AIR 740 1977 SCR (2) 964
1977 SCC (2) 166
ACT
Companies Act, 1956--Sections 442, 446--Power to stay
proceedings, whether discretionary--Meaning of the word
"may" occurring in s. 442.
Constitution of India, 1950--Article 136--Appeal by
special leave--Interference by Supreme Court---Scope of.
HEADNOTE
The Company Judge in t.he Bombay High Court directed on
3-1-1970 advertisement of the winding up petition fried by
the Registrar of Companies in Maharashtra against the
respondent company, one of the debtors of the Golcha company
to the extent of Rs. 11,69,043/-. The respondent company
appealed against the decision of the Company Judge and
obtained an order dated 3rd February, 1970, from a Divi-
sion Bench staying the operation of the order of advertise-
ment of the winding up petition. As the respondent company
defaulted in the payment of two of its instalments, as
agreed to between the Golcha company and the respondent
company by agreements dated 25th June 1966 and 17th January
1967, the Official Liquidator of the Golcha company made a
claim under s. 446(2) of the Companies Act for the recovery
of a sum of Rs. 5 lac before the Company Judge of the High
Court of Rajasthan. The respondent company after obtaining
an order of stay of the proceedings against it in the Bombay
High Court made, another application under s. 442(b) of the
Companies Act in the Rajasthan High Court for staying of
proceeding against it under s 446 (2) made by the appellant
on the ground that a compulsory winding up petition was
pending against it in the Bombay High Court. The Company
Judge rejected the application under s. 442(b) of the Act on
9-5-.1974. But, the Division Bench of the Rajasthan High
Court allowed the appeal against the stay order and ordered
a conditional stay of proceedings u/s. 446 (2) of the Act
against the respondent company.
On appeal by special leave, the Court,
HELD: (1) The clear object of s. 442 is that claims in
suits and proceedings pending elsewhere which have a bearing
on the company’s liabilities may be stayed only until the
winding up order is made, because, after the winding up
order has been passed, s. 446 begins to operate so as to
automatically transfer with certain exceptions, proceedings
against the company being wound up to the court exercising
the jurisdiction to wind it up. [968 B-C]
(2) Sections 442 and 446 of the Act have to be read
together. It is only where the object of the two sections,
when read together, is served by a stay order that the stay
order could be justified. That object is to expeditiously
decide and dispose of pending claims in the winding up
proceedings. A stay is not to be granted if the object of
applying for it appears to be merely to delay adjudication
on a claim, and, thereby, to defeat justice. In other
words, a stay order under s. 442 cannot be made mechanically
or, as a matter of course, on showing fulfilment of some
fixed and prescribed conditions. It can only be made judi-
ciously upon an examination of the totality of the facts
which vary from case to case, It follows that the order to
be passed must be discretionary and the power to pass it
must, therefore, be directory and not mandatory. [969 B-D]
(3) The word "may" used before stay u/s. 442 of the Compa-
nies Act really means "may" and not "must" or "shall" in
such a context. In fact, it is not quite accurate to say
that the word "may" by itself acquires the meaning of "must"
or "shall" sometimes. This word, however, always signifies
a conferment of that power. That power may, having regard to
the context in which it occurs and the requirements contem-
plated for its exercise have annexed to it
965
an obligation which compels its exercise in a certain way on
facts and circumstances from which the obligation to exer-
cise it in that way arises. In other words, it is the
context which can attach the obligation to the power compel-
ling its exercise in a certain way. The context both legal
and factual may impart to the power that obligatoriness.
[969 D-F]
(4) Thus, the question to be determined in such cases
always is whether the power conferred by the use of the word
"may" has annexed to it an obligation, that, on the fulfil-
ment of certain legally prescribed conditions to be shown by
evidence, a particular kind of order must be made. In such
a case, it is always the purpose of the power which has to
be examined in order to determine the scope of the discre-
tion conferred upon the donee of the power. If the condi-
tions in which the power is to be exercised in particular
cases are also specified by a statute, then, on the fulfil-
ment of those conditions, the power conferred becomes an-
nexed with a duty to exercise it in that manner. [969 F--970
G-H]
Frederic Guilder Julius v. The Right Rev. The Lord
Bishop of Oxford: The Rev. Thomas Thelusson Carder 5 A.C.
214, quoted with approval.
Bhaiya Punjalal Bhagwandin v. Dave Bhagwat prasad Prab-
huprasad [1963] 3 SCR 312: State of Uttar Pradesh v. Jogen-
dra Singh [1964] 2 SCR 197; Sardar Govindrao & Ors. v. State
of M.P. [1965] 1 SCR 678; Shri A. C. Aggarwal, Sub Division-
al Magistrate, Delhi & Anr. v. Smt.. Ram Kali etc. [1968] 1
SCR 205; Bashira v. State of U.P. [1969] 1 SCR 32 and Pra-
kash Chand Agarwal & Ors. v. M/s. Hindustan Steel Ltd.
[1972] 1 SCR 405, applied.
(5) In s. 442 of the Companies Act the power to stay a
proceeding is not annexed with the obligation to necessarily
stay on proof of certain conditions although there are
conditions prescribed for the making of the application for
stay and the period during which the power to stay can be
exercised. The question whether it should, on the facts of
a particular case, be exercised or not will have to be
examined and then decided by the court to which the applica-
tion is made. If the applicant can make out, on facts, that
the objects of the power conferred by ss. 442 and 446 of the
Act can only be carried out by a stay order, it could per-
haps be urged that an obligation to do so becomes annexed to
it by proof of those facts. That would be the position in
case the word "may" itself must be equated with "shall", but
because judicial power has necessarily to be exercised
justly, properly and reasonably to enforce the principle
that rights created must be enforced. [971 B-D]
(6) In such cases, the only right which could be said to
have been created is the right to get speedier adjudication
from the court where the winding up proceeding is taking
place. That is the object of the provisions. On facts
disclosed, if it be found that the application has been made
with the object of delaying decisions on claims made, the
application should be rejected outright. [971 D-E]
(7) In the instant case the object of the respondent
company appears to be to obtain an indefinite stay of pro-
ceedings against it in both High Courts. This being a
correct inference, the stay application under s. 442(b) of
the Companies Act could not be a bona fide one, but an abuse
of the processes of the court.
[966 F-G]
(8) It is true that the Supreme Court does not, as a
rule interfere with interlocutory orders. The powers of
interference under Art. 136 of the Constitution by the
Supreme Court are not confined to those in respect of final
orders, although finality of an order is a test which the
Supreme Court generally applies in considering whether it
should interfere under Art. 136 of the Constitution with it.
[972 B-D]
JUDGMENT
CIVIL APPELLATE JURISDICTION: Civil Appeal No. 126 of 1976.
(Appeal by Special leave from the Judgment and Order
dated the 11th October, 1974 of the Rajasthan High Court in
D.B. Special Appeal No. 111 of 1974)
L.N. Sinha, Sol. Genl. and Suresh Sethi, for the appellant.
C.K. Garg, S.S. Khanduja and C.L. Sahu, for respondent.
966
The Judgment of the Court was delivered by
BEG, C.J.--The Official Liquidator attached to the High
Court of Rajasthan, in-charge of the liquidation of Golcha
Properties (Pvt.) Ltd., (hereinafter referred to as ’Golcha
Company’), has come up in appeal to this Court by special
leave against a judgment and order of a Division Bench of
that High Court, passed on a Special Appeal from the judg-
ment and order of a single Judge of that Court. On peti-
tions presented on 4th July 1966 and 30th July 1966 by the
creditors of Golcha Company, the High Court had made a
compulsory winding up order on 10th May 1968; and, on that
very date, the appellant was appointed liquidator of the
Golcha company. The Dharti Dhan (Pvt.) Ltd., (hereinafter
referred to as the ’Dhan Company’), with its registered
office at Bombay, was said to be one of the debtors of the
Golcha Company to the extent of Rs. 11,69,043/together with
interest and commission which was said to be still due on
1st August 1969. Agreements dated 25.6.66 and 17.1.67
between the two companies regulated the method of repayment
by annual instalments of Rs. 2,50,000/- according to the
appellant. As the respondent, Dhan Company, is said to have
defaulted in the payment of two of its instalments, a claim
under section 446(2) of the Companies Act (hereinafter
referred to as ’the Act’) for the recovery of a sum of Rs.
5,00,000/- was made before the Company Judge of the High
Court of Rajasthan by the appellant.
On 20th September 1969, the Registrar of Companies
in Maharashtra had to file a winding up petition against the
respondent Dhan Company in the Bombay High Court. The
Company Judge in the Bombay High Court on 3rd January, 1970,
directed advertisement of the winding up petition. The
respondent Dhan Company appealed against the decision of the
Company Judge and obtained an order, dated 3rd February,
1970, from a Division Bench staying the operation of the
order for advertisement of the winding up petition. An
appeal against that order is said be still pending so .that
a stay of those proceedings operates.
After obtaining an order of stay of the proceedings
against it in the Bombay High Court, the Dhan Company made
an application under s. 442(b) of the Act in the Rajasthan
High Court for stay of proceedings against it u/s. 446(2) on
the ground that a compulsory winding up petition was pending
against it in the Bombay High Court. The object of the
respondent Dhan Company appeared to be to obtain an indefi-
nite stay of proceedings againsts it in both High Courts. If
this is a correct inference, as it appears to us to be, the
stay application under s. 442(b) of the Companies Act would
not be a bona fide one. It looks more like an abuse of the
process of the Court. It is, therefore, not surprising that
the learned Company Judge: of the Rajasthan High Court
rejected the Dhan Company’s application under s. 442(b)
of the Act on 9th May 1974. It is, however, somewhat sur-
prising that a Division Bench of that High Court should have
allowed an appeal from the judgment of the Company Judge and
ordered stay of proceedings under s. 446(2) of the Act
against the respondent Dhan Company, even though this was
subjected to the
967
condition that "the appellant Company produces the entire
documentary evidence inclusive of account-books, vouchers,
files and other documents and papers in its possession or
power relating to the claim in question, as it may desire to
produce or the Official Liquidator desires to summon or as
the learned Company Judge may direct in his discretion and
also produces a list of witnesses that the appellant company
may desire to examine in its defence in respect of the claim
in question along with an affidavit of what each witness is
likely to depose". Thus, the Division Bench had, while
making the stay order, attempted to safeguard the interests
of the Golcha Company by making an order which, in the
opinion of the Division Bench, would prevent valuable evi-
dence from being lost due to either the death or the fading
memory of a witness or other causes.
Learned Solicitor-General, appearing for the appellant,
Official Liquidator of the Golcha Company, gave up the
objection, taken in the special leave petition, to the
maintainability of an appeal to a Division Bench from the
order of the Company Judge in view of the provision of
section 483 of the Act, which lays down:
"483. Appeals from any order made or
decision given in the matter of the winding up
of a company by the Court shall lie to the
same Court to which, in the same manner in
which and subject to the same conditions
under which, appeals lie from any order. or
decision of the Court in cases within its
ordinary jurisdiction".
The Solicitor-General, however, submits that, on merits, the
order of the learned Company Judge, dismissing the applica-
tion of the Dhan Company for stay of proceedings under s.
442(b) of the’ Act, deserves to be restored as no grounds
for interference with the proper exercise of his discretion
by the learned Company Judge existed at all. We highly
appreciate the brevity of this submission, after the Solici-
tor-General had, very rightly and properly,’ conceded that
he could not urge that the Division Bench had not jurisdic-
tion to hearthe appeal before it. No effective answer could
be given to the Solicitor-General’s submission by the
learned counsel for the respondent. We will, however, deal
with the strenuous arguments advanced on behalf of the
respondent even if it be to disclose how untenable they are.
Firstly, learned counsel for the respondent contends
that the power to stay proceedings, contained in s. 442(b)
of the Act, is bound to be exercised when certain condi-
tions, said to be found in the case before us, are ful-
filled. This submission rests on a misapprehension of the
object of s. 44-2 which lays down:
"442. At any time after the presentation
of a winding up petition and before a winding
up order has been made, the company, or any
creditor or contributory, may--
(a) where any suit or proceeding against
the company is pending in the Supreme Court or
in any High Court, apply
968
to the Court in which the suit or proceeding
is pending for a stay of proceedings therein;
and
(b) where any suit or proceeding is
pending against the company in any other
court, apply to the Court having jurisdic-
tion to wind up the company, to restrain
further proceedings in the suit or proceeding;
and the Court to which application is so
made may stay or restrain the proceedings
accordingly on such terms as it thinks fit".
The clear object of the section is that claims in suits
in and proceeding pending elsewhere which have a bearing on
the company’s liabilities, may be stayed only until the
winding up order is made, because, after the winding up
order has been passed, section 446 begins to. operate so as
to. automatically transfer with certain exceptions proceed-
ings against the company being wound up to. the Court exer-
cising the. jurisdiction to wind it up. Section 446 reads:
"446.(1) When a winding up order has
been made or the Official Liquidator has been
appointed as provisional liquidator, no suit
or other legal proceeding shall be commenced,
or if pending at the date of the winding up
order, shall be proceeded with against the
company, except by leave of the Court and
subject to such terms as the Court may impose.
(2) The Court which is winding up the
company shall, notwithstanding anything con-
tained in any other law for the time being in
force, have jurisdiction to entertain, or
dispose of--
(a) any suit or proceeding by or against
the company;
(b) any claim made by or against the compa-
ny (including claims by or against any of its
branches in India);
(c) any application made under section 391
by or in respect of the company;
(d) any question of priorities or any
other question whatsoever, whether of law or
fact, which may relate to or arise in course
of the winding up of the company;
whether such suit or proceeding has been
instituted or is instituted, or such claim or
question has arisen or arises or such applica-
tion has been made or is made before or after
the order for the winding up of the company,
or before or after the commencement of the
Companies (Amendment) Act, 1960.
969
(3) Any suit or proceeding by or against
the company which is pending in any Court
other than that in which the winding up of the
company is proceeding may, notwithstanding
anything contained in any other law for
the time being in force, be transferred to and
disposed of by that Court.
(4) Nothing in sub-section (1) or sub-
section (3) shall
apply to any proceeding pending in appeal
before the Supreme Court or a High Court".
Sections 442 and 446 of the Act have to be read together.
It is only where the object of the two sections, when read
together, is served by a stay order that the stay order
could be justified. That object is to expeditiously decide
and dispose of pending claims in the course of winding up
proceedings. A stay is not to be granted if the object of
applying for it appears to be, as it does in the case before
us, merely to delay adjudication on a claim, and, thereby to
defeat justice. In other words, a stay order, under sec-
tion 442,cannot be made mechanically, or, as a matter of
course, on showing fulfilment of some fixed and prescribed
conditions. It can only be made judiciously upon an exami-
nation of the totality of the facts which very from case to
case. It follows that the order to be passed must be
discretionary and the power to pass it must, therefore, be
directory and not mandatory. In other words the word" used
before "stay" in section 442 of the Act really means may and
not "must" or "shall" in such a context. In fact it is quite
accurate to say that the word "may" by itself, acquires the
meaning’ of "must" or "shall" sometimes. This word however,
always signifies a conferment of power. That power may,
having regard to the context in which it occurs, and the
requirements contemplated for its exercise, have annexed to
it an obligation which compels its exercise in a certain way
on facts and circumstances from which the obligation to
exercise it in that way arises. In other words, it is the
context which can attach the obligation to the power compel-
ling its exercise in a certain way. The context, both legal
and factual, may impart to the power that obligatoriness.
Thus, the question to be determined in such cases always
is,whether the power conferred by the use of the word "may"
has, annexed to it, an obligation that, on the fulfilment of
certain legally prescribed conditions, to be shown by evi-
dence, a particular kind of order must be made. If the
statute leaves no room for discretion the power has to be
exercised in the manner indicated by the other legal provi-
sions which provide the legal context. Even then the facts
must establish that the legal conditions are fulfilled: A
power is exercised even when the Court rejects an applica-
tion to exercise it in the particular way in which the
applicant desires it to be exercised. Where the power is
wide enough to cover both an acceptance and a refusal of an
application for its exercise, depending upon facts, it
is directory or discretionary. It is not the conferment of
a power which the word "may" indicates that annexes any
obligation to its exercise but the legal and factual context
of it. This, as we
970
understand it, was the principal laid down in the case cited
before us: Frederic. Guilder Julius v. The Right Rev. The
Lord Bishop of Oxford; The Rev. Thomas Thellusson Carter.
(1)
Dr. Julius, in the case mentioned above, had made an
application to the Bishop of Oxford against the Rector of a
parish, asking the Bishop to issue a commission under the
Church Discipline Act to enquire against certain unautho-
rised deviations from the ritual in a Church by the. Rector.
The relevant statute merely conferred a power by laying down
that "it shall be lawful" to issue a commission. The Courts
of Queens Bench and of Appeal in England had differed on the
question whether a mandamus from the Court could go to the
Bishop commanding him to. issue a commission for the purpose
of making the enquiry. The House of Lords held that the
power to issue the commission was not coupled with a duty to
exercise it in every case although there may be cases where
duties towards members of the public to exercise a power may
also be coupled with a duty to exercise it in a particular
way on fulfilment of certain specified conditions. The
statute considered there had not specified those condi-
tions. Hence, it was a bare power to issue or not to issue
the commission. Lord Blackburn said: (at p. 241 ):
"I do not think the words ’it shall be
lawful’ are in themselves ambiguous at all.
They are apt words to express that a power is
given; and as, prima facie, the donee of a
power may either exercise it or leave it
unused, it is not inaccurate to say that,
prima facie, they are equivalent to saying
that the donee may do it; but if the object
for which the power is conferred is for the
purpose of enforcing a right, there may be a
duty cast on the donee of the power, to exer-
cise it for the benefit of those who have that
right, when required on their behalf.
Where there is such a duty, it is not inaccu-
rate to say that the words conferring the
power are equivalent to saying that the
donee must exercise it. It by no means fol-
lows that because there is a duty cast on
the donee of a power to exercise it, that
mandamus lies to enforce it: that depends on
the nature of the duty and the position of the
donee".
The principle laid down above has been followed consist-
ently by this Court whenever it has been contended that the
word "may" carries with it the obligation to exercise a
power in a particular manner or direction. In such a case,
it is always the purpose of the power which has to be exam-
ined in order to determine the scope of the discretion
conferred upon the donee of the power. If the conditions in
which the power is to be exercised in particular cases are
also specified by a statute then, on the fulfilment of those
conditions, the power conferred becomes annexed with a duty
to exercise it in that manner. This is the principle we
deduce from the cases of this Court cited before us: Bhaiya
Punjalal Bhagwandin v.
(1) 5 A.C. 214.
971
Dave Bhagwatprasad Prabhuprasad,(1) State of Uttar Pradesh
v. Jogendra Singh,(2) Sardar Govindrao & Ors. v. State of
M.P.,(3)) Shri A. C.Aggarwal. Sub-Divisional Magistrate,
Delhi & Anr, v. Smt. Ram Kali etc.,(4) Bashira v. State of
U.P.,(5) and Prakash Chand Agarwal & Ors. v. M/s. Hindustan
Steel Ltd.(6)
In the statutory provision under consideration now
before us the power to stay a proceeding is not annexed
with the obligation to necessarily stay on proof of certain
conditions although there are conditions prescribed for the
making of the application for stay and the period during
which the power to stay can be exercised. The question
whether it should, on the facts of a particular case, be
exercised or not ’will have to be examined and then decided
by the Court to which the application is made. If the
applicant can make out, on facts, that the objects of the
power conferred by ss. 442 and 446 of the Act, can only be
carried out by a stay order, it could perhaps be urged that
an obligation to do so has become annexed to it by proof of
those facts. That would be the position not because the
word "may" itself must be equated with "shall" but because
judicial power has necessarily to be exercised justly,
properly, and reasonably to enforce the principle that
fights created must be enforced.
In the case before us, the only right which could be
said to have been created is the right to get speedier
adjudication from the Court where the winding up proceeding
is taking place. That is the object of the provisions. On
facts disclosed in this case, we find that the application
seems to have been made with the object of delaying deci-
sions on claims made. In such a case, there could be no
doubt that the application should be rejected outright as
the learned Company Judge did.
Secondly, an attempt was made to urge that the power to
grant or not to grant or to grant a stay upon certain condi-
tions, assuming the power to be discretionary, is to be
exercised by the Courts in which that discretion is vested,
this Court should not interfere with the exercise of discre-
tion by the Division Bench to which an appeal from the order
of the Company Judge lay. The effective answer to this
contention is that, where the learned Company Judge had
himself exercised his discretion on a correct appreciation
of the object of the provisions of ss. 442 and 446 of the
Act, even though he did not state the object or refer to all
the facts, the Appellate Court should not have interfered by
granting a conditional stay without giving sufficient
reasons to over-ride the discretion of the learned Company
Judge to refuse stay. We think that a question of general
(1) [19631 3 S.C.R. 312.
(2) [1964] 2 S.C.R. 197.
(3) [1965] 1 S.C.R. 678.
(4) [1968] 1 S.C.R. 205.
(5) [1969] 1 S.C.R. 32.
(6) [1972] 1 S.C.R. 405.
14--206SCI/77
972
principle arises in this case which has to be clarified so
that an interference by this Court under Article 136 of the
Constitution, in order to vindicate a correct principle and
to meet the ends of justice, is called for.
Thirdly, learned counsel for the respondent submitted
that the order under appeal before us is not final so that
we need not interfere under Art. 136 of the Constitution for
this reason. It is true that, this Court does not, as a
rule, interfere with interlocutory orders. It is not
necessary for us to embark on this occasion on a discussion
of the meaning of a "final" order. That is certainly a
question fraught with difficulties. It is sufficient for us
to observe that our powers of interference under Art. 136 of
the Constitution are not confined to those in respect of
final orders, although finality of an order is a test which
this Court generally applies in considering whether it
should interfere under Art. 136 of the Constitution with it.
We think that we have indicated sufficiently why, despite
the fact that an order staying proceedings under s. 442(b)
of the Act may not, strictly speaking, be final, yet, a
question of general principle of wide application, as to the
circumstances in which an apparently discretionary power may
become annexed with a duty to exercise it in a particular
way, having arisen here, we consider this to be a fit case
for interference under Article 136 of the Constitution.
Consequently, we allow this appeal and set aside the
judgment and order of the Division Bench and restore that of
the learned Company Judge. The parties will bear their own
costs.
S.R. Appeal
allowed.
973