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Gujarat High Court
Judgename :D.A.MEHTA
FLOATING SERVICES LTD - Appellant
Versus
MV "san FRANSCECO DIPALOLA" - Respondent
A.S.3 of 2004,MISC.CIV.APPLN.14 of 2004
Decided On : 03/09/2004
Section 33 of the Companies Act, 1956 (The Act) provides for Registration of Memorandum and Articles. The effect of such registration is as laid down in Sec. 34 of the Act i.e. the Registrar shall certify under his hand that the Company is incorporated. From the date of incorporation, the subscribers of the memorandum and other persons, namely the members, shall be a body corporate by the name contained in the memorandum, capable of exercising all the functions of an incorporated company, and having perpetual succession and a common seal.
[Para 14]
Companies incorporated under the Act are capable of suing and being sued in their corporate names. A Companys right to sue arises when some loss is caused to the Company i.e. to the property or the personality of the Company, as distinct from a loss occasioned to the directors of the Company. The rights of the Company and the rights of its shareholders are not co- extensive. Where a Company was the recipient of a cheque which was dishonoured, it was held that the Company was competent to make a complaint under Sec. 138 of the Negotiable Instruments Act. The money represented by the cheque was the Companys money and not that of its functionaries and, therefore, the Company alone could file a complaint.
[Para 17]
It is apparent that today the limited company is no longer in existence, at least was not in existence on the date the suit was presented. The suit has been brought in relation to the property owned by and belonging to the limited company. Even if it could be stated that the shareholder had any interest by virtue of the shareholding, it is only a right to participate in the profits.
[Para 21]
A shareholder has a limited, restricted right only after an order of winding up is made, liabilities of the company discharged and then if any surplus of assets is left. In the present case it is not possible even for the plaintiff to make a statement that the shareholder is entitled to the vessel as being net surplus of assets after discharging all liabilities of the company. In fact, during the course of hearing a stand is adopted that one Mrs. Luany Rodriguez Salas, is the sole shareholder and director of the plaintiff company and hence is an interested person. Once the position is admitted that the Company is struck off from the Register and dissolved as a consequence there is no question of any particular shareholder, even the sole shareholder, making a claim to the property of the Company without showing that all liabilities of the Company stand discharged.
[Para 22]
(b) Companies Act, 1956 (Central Act 1 of 1956) - Sec. 291 - Civil Procedure Code, 1908 - Order 6 Rule 14 & Order 29 Rule 1 - Signing of plaint - Suit on behalf of corporation - Unless the power to institute a suit is specifically conferred on a particular director by Board of directors by passing the resolution in that regard he would have no authority to institute a suit on behalf of company - In the present case even question of actification is entirely non-existence because on the date of presentation of suit the company was admittedly dissolved.
Section 291 of the Act deals with General Powers of the Board; but this does not include power to institute suits/legal proceedings. The provisions of Sec. 291 of the Act while entitling a Board of Directors of a Company to exercise all such powers provide, by way of exception that the Board shall not exercise any power which is required to be exercised by the Company in general meeting, as required by the provisions of the Act or any other law for the time being in force as well as Memorandum or Articles of the Company. Similarly the second proviso carves out a further exception, that the Board while exercising powers shall be subject to the provisions contained in the Act or any other law for the time being in force as well as memorandum and articles of the company, and further that such exercise shall not be inconsistent with provisions of the Act or requirement of the Memorandum or Articles of the Company.
[Para 24]
Unless the power to institute a suit is specifically conferred on a particular director, he would have no authority to institute a suit on behalf of the Company. Needless to state that such a power can be conferred by Board of Directors only by passing the resolution in that regard. Individual directors are vested with only such powers as are available to them either under the Memorandum or Articles of the Company, or otherwise by the Board of Directors. A Managing Director also does not have any power to manage the affairs of the Company over and above those available to the Board; the Managing Director can exercise only such powers as have been delegated to him. A Company cannot orally authorise another person to sign a plaint on its behalf. A company can act only as provided under its Articles of Association. The Provisions of Order VI Rule 14 of the Code of Civil Procedure, 1908 read with Order XXIX Rule 1 stipulate that pleadings of a Corporation shall be signed by an authorised Director, Secretary or other Principal Officer.
[Para 25]
The observation regarding sufficient power being available to the Court to ensure that injustice is not done to any party who has a just case has to be read not only in the context of the facts of the case which were there before the Apex Court, but also while applying the principle facts of the present case have to be borne in mind. The distinction between a public corporation representing public interest and limited company has to be taken into consideration for the purpose of deciding whether it is only a procedural defect or it affects the rights of a party.
[Para 27]
The question is not as to whether such a remedy is permissible, or whether defect is required to be permitted to be cured by ratification of the action, as is sought to be done by filing an affidavit dated 9.3.2004 by one Luany Rodriguez Salas, a Shareholder of the plaintiff, but whether this can really amount to a procedural irregularity only. At the cost of repetition it requires to be reiterated that on the date of presentation of the suit the Company was admittedly struck off the Register and dissolved. There can be, therefore, no question of ratification of an action which a non existent entity could not have initiated in the first instance.
[Para 28]
(c) Civil Procedure Code, 1908 (Central Act 5 of 1908) - Order 34 Rule 4 - Preliminary decree - Ex parte order - Arrest of vessel - Suppression of material facts - A party seeking discretionary relief of preliminary decree ex parte has to come to Court with clean hands - The facts of the present case leave no manner of doubt that plaintiff has obtained ex parte order of arrested vessel by playing fraud on the Court - He is, therefore, disentitled to relief.
The suppression of material fact by itself is a sufficient ground to decline the discretionary relief of injunction. A party seeking discretionary relief has to approach the Court with clean hands and is required to disclose all material facts which may, one way or the other, affect the decision. A person deliberately concealing material facts from Court is not entitled to any discretionary relief. The Court can refuse to hear such person on merits. A person seeking relief of injunction is required to make honest disclosure of all relevant statements of facts otherwise it would amount to an abuse of the process of the Court.
[Para 34]
The facts of the present case leave no manner of doubt that Jagannath obtained the preliminary decree by playing fraud on the Court. A fraud is an act of deliberate deception with the design of securing something by taking unfair advantage of another. It is a deception in order to gain by anothers loss. It is a cheating intended to get an advantage.
[Para 35]
It is clear that : (i) there is absence of full and frank disclosure; (ii) there is a misstatement of a material fact or suppression of material fact; and, there is withholding of a vital fact by the plaintiff. This amounts to commission of fraud on Court. Misrepresentation itself amounts to fraud. A representation is fraudulent not only when the person making it knows it to be false, but also when, he ought to have known, or must be taken to have known, that it was false. The plaintiff is a limited company - a juristic entity- acting through a living person. That person herein claims to be sole shareholder-director, who admits :(i) she instructed the Company Secretary in July 2003 to apply for having the name of the company struck off the Register; (ii) received letter and notice from the Registrar in July and September 2003 : and yet expects the Court to believe that there is no suppression. There is no offer/attempt to amend the plaint even after receipt of OJMCA. The offer, during course of hearing, is only to substitute the plaint to remove defects. Therefore, this is a clear case of deception. Fraud and deception are synonymous.
[Para 36]
(d) Companies Act, 1956 (Central Act 1 of 1956) - Secs. 653(1) & (2) - Restoration - Requirements - A company or a member of creditors can apply for restoration if they are aggrieved by the name of company having been struck off the Register - Sub-sec. (2) of Sec. 653 provides for condition on fulfilment of which the Court may exercise discretion of restoring the company to the Register - In the present case admittedly the plaintiff cannot seek restoration as the plaintiff had applied to struck off the name asserting that it was not carrying on business or was not in operation.
On a conjoint reading of provisions of Sub-secs. (1) & (2) of Sec. 653 of the 1985 Act (Amended) it is apparent that a Company or any member or creditor can apply to a Court if the Company or member or creditor feels aggrieved by the name of the Company having been struck off the Register, while Sub-sec. (2) of Sec. 653 of the 1985 Act (Amended) provides for the condition on fulfillment of which the Court may exercise discretion of restoring the Company to the Register. The Court is required to be satisfied that at the point of time when the name of the Company was struck off the Register (a) Company was carrying on business or was in operation, (b) or otherwise, that it is just that the Company be restored to the register. Therefore, the person applying for restoration has to be a person who is aggrieved.
[Para 46]
In the present case, admittedly, the plaintiff cannot seek restoration on the ground that it was carrying on business or was in operation at the time when its name was struck off, as the plaintiff had applied that its name be struck off the Register as the Company was not carrying on business or was not in operation. In light of the fact that an application has been moved, as stated at the bar, it is not necessary to deal with the alternative situation whether it would be permissible for the Court to exercise discretion on the basis of the consequence of striking off being unjust to the applicant. Suffice it to state that there has to be cogent and sufficient material in this regard.
[Para 47]
( 1 ) THIS suit has been presented by the plaintiff seeking arrest of defendant No. 1-Vessel i. e. M. V. "san FRANSCECO DI PAOLA" in the following circumstances :
( 2 ) THE case of the plaintiff is that the plaintiff, a Limited Company, incorporated under the laws of United Kingdom and having its address as stated in the cause title, is the owner of defendant No. 1-Vessel. It is stated that the said vessel was purchased by the plaintiff from one Audrey Ventures Company on 27. 6. 2000. That thereafter the plaintiff entered into a Memorandum of Agreement dated 01. 07. 2003 with defendant No. 2 for sale of vessel for a consideration of US$ 4,00,000 and defendant No. 2 paid 10% of the said consideration. The expected time of delivery of the vessel was 07. 07. 2003. However, according to the plaintiff, as defendant No. 2 had not paid the entire balance consideration, no delivery was given by the plaintiff. It is further averred that defendant No. 1 - vessel was laid up at the port/harbour of Oostende Port, Belgium since 27. 06. 2000 and hence, there was no crew on board. The case of the plaintiff is that defendant No. 2 clandestinely removed the vessel from the closed basin and sailed the vessel out of the Oostende Port without paying the balance consideration of US$3,60,000. That for this purpose, it is averred, the defendant No. 2 utilized a forged bill of sale dated 30. 06. 2003 and obtained a certificate of registration dated 06. 11. 2003 issued by the Belize Ship Registry.
( 3 ) IN the circumstances, the plaintiff seeks declaration to the effect that the plaintiff is the sole owner of the vessel and title vests with the plaintiff, that defendant No. 2 or any person claiming through the said 2nd defendant does not have any right, title or interest in the vessel and the vessel is required to be restored in lawful possession of the plaintiff. Over and above such a declaration, the plaintiff has also sought a mandatory injunction against defendant no. 2 or any other person claiming through the 2nd defendant and being in possession of the vessel, directing them to hand over the possession of the vessel to the plaintiff.
( 4 ) THE suit came to be filed on 01. 03. 2004. The learned Advocate for the plaintiff mentioned the matter at 11. 00 A. M. on the said day and sought circulation of the matter on the ground of urgency. Upon such permission having been granted the matter was taken up for hearing at 2. 15 P. M.
( 5 ) MR. M. J. THAKOR, learned Senior Counsel appearing for Mr. A. S. Vakil, learned Advocate for the plaintiff submitted that in the aforesaid backdrop of facts and circumstances the plaintiff had filed the suit claiming possession of ownership of the vessel and as the same was a maritime lien and claim the suit under the Admiralty Act was maintainable. It was submitted that the vessel was in port and Harbour of Alang i. e. Alang anchorage, and hence within the territorial jurisdiction of this Court. An apprehension was expressed that defendant No. 2 was likely to enter into a sale or had already entered into a sale of the vessel with a Ship breaker and hence, an order seeking arrest of the vessel to protect the interest of the plaintiff was sought for till the defendants appear and furnish necessary security. Accordingly, on 01. 03. 20004 an exparte order of arrest came to be made by this Court.
( 6 ) THE defendants have filed OJMCA No. 14 of 2004 and the same came to be presented on 04. 03. 2004. Considering the urgency of the matter both the Misc. Civil Application and the Suit were taken up for hearing on 05. 03. 2004. Thereafter, the matters have been heard continuously on 8th. and 9th. March 2004. The defendants in the application presented by them have prayed that the order of arrest dated 1. 3. 2004 (wrongly mentioned as 2. 3. 2004) be set aside and/or vacated. A further prayer seeking damages @ US$ 4,000/- per day for wrongful arrest and detention of the vessel has also been made and consequential pra
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