Cause of Action and Limitation to File a Petition under Section 397/398 of Companies Act, 1956

Guest Post : V.Durga Rao, Advocate.

No lis lies when there is no live claim or the cause of action and it is settled legal principle. The requirement of having a live claim for seeking relief is also been highlighted by the Hon’ble Apex Court while dealing with the scope of powers of Chief Justice under section 11 of Arbitration and Conciliation Act, 1996. Again, there were many judgments under SARFAESI Act, 2002 on the issue of cause of action despite the specific provision in the Act that the borrower can approach the Debt Recovery Tribunal under section 17 of the SARFAESI Act, 2002 if he has any grievance at the Bank’s action. Thus, the issue of cause of action and law of limitation is very significant in any lis. Section 397/398 of the Companies Act, 1956 provides a remedy to the minority shareholders or the shareholders qualifying under section 399 to approach the Company Law Board and the Company Law Board has wide powers in passing orders in order to put an end to the matters complained of or in order to regulate the affairs of the Company. While section 399 of Companies Act, 1956 deals with the issue of qualification, section 397/398 itself speaks about ‘cause of action’ and the issue of limitation. Dealing with the issue of ‘cause of action’ and law of limitation under section 397/398 of Companies Act, 1956 is infact very complicated. It is settled that a minority shareholders can question the harsh and burdensome acts of the majority in the Company. It is also settled that the oppression or the mismanagement sought to be alleged should be a continuous one if the minority should approach the Company Law Board under section 397/398 of the Companies Act, 1956. In fact, the issue of ‘cause of action’ and law of limitation can not be separated while dealing with the law under section 397/398 of the Companies Act, 1956 and the issue of limitation has little significance. The provisions of law of limitation will have no application to a petition under section 397/398 of Companies Act, 1956. Its all depends upon the facts and circumstances of the Case.

There are different views as to how section 397/398 of Companies Act, 1956 is to be interpreted when it comes providing a remedy to the minority shareholders. There is a view that unless there exists act which is harsh and burdensome in the company against the minority, minority is not entitled for any relief under section 397/398 of Companies Act, 1956. There is another view that even if there is no oppression or mismanagement in the Company in stricto senso, the Company Law Board can still pass appropriate orders under section 402 of the Act in order to regulate the affairs of the Company and in order to put and end to the matters complained of. It is also settled that there can not be any hard and fast rule while entertaining and passing appropriate orders in a petition by the minority against the majority under section 397/398 of Companies Act, 1956. Going by the precedents and the complications in corporate affairs, it can be understood that an order of the Company Law Board under section 397/398 of the Companies Act, 1956 should be reasonable, towards the object of the chapter, in adherence to the principles of natural justice. This is a very complicated proceeding and it acts as a sharp weapon in the hands of minority shareholders to protect their interests and also the provisions of the chapter can conveniently be misused with ulterior motive. Thus, the Company Law Board carries a greater responsibility while entertain petitions under section 397/398 of Companies Act, 1956. Coming back to the issue of ‘cause of action’ and the issues of limitation, the Hon’ble High Court of Delhi, in Surinder Singh Bindra Vs. Hindustan Fasteners (P) Limited, was pleased to observe as follows:

“(12) These can be looked into if they form part of a continuous process continuing up to the date of petition showing that the affairs of a company are being conducted in a manner stipulated in Ss. 397 and 398 of the Act. This, in fact, is the requirement of these provisions. Further, if the acts complained of form part of the same transaction constituting oppression or mismanagement these acts can also be looked into even if they occurred three years prior to the institution of the petition. Same will be the case if the conduct arising from even a single wrongful act in a given case is such that its effect will be a continuous course of oppression or mismanagement though the wrongful act occurred three years earlier to the date of filing of the petition. It is something akin to the terminology 'continuing cause of action'. Whether events complained of form part of continuous acts or not or form part of the same transaction constituting oppression of mismanagement or effect of a particular wrongful act is continuous course of oppression or mismanagement or the wrongful act is stale or is an isolated event, would all be different questions to determine. To this extent, therefore, the preliminary objection regarding maintainability of the present petition on the ground of limitation is overruled. This exercise about the applicability of the provisions of the Limitation Act, 1963 to the application under Ss. 397 and 398 of the Act, would now appear to be academic as after the Companies (Amendment) Act, 1988, applications under these sections lie before the Company Law Board.” 

Justice Ranjan Gogoi Appointed Chief Justice of Punjab & Haryana High Court

Source : Times of India

Justice Ranjan Gogoi (pictured) on Saturday administered the oath of office as the Chief Justice of the Punjab and Haryana High Court by the Haryana Governor Jagannath Pahadia. 

Justice Gogoi was administered the oath at a simple ceremony held at Haryana Raj Bhavan. 

Later, he told reporters that he will work towards providing speedy and affordable justice. 

Born on November 18, 1954, Justice Gogoi got enrolled as an advocate on August 28, 1978 and practiced in the Guwahati High Court. He was appointed as a permanent Judge of the Guwahati High Court on February 28, 2001, and was later transferred to the Punjab and Haryana High Court on September 9 last year. 

Justice Gogoi was earlier functioning as the Acting Chief Justice of the Punjab and Haryana High Court after the retirement of Justice Mukul Mudgal on January 3. 

His name for elevation was cleared by the Supreme Court collegium at a meeting held in Delhi in December last year. 

Apart from the family members of Justice Gogoi and the Judges of Punjab and Haryana High Court, the function was attended by Punjab Governor Shiv Raj Patil, Chief Ministers of Haryana and Punjab Bhupinder Singh Hooda and Parkash Singh Badal among others.

Delhi HC Dismisses N.D. Tiwari's Appeal with Costs

Source : Indlaw

The Delhi High Court today rejected Congress leader N.D. Tiwary's plea against the paternity test, requested by one Rohit Shekhar, who claims to be his biological son, and slapped a fine on him. 

The veteran politician had moved the High Court to quash its earlier order for a DNA test on him to determine paternity of Shekhar. 

Hearing Tiwary's petition, a division bench of Justices Vikramajit Sen and Siddharth Mridul not only rejected his plea but also imposed a fine of Rs 25,000 on him. 

The order reads, 'Irreparable loss is bound to visit the plaintiff (Rohit Shekhar) if the orders under the application are not immediately passed in as much as the suit itself may be rendered infructuous and vital evidence may be lost forever.'

"Sufficient Cause" for Setting Aside Ex-Parte Decree : The Law

P. Sathasivam

The Supreme Court in its Judgment Parimal v. Veena @ Bharti has examined the provisions of Order IX Rule 13 of the Code of Civil Procedure, 1908. Order IX Rule 13 of the CPC speaks of conditions under which an Ex-Parte Decree can be set aside. While examining the various judicial precedents on the provision, the Court held as under;

7. Order IX, R.13 CPC:

The aforesaid provisions read as under:

"Setting aside decree ex-parte against defendant In any case in which a decree is passed ex-parte against a defendant, he may apply to the Court by which the de- cree was passed for an order to set it aside; and if he sat- isfies the Court that the summons was not duly served, or that he was prevented by any sufficient cause from appearing when the suit was called on for hearing, the Court shall make an order setting aside the decree as against him upon such terms as to costs, payment into Court or otherwise as it thinks fit, and shall appoint a day for proceeding with the suit; xx xx xx Provided further that no Court shall set aside a decree passed ex-parte merely on the ground that there has been an irregularity in the service of summons, if it is satisfied that the defendant had notice of the date of hearing and had sufficient time to appear and answer the plaintiff's claim.

xx xx xx" (Emphasis added)

8. It is evident from the above that an ex-parte decree against a defendant has to be set aside if the party satisfies the Court that summons had not been duly served or he was prevented by sufficient cause from appearing when the suit was called on for hearing. However, the court shall not set aside the said decree on mere irregularity in the service of summons or in a case where the defendant had notice of the date and sufficient time to appear in the court.

The legislature in its wisdom, made the second proviso, mandatory in nature. Thus, it is not permissible for the court to allow the application in utter disregard of the terms and conditions incorporated in the second proviso herein.

9. "Sufficient Cause" is an expression which has been used in large number of Statutes. The meaning of the word "sufficient" is "adequate" or "enough", in as much as may be necessary to answer the purpose intended. Therefore, word "sufficient" embraces no more than that which provides a platitude which when the act done suffices to accomplish the purpose intended in the facts and circumstances existing in a case and duly examined from the view point of a reasonable standard of a cautious man. In this context, "sufficient cause" means that party had not acted in a negligent manner or there was a want of bona fide on its part in view of the facts and circumstances of a case or the party cannot be alleged to have been "not acting diligently" or "remaining inactive". However, the facts and circumstances of each case must afford sufficient ground to enable the Court concerned to exercise discretion for the reason that whenever the court exercises discretion, it has to be exercised judiciously. (Vide: Ramlal & Ors. v. Rewa Coalfields Ltd., AIR 1962 SC 361; Sarpanch, Lonand Grampanchayat v. Ramgiri Gosavi & Anr., AIR 1968 SC 222; Surinder Singh Sibia v. Vijay Kumar Sood, AIR 1992 SC 1540; and Oriental Aroma Chemical Industries Limited v. Gujarat Industrial Development Corporation & Another, (2010) 5 SCC 459)

10. In Arjun Singh v. Mohindra Kumar & Ors., AIR 1964 SC 993, this Court observed that every good cause is a sufficient cause and must offer an explanation for non-appearance. The only difference between a "good cause" and "sufficient cause" is that the requirement of a good cause is complied with on a lesser degree of proof than that of a "sufficient cause". (See also: Brij Indar Singh v. Lala Kanshi Ram & Ors., AIR 1917 P.C. 156; Manindra Land and Building Corporation Ltd. v. Bhutnath Banerjee & Ors., AIR 1964 SC 1336; and Mata Din v. A. Narayanan, AIR 1970 SC 1953).

11. While deciding whether there is a sufficient case or not, the court must bear in mind the object of doing substantial justice to all the parties concerned and that the technicalities of the law should not prevent the court from doing substantial justice and doing away the illegality perpetuated on the basis of the judgment impugned before it. (Vide: State of Bihar & Ors. v. Kameshwar Prasad Singh & Anr., AIR 2000 SC 2306; Madanlal v. Shyamlal, AIR 2002 SC 100; Davinder Pal Sehgal & Anr. v. M/s. Partap Steel Rolling Mills (P) Ltd. & Ors., AIR 2002 SC 451; Ram Nath Sao alias Ram Nath Sao & Ors. v. Gobardhan Sao & Ors., AIR 2002 SC 1201; Kaushalya Devi v. Prem Chand & Anr. (2005) 10 SCC 127; Srei International Finance Ltd., v. Fair growth Financial Services Ltd. & Anr., (2005) 13 SCC 95; and Reena Sadh v. Anjana Enterprises, AIR 2008 SC 2054).

12. In order to determine the application under Order IX, Rule 13 CPC, the test has to be applied is whether the defendant honestly and sincerely intended to remain present when the suit was called on for hearing and did his best to do so. Sufficient cause is thus the cause for which the defendant could not be blamed for his absence. Therefore, the applicant must approach the court with a reasonable defence. Sufficient cause is a question of fact and the court has to exercise its discretion in the varied and special circumstances in the case at hand. There cannot be a strait-jacket formula of universal application. 

The Judgment further goes on to examine the Presumption of Service by Registered Post, and observes as under;

PRESUMPTION OF SERVICE BY REGISTERED POST & BURDEN OF PROOF:

13. This Court after considering large number of its earlier judgments in Greater Mohali Area Development Authority & Ors. v. Manju Jain & Ors., AIR 2010 SC 3817, held that in view of the provisions of Section 114 Illustration (f) of the Evidence Act, 1872 and Section 27 of the General Clauses Act, 1897 there is a presumption that the addressee has received the letter sent by registered post. However, the presumption is rebuttable on a consideration of evidence of impeccable character. A similar view has been reiterated by this Court in Dr. Sunil Kumar Sambhudayal Gupta & Ors. v. State of Maharashtra, JT 2010 (12) SC 287.

14. In Gujarat Electricity Board & Anr. v. Atmaram Sungomal Poshani, AIR 1989 SC 1433, this Court held as under: "There is presumption of service of a letter sent under registered cover, if the same is returned back with a postal endorsement that the addressee refused to accept the same. No doubt the presumption is rebuttable and it is open to the party concerned to place evidence before the Court to rebut the presumption by showing that the address mentioned on the cover was incorrect or that the postal authorities never tendered the registered letter to him or that there was no occasion for him to refuse the same. The burden to rebut the presumption lies on the party, challenging the factum of service."

(Emphasis added)

15. The provisions of Section 101 of the Evidence Act provide that the burden of proof of the facts rests on the party who substantially asserts it and not on the party who denies it. In fact, burden of proof means that a party has to prove an allegation before he is entitled to a judgment in his favour. Section 103 provides that burden of proof as to any particular fact lies on that person who wishes the court to believe in its existence, unless it is provided by any special law that the proof of that fact shall lie on any particular person. The provision of Section 103 amplifies the general rule of Section 101 that the burden of proof lies on the person who asserts the affirmative of the facts in issue.