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Judgment
A.K. Patnaik, J.—This is an application filed under Rules 6 and 9 of the Companies (Court) Rules, 1959 in Company Petition No. 56 of 2003 with a prayer to the Court to direct that an immediate inventory be made of the stock, goods in process, finished goods, books of account, cash books, cash in hand and Bank account in the premises of Utkal Flour Mills (Rourkela) Pvt. Ltd. (Opp. Party No. 1-company) by a team, preferably consisting of Shri Sachikanta Routrary along with a Chartered Accountant and an Advocate of his choice.
In Company Petition No. 56 of 2003 the case of the petitioner, in brief, is that the petitioner was the majority share-holder of the Opp. Party No. 1-company. The Opp. Party No. 2 the Managing Director of Opp. Party No. 1-company and Opp. Party No. 3-a Director of Opp. Party No. 1-company have increased the authorised share capital of the company from 2.5 crores to 3 crores allegedly at the EGM of the company on 14.8.2003 without any notice to the petitioner of the said EGM and in perpetuation of their aforesaid fraud and dishonesty the Opp. Parties No. 2 and 3 have allotted shares to themselves and their associates. The further case of the petitioner is that again on 19.9.2003 and 1.10.2003 the Opp. Parties No. 2 and 3 have allotted further shares to themselves and their associates, their children and one Nirmal Chandra Routray. The petitioner has alleged in the petition that the sole purpose of the alleged enhancement of the authorised share capital of the Opp. Party No. 1-company on 14.8.2003 from 2.5 crores to 3 crores, again on 29.9.2003 from 3 crores to 3.70 crores and again on 15.10.2003 from 3.70 crores to 4.25 crores and allotment of such enhanced authorised share capital to themselves and their associates was to reduce the majority shareholders of the company to a bare minority. The petitioner has prayed that the Opp. Parties No. 2 and 3 be declared as guilty of fraud and as disqualified to act as Directors of the Opp. Party No. 1-company.
At the hearing of the aforesaid Company Petition No. 56 of 2003-Mr. Bijay Anand Mohanty, Learned Counsel for the petitioner, prayed for an immediate inventory of the stock, goods in process, finished goods, books of account, cash books, cash in hand and Bank account in the premises of the Opp. Party No. 1-company at Rourkela and the matter was reserved for orders, but the Court found that there was no application for such inventory filed by the petitioner. Thereafter Misc. Case No. 36 of 2004 was filed for inventory on 2nd August, 2004. In Para 3 of the Miscellaneous Application it is stated that an immediate inventory be made of the stock, goods in process, finished goods, books of account, cash books, cash in hand and Bank account in the premises of the Opp. Party No. 1- company at Rourkela as there was a genuine apprehension that the Opp. Parties No. 2 and 3 have removed/swindled away the entire enhanced share capital money amounting to 2.25 crores in addition to the loan taken from the Urban Co-operative Bank amounting to Rs. 60,00,000/-. Mr. Mohanty, Learned Counsel for the petitioner submitted that the Court can pass such an order for inventory in exercise of its powers under Rules 6 and 9 of the Companies (Court) Rules, 1959 and cited the decision of the High Court of Karnataka in G.T. Swamy and Anr. v. Good Luck Agencies and Anr. (1989) 1 CLJ 212 in support of his aforesaid contention.
A reply and counter-affidavit has been filed by the opposite parties in the Misc. Case for inventory and Mr. S. S. Das, Learned Counsel appearing for the opposite parties, submitted that the Companies (Court) Rules, 1959 have been made by the Supreme Court u/s 643 of the Companies Act, 1956 (for short, "the Act") and will therefore have to be read along with Section 643 of the Act. He submitted that in the absence of any provision in Section 643 of the Act enabling the Supreme Court to make rules relating to orders to be passed for inventory by the Court, Rule 9 of the Companies (Court) Rules, 1959 cannot be interpreted to include the power of the Company Court to pass orders for making inventory. In support of this contention, he cited the decision of the Bombay High Court in Kishore Y. Patel and others Vs. Patel Engineering Co. Ltd. and others, . He submitted that the prayer made in the Miscellaneous Application is not germane to the main petition, Company Petition No. 56 of 2003 and hence no interim orders as prayed in the Miscellaneous Application can be passed. He submitted that prayer in the Company Petition No. 56 of 2003 is to declare Opp. Parties No. 2 and 3 as guilty of fraud and as disqualified to continue as Directors of Opp. Party No. 1 -company and the Miscellaneous Application for making out inventory has no connection whatsoever with the prayer in Company Petition No. 56 of 2003. He vehemently argued that the object of the Miscellaneous Application for inventory is only to harass the Opp. Party No. 2 who is managing the Opp. Party No. 1-company. He further submitted that the petitioner had earlier filed applications for appointment of provisional liquidator/receiver for the Opp. Party No. 1 -company and when the petitioner did not succeed to get an order from this Court for appointment of a provisional liquidator or receiver, he has now filed this application for making out inventory of the stock, goods in process, finished goods, books of accounts, cash books, cash in hand and Bank account in the premises of Opp. Party No. 1 -company and that the Miscellaneous Application for inventory should be dismissed.
Section 643(1)(b)(v) of the Act provides that the Supreme Court may make rules consistent with the Code of Civil Procedure, 1908 generally for all applications to be made to the Court under the provisions of the Act. Accordingly, the Supreme Court has made the Companies (Court) Rules, 1 959 u/s 643 of the Act. The provisions of Rule 2(4) and Rule 6 of the Companies (Court) Rules, 1959 (for short, "the Rules") are quoted herein below :
"R. 2. interpretation; in these rules, unless the context or subject-matter otherwise requires :
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(4) ''Code'' means the Code of Civil Procedure, 1908.
R.6. Practice and Procedure of the Court and provisions of the Code to apply; Save as provided by the Act or by these rules the practice and procedure of the Court and the provisions of the Code so far as applicable, shall apply to all proceedings under the Act and these rules. The Registrar may decline to accept any document which is presented otherwise than in accordance with these rules or the practice and procedure of the Court."
Thus, Rule 6 quoted above provides that except as provided by the Act and the Rules, the practice and procedure of the Court and the provisions of the Code of Civil Procedure, 1908 so far as applicable, shall apply to all proceedings under the Act and the Rules. Accordingly, Order 39, Rule 7 of the Code of Civil Procedure, 1908 so far as applicable, shall apply to all proceedings under the Act and the Rules. The provisions of Order 39, Rule 7 of the Code of Civil Procedure, 1908 are quoted herein below :
ORDER XXXIX TEMPORARY INJUNCTIONS AND INTERLOCUTORY ORDERS
Detention, preservation, inspection, etc., of subject-matter of suit: (1) The Court may, on the application of any party to a suit, and on such terms as it thinks fit:
(a) make an order for the detention, preservation or inspection of any property which is the subject matter of such suit or, as to which any question may arise therein;
(b) for all or any of the purposes aforesaid authorize any person to enter upon or into any land or building in the possession of any other party to such suit; and
(c) for all or any of the purposes aforesaid authorize any samples to be taken or any observation to be made or experiment to be tried, which may seem necessary or expedient for the purpose of obtaining full information or evidence.
(2) The provisions as to execution of process shall apply, mutatis mutandis, to person authorized to enter under this rule."
It will be clear from the aforesaid provisions of Order 39, Rule 7 that the Court can an application of a party to a suit pass an order for inspection of any property which is the subject-matter of the suit or as to which question may arise therein and may authorise also any person to enter upon or into a land or building in possession of any other party to such suit for the purpose of such inspection and may also authorize such person to make any observation which may be necessary or expedient for the purpose of obtaining full information or evidence. Hence, the aforesaid provision empowers the Court to pass an order authorizing a person to inspect the property which is the subject-matter of the suit or as to which any question may arise therein and authorizing him to enter upon any land or building in possession of any other party to such suit and to make an inventory of such property, but the Court cannot pass any order for such inspection and inventory of any property which is not the subject-matter of the suit or as to which any question does not arise in the suit. This has been held by the Supreme Court in Padam Sen and Another Vs. The State of Uttar Pradesh, thus :
"....Rule 7 of Order XXXIX empowers the Court, on the application of any party to a suit, to make an order for the detention, preservation or inspection of any property which is the subject-matter of such suit or as to which any question may arise therein. The account books of the plaintiffs were not ''property'' which were the subject-matter of the suit nor such that about them a question could arise in the suit. The account books could, at best, have been piece of evidence, if the plaintiff or the defendant had cared to rely on them. We therefore hold that the Additional Munsif had no power under the Code to appoint the Commissioner for seizing the plaintiff''s books of account."
The aforesaid decision of the Supreme Court in Padam Sen and Anr. v. The State of Uttar Pradesh (supra) was followed by the Madras High Court in Subbae Gounder v. Palanathal AIR 1969 Mad 204. In the said case before the Madras High Court, in a maintenance action filed by the wife against her husband, the lower Court had appointed a Commissioner under Order 39, Rule 7 of the Code of Civil Procedure, 1908 and the correctness of the said order passed by the lower Court was under challenge in a Civil Revision and the Madras High Court held :
".... In my view, it cannot be said that in this action the business assets of the husband can ever come within the scope, meaning and content of the expression "subject-matter of the suit or as to which any question may arise therein". I have already expressed the view that the plaintiff was attempting to fish out information and dig at the alleged illegal activities of her husband. She characterizes such business activities of her husband as intended purely to evade tax. These allegations, however, strong and however vituperative they may be, cannot make such business assets of the husband the subject-matter of the suit. It cannot be said that such assets for which a Commissioner has been appointed by the lower Court have any relation to the claim for maintenance which is the primary and only relief asked for the respondent in the lower Court......"
It is thus clear that an interim order for inspection and making out an inventory under Order 39, Rule 7 of the Code of Civil Procedure, 1908 cannot be passed in respect of properties which are not the subject-matter of the main case or in respect of properties to which a question does not arise in the main case. In Company Petition No. 56 of 2003 the petitioner has alleged fraudulent increase of authorised share capital and fraudulent allotment of such increased shares of Opp. Party No. 1 -company by Opp. Parties No. 2 and 3 in favour of themselves and their associates. The stock, goods in process, finished goods, books of accounts, cash books, cash in hand and Bank account of the Opp. Party No. 1 company do not constitute the subject-matter of Company Petition No. 56 of 2003 and in respect of such stock, goods in process, finished goods, books of accounts, cash books, cash in hand and Bank account of the Opp. Party No. 1-company no question arises in Company Petition No. 56 of 2003. For this reason, the Court has no powers under Order 39, Rule 7 of the Code of Civil Procedure, 1908 read with Rule 6 of the Companies (Court) Rules, 1959 to pass an order for inspection and inventory of the stock, goods in process, finished goods, books of accounts, cash books, cash in hand and Bank account in the premises of Opp. Party No. 1 company at Rourkela.
Rule 9 of the Companies (Court) Rules, 1959 on which also reliance has been placed by Mr. Mohanty, Learned Counsel for the petitioner, is quoted herein below :
"R. 9. Inherent powers of Court: Nothing in these Rules shall be deemed to limit or otherwise affect the inherent powers of the Court to give such directions or pass such orders as may be necessary for the ends of justice or to prevent abuse of the process of the Court."
Rule 9 quoted above is similar to Section 151 of the Code of Civil Procedure, 1908 which provides that nothing in the said Code shall be deemed to limit or otherwise affect the inherent power of the Court to make such orders as may be necessary for the ends of justice or to prevent abuse of the process of the Court. In Padam Sen and another v. State of Uttar Pradesh (supra) a question also arose as to whether a Civil Court could pass an order for seizing the plaintiff''s books of accounts in exercise of its inherent powers u/s 151 of the Code of Civil Procedure, 1908 and the Supreme Court while answering that the Civil Court has no such power held :
"The inherent powers saved by Section 151 of the Code are with respect to the procedure to be followed by the Court in deciding the cause before it. These powers are not powers over substantive rights which any litigant possesses. Specific powers have to be conferred on the Courts for passing such orders which would affect such rights of a party. Such powers cannot come within the scope of inherent powers of the Court in the matters of procedure, which powers have their source in the Court possessing all the essential powers to regulate its practice and procedure. A party has full rights over its books of account. The Court has no inherent power forcibly to seize its property. If it does so, it invades the private rights of the party....."
Thus, as per the aforesaid law laid down by the Apex Court, inherent powers of the Court cannot be exercised invading the private rights of a party including his rights to property. The stock, goods in process, finished goods, books of accounts, cash books, cash in hand and Bank account are all properties of the Opp. Party No. 1 - company and the inherent powers of the Court recognized under Rule 9 of the Rules cannot be exercised so as to affect such rights of the Opp. Party No. 1 -company.
In G. T. Swamy and Anr. v. Good Luck Agencies and Anr. (supra) cited by Mr. Mohanty, learned counsel for the petitioner, the Karnataka High Court held that a combined reading of Rules 6 and 9 of the Companies (Court) Rules, 1959 indicates that the inherent powers of the Company Court can be exercised in the manner provided u/s 151 of the Code of Civil Procedure, 1908 except in cases where the Act and the Rules provide otherwise. In the said case, the question that Karnataka High Court decided was that the Company Court had the power to recall an order of winding up in exercise of its powers under Rules 6 and 9 of the Rules and the Karnataka High Court was not called upon to decide as to in which cases a Company Court can pass orders for inspection and inventory. An application for inventory will be governed by the express provisions of Order 39, Rule 7 of the Code of Civil Procedure, 1908 read with Rule 6 of the Rules and Rule 9 of the Rules will not apply to an application for inventory.
Hence, the Miscellaneous Application for directing that an immediate inventory be made of the stock, goods in process, finished goods, books of accounts, cash books, cash in hand and Bank account of the Opp. Party No. 1-company by a team filed by the petitioner in Company Petition No. 56 of 2003 is not maintainable and the Misc. case is accordingly dismissed.