ORDER 22 RULE 6 OF CPC: PRINCIPLES & EFFECT

 

Order 22 Rule 6 of CPC: Principles & effect

The Order 22 Rule 6 of Civil Procedure refers to an interesting situation and the courts some time have to deal with such a situation i.e when a party to the lis dies, during the court proceedings, but after advancing arguments, but before the order pronounced.  What will be the situation as per law, taken together with the principles as contained therein in Order 22 Rule 6 of Code of Civil Procedure. The issue, no doubt, is vexed and there are conflicting judgments in this regard. The effort is made herein to come to a reasonable conclusion, after analyzing the principles as also law laid down in this regard.

There is no doubt to a situation rather, it is an established fact that, a suit or an appeal does not abate till the time granted for bringing on record the legal representatives expires. Thus, in effect, even after the death of a party the suit or appeal continued to survives, till such time, the time provided under law for bringing on record the legal representatives does not expires. However, a moot question in this regard shall be as to whether suit or an appeal survives after the death of a parry. The obvious question will be, whether the parties were represented at the time of arguments or hearing of the case. what, if a party dies before the matter is finally heard and argued before the Court. Can an Advocate appear for a dead party?  Shall it not be akin to a situation that the Advocate is then representing nobody. Thus, by fiction of law, the suit or appeal may be surviving even after the death of the party for a particular period of time, but shall not the authority of the advocate ceases immediately after the death of a party?

Before going further, it may be apt to reproduce the principles as contained in Order 22 Rule 6 of Code of Civil procedure:

Order-22 Rule-6.

No abatement by reason of death after hearing :--

“Notwithstanding anything contained in the foregoing rules, whether the cause of action survives or not, there shall be no abatement by reason of the death of either party between the conclusion of the hearing and the pronouncing of the judgment, but judgment may in such case be pronounced notwithstanding the death and shall have the same force and effect as if it had been pronounced before the death took place."

 

The Division Bench of Andhra Pradesh High Court in the year 2001 in a matter captioned as Golla Krishna Murthy vs Golla Yellaiah (Dead) By LRs 2001(5) ALD 484  has held as under:

4. …….It is also not true that the appellate Court is mainly confined to the examination of correctness of the judgment of the lower Court by reference to the law applicable and material already gathered. The fact of the matter is that the parties have a right to be heard and if parties are not represented by reason of death of a party at the hearing, the decree, in our view, becomes a nullity. We are fortified in our view by a Division Bench judgment of Kerala High Court in Easwara Iyer v. Vella Muthan, 1998 (4) SCC 607 (ker). In this judgment (supra) 'Hearing' as occurring in Order 22, Rule 6 was interpreted and it was held that, hearing does not mean hearing of arguments only, it refers to all the stages of the trial of a suit. In our view, the hearing includes all that is done by the Court before reserving the case of judgment. While interpreting Rule 6 of Order 22 CPC, we are of the view that, hearing would be complete when nothing more is to be done by the Judge except writing the judgment’.

In this regard reference could be made to a matter captioned as N.P Thirugananam Vs R Jagan Mohan Rao 1995 SCC (5) 115, when The Supreme Court had occasion to deal with a similar situation. A party in that case had died after the arguments had been heard and judgment had been reserved.  The Supreme Court had, while interpreting Order 22 Rule 6 of CPC,  thus held as under:

The Supreme Court while interpreting Rule 6 of Order 22 CPC has held as under:

"In the face of the explicit language in Rule 6 of Order 22, there can be no abatement by reason of the death of any party between the conclusion of the hearing and the pronouncement of the judgment. It may be pronounced, notwithstanding the death, and shall have the same force and effect as if judgment had been pronounced before the death took place. Therefore, the contention that the judgment and decree of the appellate Court is a nullity is devoid of substance."

The Division Bench of Andhra Pradesh High Court in Golla Krishna Murthy (Supra) after relying upon the above judgment of Supreme Court has therefore held that if the party had died, before the conclusion of the hearing the judgment rendered would be a nullity.

                                  KERALA HIGH COURT

The earlier precedents of Kerala High Court shall be worthy of reference in this context.

(i)          The Kerala High Court In C Abdulla Damodaran Namoddodiri 1972 Ker LT 53 : (AIR 1972 Ker 116), this Court held as follows :--

"We shall mention only one decision, namely, Bhagwat Prasad Vs Beni Mahton AIR 1958 Pat 278, where a learned Judge of the Patna High Court has follows the decision of the Calcutta High Court mentioned above, In this connection, the decision of our Court by Vaidialingam J. in Meenakshy Pillaythiri Amma Vs lakshmi Amma 1967 Ker LT 777 : (AIR 1967 Kerala 135) has also been brought to our notice. The learned Judge has considered several decisions and has held that in such a case (the facts in that case were not exactly similar, the Court has inherent power under Section 151 of the Code of Civil Procedure read with Order 22 thereof to implead the legal representatives so as to do justice between the parties in the case before us the action of the Munsif in placing the case before the Subordinate Judge with a report can also be justified under Section 151.."

(ii)        In Assyamma v. Aisabi, 1976 Ker LT 101 the Kerala High  Court has held thus :-

"On the death of the 2nd respondent, the appeal had abated and the decree passed by the first appellate Court in ignorance of this fact in the eye of the law is a nullity. Strictly speaking there was no decree to be appealed against. The proper course in the circumstances to be adopted is to set aside the ineffective decree of the first appellate Court. giving the appellant herein an opportunity to take such steps as are necessary to have the abatement set aside, if she is entitled to do so, and to have the matter proceeded with after bringing on record the legal representative of the deceased second respondent."

(iii)       The Kerala High Court in a matter reported as  Paru v. Devaki Varassiar, 1992 (2) Ker LT 687, it was held as follows :

"Here in this case the fact that the appellant died prior to the passing of the decree by the lower Appellate Court has become obvious. The legal representatives are attempting to file this Second Appeal. All that the Court can do is to indicate to the legal representatives that their proper remedy lies in moving the Lower Appellate Court with the necessary application form getting themselves impleaded and for getting a proper re-adjudication of the appeal. No principle of law enables or entitled the legal representatives straightway file a Second Appeal before this Court on an assertion that the decree of the lower Appellate Court passed against their predecessor-in-interest who was the sole appellant therein was a nullity. Even if the decision in the appeal was a nullity it could not set at naught the decree of the trial Court which was one against the predecessor-in-interest of the appellants in this Second Appeal."

(iv)    The Kerala High Court thus in Uma Andarjanam And Ors. vs Neelakandan Namboodiri & Ors AIR 2001 KERALA 314 after taking note of the above judicial precedents of Kerala High Court, has held as under:

5. In view of the above proposition of law. I have no hesitation to hold that the decree passed by the lower appellate Court becomes a nullity. When that be so, there is no necessarily to go into the judgment of the lower appellate Court and the appeal has to be dismissed and accordingly it is dismissed. No doubt, as per the principle laid down by this Court in the three decisions extracted above, the parties can move the lower appellate Court in bringing the legal representatives of the deceased-first respondent, who was the appellant in the lower appellate Court in accordance with law. And the lower appellate Court, when the legal representatives are brought on record in accordance with law, can further proceed and dispose of the appeal expeditiously”.

The aforesaid discussion emanating from the judicial precedents of Supreme Court, Division bench of Andhra Pradesh High Court as also, from the several judgments rendered by Kerala High Court, while interpreting the principles of Order 22 Rule 6 of Code of Civil Procedure the clear proposition in law is laid down to the effect that the once arguments are heard and judgment was reserved, but before pronouncement of judgment a party to the lis has died, the judgment in a suit or in appeal could be pronounced. However, if the arguments remained inconclusive, though trial concludes and at that stage, if a party to the lis dies, then, the judgment cannot be pronounced, since at that stage , a party shall remain unrepresented and no arguments could be advanced on behalf of a dead party. The suit or appeal shall therefore not abate by reason of death, unless within the stipulated period or as ordered by the Courts, the LRs of the deceased comes on record and the case shall move forward thereafter.

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                                  Anil K Khaware

Founder & Senior Associate

Societylawandjustice.com

 

 

OPPRESSION & MISMANAGEMENT: AMBIT OF CIVIL COURT AND NCLT

 

Oppression & mismanagement: ambit of civil Court AND NCLT

The oppression and mismanagement of minority shareholder has often been a cause of concern and in the Companies Act 1956 the relevant sections were section 397-399, and the new Companies Act 2013 the relevant Sections are Sections 241-246.

What may constitute “oppression and mismanagement” in conducting affairs of the company cannot be put to a straight jacket formula and only for illustrative purposes some issues could fall under that bracket:

(i)           The act to cause detriment-whether omission or commission;

(ii)         Usurping the office of Directors

(iii)        Relegating interest of minority shareholder to lurch

(iv)        The acts which may be illegal, but carried out in a mala fide pursuit to cause detriment on minority shareholder

(v)          The judgment which may belie commercial wisdom, though, may not be actuated with malice;

(vi)        Siphoning of funds of the company  

(vii)       Efforts of change in shareholding composition, numbers and percentage of shareholders

(viii)     Secret investments to elicit wrongful gains

(ix)        Undisclosed loan to Directors

(x)          Ousting from management;

(xi)        Issuing right offer with a view to cause hardship on minority shareholders

(xii)       Refusal of transfer of shares

(xiii)     Breach of shareholders agreement

(xiv)     Excessive payment of salaries to directors

The Companies Act 2013 has replaced the Companies Act 1956. The old Act did not provide the constitution of the Company Law Tribunal, and thus, all disputes under the  old Act were subject to the jurisdiction of the Civil Court. However, the Act of 1956 was amended to constitute a Company Law Tribunal to try the disputes enumerated in the notification. The amendment did not provide for exclusive jurisdiction of the Company Law Tribunal. Hence, the jurisdiction of the Civil Court was not ousted in the absence of a specific provision to that effect. However, the Section 430 of Companies Act 2013 came into force only on 1 June 2016, whereby the National Company Law Tribunal came to be constituted. The section 430 of the new Act specifically bars the Civil Court's jurisdiction to entertain any suit or proceedings concerning any matter which the Tribunal or Appellate Tribunal is empowered to decide by or under said Act. In view of such a specific ouster, the Civil Court's jurisdiction to decide issues raised in the suit is barred.

Section 430 of the Companies Act 2013 is reproduced as under:

430. Civil Court not to have jurisdiction.

“No civil court shall have jurisdiction to entertain any suit or proceeding in respect of any matter which the Tribunal or the Appellate Tribunal is empowered to determine by or under this Act or any other law for the time being in force and no injunction shall be granted by any court or other authority in respect of any action taken or to be taken in pursuance of any power conferred by or under this Act or any other law for the time being in force, by the Tribunal or the Appellate Tribunal”.

Whether the expression 'member' occurring in Sections 241 and 242 shall have wider meaning to include any person who alleges mismanagement or oppression. A shareholder or a member as defined under Section 2 (55) of the Act.

"2(55). "member", in relation to a company, means--

(i) the subscriber to the memorandum of the Company who shall be deemed to have agreed to become member of the Company, and on its registration, shall be entered as member in its register of members;

(ii) every other person who agrees in writing to become a member of the Company and whose name is entered in the register of members of the Company;

(iii) every person holding shares of the Company and whose name is entered as a beneficial owner in the records of a depository;

The recitation of Sections 241-242 of the Companies Act 2013 may also be perused before going further:

 

241. Application to Tribunal for relief in cases of oppression, etc.

 (1) Any member of a company who complains that--

(a) the affairs of the Company have been or are being conducted in a manner prejudicial to public interest or in a manner prejudicial or oppressive to him or any other member or members or in a manner prejudicial to the interests of the Company; or

(b) the material change, not being a change brought about by, or in the interests of, any creditors, including debenture holders or any class of shareholders of the Company, has taken place in the management or control of the Company, whether by an alteration in the Board of Directors, or manager, or in the ownership of the Company's shares, or if it has no share capital, in its membership, or in any other manner whatsoever, and that by reason of such change, it is likely that the affairs of the Company will be conducted in a manner prejudicial to its interests or its members or any class of members, may apply to the Tribunal, provided such member has a right to apply under Section 244 for an order under this Chapter.

(2) The Central Government, if it is of the opinion that the affairs of the Company are being conducted in a manner prejudicial to public interest, it may itself apply to the Tribunal for an order under this Chapter.

Provided that the applicants under this sub-section, in respect of such Company or class of companies, as may be prescribed, shall be made before the Principal Bench of the Tribunal which shall be dealt with by such Bench.

(3) Where in the opinion of the Central Government there exist circumstances suggesting that--

(a) any person concerned in the conduct and management of the affairs of a company is or has been in connection therewith guilty of fraud, misfeasance, persistent CRA141-2022-J.F.doc negligence or default in carrying out his obligations and functions under the law or of breach of trust;

(b) the business of a company is not or has not been conducted and managed by such person in accordance with sound business principle or prudent commercial practices;

(c) a company is or has been conducted and managed by such person in a manner which likely to cause, or has caused, serious injury or damage to the interest of the trade, industry or business to which such Company pertains; or

(d) the business of a company is or has been conducted and managed by such person with intent to default its creditors, members or any other person or otherwise for a fraudulent or unlawful purpose or in a manner prejudicial to public interest, the Central Government may initiate a case against such person and refer the same to the Tribunal with a request that the Tribunal may inquire into the case and record a decision as to whether or not such person is a fit and proper person to hold the officer of director or any other office connected with the conduct and management of any company.

(4) The person against whom a case is referred to the Tribunal under sub-section (3), shall be jointed as a respondent to the application.

(5) Every application under sub-section (3)--

(a) shall contain a concise statement of such circumstances and materials as the Central Government may consider necessary for the purpose of the inquiry; and

(b) shall be signed and verified in the manner laid down in the Code of Civil Procedure, for the signature and verification of a plaint in a suit by the Central Government 

FEATURES of 2013 Act

In Tata Consultancy Services Ltd vs Cyrus Investments Pvt Ltd & Ors- Civil Appeal No. 440-441/2020 The Supreme Court has illustrated the broad features in the  2013  Act  has  brought about  a lot of drastic changes and some of the salient features of the 2013 Act in para no. 19.14. The same are:

(i)  Every company is required to have at least one Director who has stayed in India for a total period of not less than  182 days in the previous calendar year. (ii) Every listed Public Company is required to have at least one ­third of   the   total   number   of   Directors   as independent Directors. (iii)  Some Public Companies are required to have   at least two independent Directors.

(iv) Every independent Director should give a declaration at the first Board meeting that he meets the criteria of independence.

(v) Certain types of Public Companies are required to appoint at least one woman Director.

(vi)  Every listed company may appoint a small shareholders’   Director,   to   be   elected   by   the   small shareholders. (vii) The report of the Board of Directors should include a Directors’  Responsibility Statement,   covering   certain aspects relating to  accounting   standards,   accounting policies and maintenance of accounting records. (viii)  Directors   of   a   company   are   obliged   to   perform certain duties, such as duty to act in good faith, duty to exercise reasonable care, skill, diligence and independent judgments etc.

(ix) A detailed Code of conduct for independent Directors’  is   stipulated   in   Schedule   IV.   This   includes guidelines for professional conduct, roles and functions and duties. (x) The resignation or removal of independent Directors should be in accordance with the procedure prescribed. (xi) Independent Directors are required to hold at least one meeting in a year without the attendance of non independent Directors and members of management and they are entitled in this meeting to review the performance of non ­independent Directors and the Board as a whole.  They can even review the performance of the Chairperson of the Company and assess the quality, quantity and timelines of flow of information between the management and the Board.  

(xii) The Board of Directors of certain companies  are required to have certain Committees such as (1) Audit Committee, (2) Nomination and Remuneration Committee and (3) Stakeholders Relationship Committee.

(xiii) A separate section on Corporate Governance is to be included in the Annual reports of certain companies, with a detailed compliance report on Corporate Governance.

(xiv) After the advent of the Companies Act, 2013, SEBI Regulations were also Regulations were also amended, inserting Clause 49  in the listing Agreement, to enforce   compliance   with Corporate Governance standards.

The following table may also simplify the issue:

Section of the Companies Act, 1956	Section of the Companies Act, 2013	Remark
Section 397, 398 and 401 to 404	Section 241	Application before tribunal (Now NCLT) for oppression & mismanagement
Section 399	Section 244	Right to apply u/s 241of the Companies Act, 2013 corresponding to and Section 397 and 398 of the Companies Act,1956
Section 402	Section 242
Section 404	Section 243	Effect of termination/modification of certain agreements
Section 406	Section 247	Application of certain provisions to proceedings under section 241 to Section 245

 

                                Law

The Bombay High Court in a matter captioned as Sardesai Engineering Private Limited vs Mahadeo Appasaheb Jagtap And Ors CIVIL REVISION APPLICATION NO.141 OF 2022  (decided on 22 January, 2024 has held as under:

“26. The Division Bench of this Court in Killick Nixon was considering whether a member of a company who had transferred his shareholding to another person but whose name continues to be on the register of members of the Company can maintain a petition under Section 397 and 398. In the said context, the Division Bench held that Section 397, in plain language, states that a petition can be filed by any member or member/s of the Company. They can file such petitions if the affairs of the Company are being conducted in a manner prejudicial to the public interest or in a manner that may be oppressive to any member. Such persons who are being oppressed may or may not include petitioning members. A member of the Company can file a petition under Section 398. The Division Bench held that the Companies Act does not contemplate a member with no share in the Company. It is also held that the Company recognises only the person who is a member as a shareholder. In other words, the rights that may exist between the Company and its members or shareholders can be exercised only by members. Similarly, the Company can only look to its members to discharge their obligations to the Company as its shareholders”.

It also emerge thus if a plaintiff files a suit seeking a declaration praying that the one of the defendant had ceased to be a director of the company and for declaration that meeting held were illegal and non-est. The Civil Court may return the plaint. As has happened in some cases. In similar situation, in Sardesai Engineering (Supra), on a reference made by the Single Judge of the Bombay High Court, Division Bench of the said Court held that Companies Act  1956  has not prescribed the forum where reliefs in relation to irregularities in holding meeting or cessation of office of director can be decided. In the absence of such prescription, ordinary Civil Courts were held to be competent to deal with directorial disputes.

It may appear that under the provisions of the Companies Act 1956, the words 'member' and 'shareholder' can be read as synonymous Act of 1956 does not contemplate a member who has no share in the Company; The directorial disputes with reference to the Companies Act 1913 need to be decided by ordinary Civil Courts. Under Indian Companies Act 1913 the words 'member, 'shareholder' and 'holder of a share' have been used interchangeably. The expression 'shareholder' or 'holder of a share'  in the Act of 1913 denotes no other person except a 'member'.

In Sardesai Engineering (Supra) it is held as under:

41. An individual membership right is a right to maintain himself in full membership with all the rights and privileges appurtenant to that status. This right implies that individual shareholders can insist on strict adherence to legal Rules. It is the membership right that confers a particular right to issue in respect of wrong done to him individually by the Company. It is a member entitled to enforce his individual rights against the Company conferred under the provisions of the Companies Act Prima facie, therefore, it appears that if a person other than a member of a company is CRA141-2022-J.F.doc conferred with the right to approach the National Company Law Tribunal or National Company Law Appellate Tribunal alleging mismanagement, it would render part (any member) of Section 241 of Act of 2013 as otiose. The expression "any member" cannot be interpreted to mean any person.

42. Applying the analogy adopted in Seven Trent Water Purification  Vs Chloro Controls (India) Pvt Ltd  (2008) 4 SCC 380 as regards Section 241, the provision starts with the specific expression "any member". Such words cannot be interpreted to mean a person other than a member. The provision of a statute conferring a right in favour of member as a 'person' defined in a statute cannot be expanded beyond such specific expression unless the case of "context otherwise requires" is made out. The context justifying departure from the definition needs to be specifically made out by a person urging the Court to adopt such an approach”.

43. The interpretation of the provision to Section 244 authorises the Tribunal to waive all or any of the requirements specified in clauses (a) and (b), but such exercise of waiver is to enable "members" to apply under Section 241. Therefore, even the proviso to Section 244 does not create a right for anyone other than the 'member' to apply under Section 241. Moreover, clauses (a) and (b) of Section 241 do not include the expression "any member" of a company who complains "under sub-section (1) of Section 241 ". Therefore, the mandate of Section 241 requires a person to be the 'member' for invoking the power of a Tribunal.

The question was therefore framed by the ld single judge in Sardesai Engineering (Supra)for reference to the larger bench. The question of reference are as under:

"Whether an application under Section 241 at the instance of a person other than a member of a company alleging mismanagement and oppression is maintainable before the National Company Law Tribunal or National Company Law Appellate Tribunal for reliefs under Section 242 of the Companies Act 2013?"

In Cyrus Investments Pvt. Ltd. & Anr Vs Tata Sons Ltd- NCLAT against order passed by NCLT has held that the removal and other actions taken against appellant was declared illegal and hence was set aside and the other respondent and nominee of Tata Trust was restrained from taking decision in advance that may presuppose majority decision of the Board of Directors or in the Annual General Meeting. Cyrus Mistry was restored as Chairman of Tata Sons Ltd. Moreover, majority shareholders were directed to consult minority shareholders for appointments of Chairman /Executive Directors. However, Supreme Court had reversed the decision of NCLAT as illustrated above.

Therefore, the issue as to whether a Director for its removal may approach NCLT or a civil court remains a grey area, though, the basic gravamen in this regard is that directorial issue could be dealt with by a civil court and any member/shareholder if raises the issue of oppression and mismanagement in the affairs of the company and if minority shareholders are treated despicably and detriment is caused and likely to be caused to such minority shareholder, then, the jurisdiction of civil court shall be barred and only the national Company Law Tribunal Shall be empowered to deal with such issue, as the same squarely falls within its ambit under section 241-244 of the Companies Act 2013.  

                                           --------

Anil K Khaware

Founder & Senior Associate

Societylawandjustice.com