COTTON CORPORATION OF INDIA v. UNITED INDUSTRIAL BANK

Citation: [1983] 3 S.C.R. 962

Court: Supreme Court of India

Bench: D.A. DESAI, V. BALAKRISHNA ERADI

Case summary

1156 of 1981 seeking to restrain by an interim injunction the Corporation from enforcing any claim whatever in any form or from relying on or giving effect to the bills of exchange or hundies involved in the dispute for the purpose of any ....

Judgment text

COTTON CORPORATION OF INDIA v. UNITED INDUSTRIAL BANK September 19, 1983 (D. A. DESAI AND V. BALAKRISHNA ERADI, JJ. ] Specific Relief Act. 1963-S. 41(b)-Whether court has jurisdiction' t• trant injunction restraining any person from in~tituting any proceeding in a court not iubo! dinate to that from which injunction is sought? A Branch Manager of the respondent-Bank C(_)·accepted 16 usance bills \ . of the aggregate value of over Rs. 45 lakhs relating lo purchases of cotton made by a textile mill from the appellant-Corporation. When the usaii. ce bi,lls inatured, the Corporation called upon the Bank to make payn1ent.

The Bank filed a suit against the Corporation praying inter alia for a declai"ation that the co-acceptance of the usance bills by its Branch Manager was null and void as he did not have the requisite authority to co-accept the bills on beha1 f of the Bank and alsO for an interim injunction restraining the Corporation from presenting a winding-up petition under the Companies_Act, 1956. Th. e prayer ' .. for injunction was turned down by a Single Judge of the High Court but the same was granted by a Division Bench which heard the appeal agains·t the order of the Sjngle Judge. The narrow question examined in this appeal was: · Whether in view of the provision contained in s. 41(b) of the Specific Relief Act, 1963, the court will have jurisdiction to grant an injunction restraining any person from instituting any proceeding in a court not subordinate to that" ftom which the injunction is sought ? Allowing the appeal, HELD: From the language used ins.

56(b) of the Specific Relier Act, 1887 (which was the predecessor provision of s. 4I(b) of the 1963 Act) it was clear that the court could not stay a proceeding in a court superior in hier- 3. rchy to the court from . which injUnction waS sought; but by a process of judicial interpretation a consensus had been reached that a court could bY an ,injunction restrain a party befo_re it_ from . further prosecuting the proceeding in other courts, superior or inferior. To some extent this approach had not only effectively circumvented the provision contained in s. 56(b) of the repealed Act but also denuded- it of its content The legislature took notice of this judicial interpretation and materia1ly altered the language of the succeeding Provision. It manifestly expressed its mind by enacting s. 4l(b) in such clear and on-ambiguous language that an injunction cannot be granted to restrain 8.

ny person-the language takes care of injunction acting in personum-from instituting or prosecuting any procee4ing in a . Court not subordinate to that from which injunction is sought. This change in language deliberately adopted ~y the legislature has to be given full effect. [970 F-H; 971 A-B; DJ CoTTON CORPN, V, U. 1. BANK 963 (i) Anyone having a right, that is a legally protected interest, complains of its infringement and seeks relief through Court must have an unhindered, uninterrupted access to Jaw courts. Access to court in search of justice according to Jaw is the right of a person who complains of infringement of his legally protected interest and a fortiori therefor~. no other court can by its· actlon impede access to justice. This principle is deducible from the Consti· tution which see~s to set up a society governed by rule of law.

As a corollary it must yield to another principle that a superior court can injunct a person by restraining him from instituting or prosecuting a proceeding before a subordi· nate court. Save this specific carving Out of the area where access to justice Iilay be impeded by an injunction of the court, the legislature desired that courts ordinarily should not impede access to justice through court. This is the equitable principle underlying s. 41(b). Accordingly, it must receive such interpretation as would advance the intendment and thwart the mischief it was ·enacted to supress and to keep the pat_h of access to justice through court unobstructed. [971 F-H; 972 A-BJ (ii) The legal systen1 in our country envisages obtaining redressal of a wrong or relief against unju~t denial thereof by approaching the court set up for the purpose.

If a person complaining of invasion of his rights is injuncted from approaching the court set up to grant relief by an action brciught by the opposite side against whom he has a clai,n and which he wanted to enforce through court, he would have to first defend that action and vindicate his ' right and thereafter,. when the injunction is vacated, he has to approach the court for: relief1 In order to avoid such multiplicity of proceedings, the legis~ iature enacted s. 41(b) and statutorily provided that an injunction cannot be granted by a court with a view to· restraining any person from instituting or prosecuting any proceeding in a court not subordinate to that from which the ·injunction is sought. [972 C-F; G] . (iii) Th~ ~onte. ~tion thats. 41 (b). is not/attracted because it deals only with perpetual lDJunctton cannot be accepted. The expression 'injunction• in s. 4l(b) is not qualified by an adjective and ther¢fore it would compfehend both interim and perpetual injunction.

It is true that s. 37 specifically provides that temporary injunctions which have to continue until a specified time or until further order of the court are regulated by the Code of Civil Procedure. But if a dichotomy is introduced by confining s. 41 to perpetual injunction only ands. 37 read with 0. 39 C. P. C. being confined to temporary injunction, an unnecessary grey area will develop. It is indisputable that ten1porary injunction is granted during the peqdency of the; proceeding so that while granting final relief the Court is not faced with a Situation that the· relief . becomes infructuous or that during' the . pendeacy of the proce~ding an unfair a_dva? tage is taken by the party in default or against whom temporary injunction is sought. But power to grant temporary injunction was conferred in aid of or as auxiliary to· the final· relief that may be granted. If the" final relief cannot be granted in terms as.

prayed for, temporary relief in the same terms can hardly if ever be granted. [973 C-FJ State ofOrissa v. Madan Gopal Rungta, [195 2] S. C. R. 28 referred to, 964 SUPREME ColJRT REPORTS [1983] 3s. c. R. Udyog Mandir v. Messrs. Contessa Knit Wear and Ors. , A. I. R. [1975] Bcim. 158; and Krishnadevi P. Gupta & Anr. v. Banwari/al Hanuman Prasad Tibrewala, A. I. R. [1976] Bom. 233 approved. In the instant case the Bank seeks to restrain the Corporation by an injunction of the court from instituting a proceeding for winding-up oT t11e Bank. There is a clear bar ins. 41(b) against granting this relief. The court has no jurisdiction to grant a prepetual injunction restraining a person from instituting a proceeding in a court not subordinate to it as a relief, and thei'efore; ipso facto tempqrary relief cannot be granted in the same terms. [974 B-C] (iv) One cannot bodily import English decisions into our system to develop a hybrid legal system and one .

cannot be so hypnotised by·Englisl) decisions to overlook legislative changes introduced in Indiah Law.. Whfrc _c provisions are in pari n1ateria between the English Act and the Indian Act and where local conditions do not materially differ from the conditions in U. K.. one may, keeping in view the conditions in our country, look at the view taken by the English Courts and if consistent with our Jurisprudence, our social conditions and our chalked out path in which the law mu. st move, one can profitably take help of the decision. [97; D-E] Cadiz Waterworks Co. v. Hamett, [1874-75], 19 Equity Cases 182; Circle • Restaurant Castiglione Co. v. Lavery, [188)) 18 Ch. Div. 555; and New Travellers Chambers Ltd. v. Messrs Cheese & Green, [1894] 17- Law Times ;1 . Reports 171-plea to take notice of, declined. Buckley: Companies Act, 14th Edn. , footnotes 7, 8 and 9, P. 524; and Palmer's Company Precedents, Part ! I, 17th Ed. p. 45-i>lea to take notice · of·declined.

Hungerford Investment Trust Ltd. v.. Harldas . Mundhra & Ors. , [1972] 3 S. C. R. 690, at 701; Cha/es Forte Investments Ltd. v. Amanda, (1963] 2 All E. R. .. 940; Bryans/on Finance Ltd. v. De Vries, [1976] I All E. R. 25; and Stonegate ·Securities Ltd. v. Gregory, [1980] I All E. R. 241; referred to. (v) The Court can in appropriate caseS grant temporary injunction in exercise of its inherent power in cases not Covered by 0. 39, C. P. C, Bl. it the inherent poWer of the Court cannot be invoked to nullify or stultify a statutory Provision. While exercising inherent power, the court should not overlook the statutory provision in s. 41(b) wh. ich clearly indicates that injunction torestrain initiation of proteedi1_1g cannot be granted. (980 C-D] Manoharla/ Chopra v. Rai. Bahadur Rilo Raja Seth Hira/al, [1962] Supp. I S. C. R. 450; and Padam Sen v. State ofU. P. ; [1961] I S. C. R. 884; referred to.

In the instant case, the appellate Judgment does not contain the slightes·t reference to the invocation of the inherent power of the court in granting the order of injunction now under challenge. Not only that, but the court has not held that the contention of the Corporation is frivolous or untenable or COTTON CORPN. V. U. I. BANI in the judgment, would not be an abuse on the ground' that it could not possibly succeed. In a concurring judgment, Sir John Pennycuick observed as under : • "I should like to add that where a company seeks relief of this kind the procedure by way of writ claiming an injunction to restrain presentation of a petition. followed immediately by a motion expressed to claim an interlocutory injunction in the same terms, appears clumsy and inapposite. In occurs to me that it should be possible to devise some more apt form of procedure for instance an originating motion in the Companies Court.

" One more decision which we would like to refer is the one in Stonegate Securities Ltd. v. Gregory. (') In that case an injunction was granted restraining a creditor from presenting a winding-up petition on the ground that he was at best a contigent creditor and the· company had sought an injunction to restrain the creditor from presenting a petition on any other basis than as the contigent creditor. For the same reasons for which we could not persuade ourselves to accept the earlier decisions as being helpful, these decisions would not be of any assistance. And it may be clarified that the reliance placed by Mr. Sen on foot-note 7, 8 and 9 in Companies Act by Buckley, Fourteenth- Edition, page 524 and Palmer's Company Prededents, Part II Seventeenth Edition at page 45 would not take his ·case further because these notes are based on the aforementioned decisions. Canvassing for the contrary view Mr. Ghosh, learned counsel for the appellant referred to Udyog Mandir v. M/s.

Contessa Knit Wear and Ors. (') wherein the late Vaidya, J. set aside an interim injunction. granted by the judge of Small Causes Court restraining a defendant in asuit before him from proceeding with the Arbitration case initiated under the Maharashtra· Co-operative Societies Act. The learned judge held that the Arbitrator functioning under the Maharashtra Co-operative Societies Act is not a court subordinate . ~ (I) [1980] 1 All E. R. 241. (2) A. l. R. 1975 Boru. 158. COTTON CORPN. v, U. I. BANK (Desai, i. ) . 979 ·_. l.. to the Small {:auses Court and in that case sec. 41 (b) would deny jurisdiction to the court to grant an injunction because a court cannot even do temporarily what it has been prohibited by law to do finally or perpetually. Though it is not made clear, the learned judge was nbt impressed the contention that sec.

41 (b) deals with perpetual injunction and the grant or refusal of temporary injunction is governed by Order 39 C~de of Civil Procedure ~nd there is well-recognised -B dichotomy between the two. The learned judge appeared to be of the-opinion that where the final relief cannot be granted, temporary relief in aid can as well not be granted because that would also be contrary to the provision of Sec. 41 (b). This view was reiterated by the same learned judge in Krishnadevi P. Gupta and Anr. v. Banwari/a. l 1 Hanumanprasad Tibrewala and Ors. ( ) He also took note of the fact c, that the Chief justice of the same High Court had affirmed the view in another proceeding before him. Therefore, as far as Bombay High Court is concerned, there appeared to be a near unanimous ·view that the court had no jurisdiction to grant interim injunction restraining a person from instituting any proceeding in a Court not subordinate to that from which the injunction is sought 'in view of the pr.

ovision contained in Sec. 41 (b) of the Act. Surprisingly, the Division Bench of the Bombay High Court against whose' decision ' the present appeal is heard did not even choose to refer or to overrule any of these decisions and proceeded to dispose of the contention in respect of provision contained in Sec, 41 (b) in the following terms, the meaning of which we ·find difficult to unravel. Says the Court: · "Our attention was also drawn io the provlSions contained in the Specific Relief Act and in particular to sec. 41 thereof. It appears to us that in an appropriate case particularly in a suit where cancellation of certain negotiable instruments had been sought, it would be open to the Court to restrain further action being taken on the said negotiable instrument particularly the action of the limited type which is sought to be restrained in the insant case yiz. · winding· up proceedings. The position may be· different if a to. ta! bar was sought which perhaps may not be granted. " Mr.

Sen, learned counsel for the respondent-Bank however, contended that even if the respondent-Bank is not entitled to injunc- (I) A. l. R. 1976 Born, 233. \ i. . tion, temporary or perpetual, under sec. 41 (b) or under 0·39 of the Code of Civil Procedure, yet the court had inherent power to grant . > injunction and therefore this Court should. not interfere with tbe decision of the High Court at this stage. Reliance was placed on Manohar Lal Chopra v. Rai Bahadur ·Rao Raja Seth Hita/a/. (1) Raghubar Dayal, J. _speaking for the majority in terms held that the court has inherent power to issue temporary injunction in cases which were not covered by the provisions of 0·39 of the Code of Civil Procedure. Shah, J. in his dissenting judgment took the contrary 1 view and relied upon Padam Sen v. State of U. P. ( ) In view of the majority decision, it must be conceded that the court can in appropriate cases grant temporary injunction in exercise of its inherent power in cases not covered by 0.

39 C. P'. C. But while exercising this inherent power, the court ·should not overlook the statutory provision which clearly indicates that injunction to restrain initiation of proceeding cannot be granted. Sec. 41 (b) is one such provision. Aud it must be remembered that inherent power of the court cannot be invoked to nullify or stultify a statutory provision. We have meticulously gone through the appellate judgment and we find not the· slightest reference to the invocation of the ~ inherent power of the court in granting the order of injunction now under challenge. Not only that, but the court has not held that the contention of the Corporation is frivolous or untenable or the claim is malafide. This becomes clear from the·obseryation of the court that the order passed by it is rrot founded oti the merits of the Bank's· case or lack of merit in any claim which.

the Corporation may have · against the plaintiff-Bank and it wonld be open to the Corporation to file a regular suit or summary stiit against plaintiff-Bank in which appropriate orders would be passed by the court seized of the matter as'and when the occasion arises for the same. We find it very difficult to appreciate this approach of the ·Court because the Court has not rejected even at the stage of the consideration of prima facie case or on balance of conviction that the claim of the Corporotion is frivolous or untenable or not prima facie substantiated. On the contary the Court leaves open to the Corporation to file a suit if it is so advised. The High Court only ~estrains the Corporation from presenting a winding-up petition. We again see no justification for this dichotomy introduced by the Court in respect of various proceedings which were open to the Corporation to be taken against the Bank leaving some (1) [19621 Supp. 1 S. C. R, 450. (2)_ [19611. 1 $. C. R. 884.

open and some restrained by injunction. Neither in statute law nor in enquity, we find any justification for this dichotomy. Mr; Sen, however, urged that the presentation of winding-up petition coupled with advertisement thereof in newspaper as required by law has certain serious consequences on the status, standing, financial viability and stability and operational efficiency of the company. Mr. Sen further urged that where the. debt is bona fide disputed, a petition for winding-up is not an alternative to the suit to recovenhe same but may·be a pressure tactic to obtain an unfair advantage and therefore, despite the provision contained in sec. 411. b) the court must spell out a power in appropriate cases to injunct a person from filing a winding-up petition. Most of the decisions in England hereinabove discussed a length have been influenced by this aspect.

This approach, however, clearly overlooks various statutory safeguards against admission, advertising and publication of winding· up petitions. Sec. 433 of the Companies Act, 1956 sets out circum· stances in which a company may be wound-up by the Court, one such being where the company is unable to pay its debts. Sec. 434 sets out the circumstances and situations in which a company may be deemed to be unable to pay its debts. Such a deeming fiction would \ arise where a notice is served upon the company making a demand of a debt exceeding Rs. 500 then due and requiring the company to Ill pay the same and the company has for a period of 3 weeks neglected to pay the sum, or to secure or compound for it to the reasonable satisfaction of the creditor. Rule 95 of the Companies (Court) Rules, \ 1959 provides that the petition for winding-up a company shall be · presented in the Registry. Then comes Rule 96 which is very • material.

It provides that : upon the filing of the ·petision, it shall be posted before the Judge in Chambe" for admission of the petition and fixing a date for the hearing thereof and for the direetions as to the. advertisements to be published and the persons, if any, upo11 whom copies of the petition are to be served. The Judge may, if he thinks fit, direct notice to be given to the Company be(ore giving directions as to the advertisement of the petition. ' It would appear at a glance that the petition has to come·up in Chambers before the compauy Judge and not in· open Court, and the Rule confers a· discretionary power on the judge not to give any directions at that stage but merely issue a notice to the company before giving direc· tions. If upon receipt of such notice the company appears and satisfies the judge that the debt is bona fide disputed or the presentation of the petition is ma/a fide. actuated by an ulterior. • 982· SU~REME COURT REPORTS [1983] 3 s. c. R.

motive, or abuse of the process of the Court certainly the judge may decline to admit the petition and may direct the party presenting winding-up petition to prove its claim by a suit or any other manner. , It is undoubtedly true that winding~up petition is not a recognised mode for recovery of bebt and if the company is shown to be solvent and the debt is bona fide disputed, the Court generally is ·reluctant to admit the petition. Therefore, the power is conferred on the judge before whoin the petition comes-up for admission to issue preadmission notice to the company so that the company is . not taken unaware and may appear and point out to the judge that. the ,petitioner is actuated by an ulterior motive and presentation of the petition is a device to pressurise the company to submit to an unjtist claim.

This is a sufficient safeguard against mala fide action and the company would not suffer any consequences as apprehended, and the company can as well appear and ask for stay of further· proceeding till the petitioner-creditor proves his debt by a regular suit. This is the jurisdiction of the Company Court and it cannot be restrained. from exercising the same by some other court restraining the creditor from presenting a winding-up petition. There is sufficient built-in safeguard in the . provisions of the Companies Act and the Rules framed thereunder which would save the company from auy adverse consequences,' if a petitioner actuated by an ulterior motive presents the petition. This was taken notice: of by this Courtin / National Conduits'(P) Ltd. v. S. S. Arora. (i) wherein· this Court set aside the order of the High Court of Delhi.

was of the opinion that once a petition for winding-up is admitted to the file, _the Court is bound to fourth with advertise the petition, This Court held that the High Court was in error in holding that a petition for winding• . .. . up must be advertised even before the application filed by the com- \ pany for staying the proceeding for the ends of justice or to prevent abuse of the process of the ·court. This court held that the view · taken by th~ High Court that the court must as soon tlie petition is admitted, advertise the petition is contrary to the plain terms of Rule 96 and such aview if accepted, would makethe court an instrument/ in possible cases, of harrassment and even of blackmail, for once a petition is advertised, the liusinesss of the company is bound to suffer ..... serious loss and injury. This legal position effectively answers the apprehension voiced by Mr.

Sen, and even entertained by the High Court as also ·it can be said with confidence that this must be the procedure, Pennycuick J. was in search of when in Brya"ston (1) [1968] I S. C. R. 430. Finance Ltd.. case he said that it should be possible to devise some more apt form of procedure than to injunct a person from initiating the proceeding. In fact, the Kerala High Court in George v. The 2 Athimattam Rubber Co. Ltd. Thodupuzha( } went to the extent of showing that-when 'a pre-admission notice is issued to the company under Rule 96, it would be open to the company to appear and ask for stay of proceedings or even revoke the admission on the ground • that the petitioner was not acting bonafide in filing the petition and in the facts before the Kerala High Court it allowed the application of the company and the winding-up petition was dismissed. We are, therefore, not disposed to accept the contention of Mr.

Sen that the power to grant injunction restraining one from presenting a windingup. petition must either be spelt out for the protection of the company or as held by decisions herein above quoted kept intact and should not be tinkered with to save the company from being harrassed by persons actuated by ill-will towards the company from presenting the petition. Turning to the facts of this case, let it be recalled that the learned Single Judge had declined to grant any temporary injunction against the present appellant, the Corporation, and in our opinion rightly. The Appellate Bench interfered with the order for the reasons which are far from convincing and it overlooked the provision contained in sec. 41 (b} and effect thereof. Taking the most fa-:ourable view of the de.

cision of the Appellate Bench and assuming that the Bench had in its mind the inherent power of the court to grant injunction despite statutory inhibition and consistent with the view taken by the courts in England, it had_ then in order to ·do justice • between the parties first reach an affirmative finding that the windingup petition as and when presented by the Corporation-the creditor would be frivolous and would constitute an abuse of the process of the court or a device to pressurise the Bank to submit to an unjust and dishonest clai1n. It must also,reach an affirmative conclusion that the debtor-Bank is sufficiently solvent to satisfy the claim as and when established. It has also to record ·an affirll'. Ji'tive finding that the Corporation-the creditor is not seeking bonfi fide to present •• petition for winding-up but is actuated by an ulterior motive in pre" . senting the petition. Decisions in New Travellers' Chambers Ltd. , Cha/es Forte Investments Ltd.

and Bryanston Finance Ltd. (supra) would require these findings to be recorded before an interim injunction can be granted. The decision of the Appellate ~ench is (I) A. I. R,. 1964 Kera)a 2q. · I conspicuously silent on these relevant points and for this . additional A reason also the appeal must. succeed. I The appeal is accordingly allowed and the order of the Appellate Bench is set aside and the one made by the learned Single Judge Modi, J. is restored with costs. B H. L. C. Appea/ allowed. •