COTTON CORPORATION OF INDIA versus UNITED INDUSTRIAL BANK

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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 To some extent this approach had not only effectively circumvented the provision contained in s. 56(b) of the repealed Act but also denuded- it of its content The legislature took notice of this judicial interpretation and materia1ly altered the language of the succeeding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

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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]

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(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. 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 injunc tion 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.

It is indisputable

[973 C-FJ

State of Orissa v. Madan Gopal Rungta, [195 2] S.C.R. 28 referred to,

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964

SUPREME ColJRT REPORTS

[1983] 3 s.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 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 .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.

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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.

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(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 to restrain 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 of U.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

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COTTON CORPN. V. U.I. BANI<i

965

the claim is ma la fide. This becomes clear from the observation of the court tbat the order passed by it is not founded on the merits of the Bank's case or Jack of inerit in any claim which the Corporation may have against the plaintiff Bank and it Would be open to the Corporatiqn to file a regular suit or summary suit against the 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.

(980 D-FJ

(vi) Th~ contention that the presentatiOn of wjnding-up petition coupled with advertisement thereof in newspaper as required by law has certain serious consequences on the status, standing, financial viability stability and opera tional efficiency of the company, and where the debt is bona fide disputed, a petition for Winding-up, which is not an alternative to the suit to recover the same, may be a pressure tactic to obtain an unfair adv-antage, ·and therefor~, the court must, despite the provision in s. 41(b), spell out a power in. appro priate cases to injunct a person from filing a winding-up petition, cannot be accepted. This contention overlookS the various statutors safeguards against admission, advertising and publication of winding-up petitions. There is sufficient built-in safeguard in the provisions of the Companies Act and the Rules framed thereunder which would save the company from any adverse consequences, if a petitioner actuated by an ulterior motive presents the petition. According to rule 96 of the Companies (Court) Rules, 1959 a petition for winding-up has to come' up in Chambers before the Company 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 directions. If Uoon receipt of such notice the company appears and satisfies the judge that the debt is bona fide disputed Or the presentiition of the petition is n1ala fide, or actuated by an ulterior motive, or abuse of the process of the co~rt, the Judge may decline to admit the petition and may direct and party presenting the winding-Up petition to prove its claim by a suit or in any other manner. 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.

(981 B-H; 982 A; DJ

National Conduits Pvt. Ltd. v. S. S. Arora, [1968] I S.C.R, 430,

referred to.

George v. The Athimattam Rubber Co. Ltd., A.I.R. 1964 Kerala 212,

approved.

In the instant case, even assuming that the Appellate 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 winding-up petition as and when preSep.ted by the Corporation would be frivolous and would constitute· an abuse of the· process of the court or · would be a device to pressurise the Bank to submit to an unjust and dishonest claim. It must also reach an affirmative conclusion that the debtor-Bank is sufficiently solvent to satisfy the f;;:lailll as a~d when established. It has also

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966

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to record an affirmative finding that the Corporation is not seeking bona fide to present a petition for winding-up but is actuated by an ulterior motive in prerenting the petiHon. However, the decision of the Appellate Bench is conspicuously silent on these relevant points.

[983 E-H; 984 A]

CIVIL APPELLATE JuRJSDICTION : Civil Appeal No. 7348 of

1983.

Appeal by Special leave from the judgment and ·order dated the 19th March;l982 of the Bombay High Court in Appeal No. 527 of 1981 in notice of motion No. 1156/81 in Suit No. 1508/81.

Sankar Ghose, Miss Radha Rangaswamy and Rangaswamy for

the Appellant.

A. K. Sen, R. C. Nag, Rameshwar Nath and A. K. Sil for

the Respondents.

The Judgment of the Court was delivered by

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DESAI, J. First respondent United . Industrial Bank Limited (Bank for short') having its r~gistered office at 7, Red Cross Place, Calcutta filed Suit No. 1508 of 1981 on the original side of the Bombay High Court against the appellant-The Cotton Corporation of India Limited ('Corporation' for short) and one Tapan Kumar Ghosh, who. at the relevant time was the Chief Branch Manager of the Worli Branch of the Bank and defendant No. 3-Bradbury Mills Limited, an exi5ting Company within the meaning of the Companies Act, 1956 carrying on business at Maulana Azad Road, Jacob Circle, Bombay praying for a declaration that the acceptance and or co acceptance of the bill of exchange and/or hundies listed in Exhibit 'K' by second defendant Tapan Kumar· Ghosh for and on behalf of the Bank was null and void and ·not binding on the Bank and calling upon the Corporation to deliver up to the Court the disputed bills. of exchange and/or hundies for the purpose of_.cancellation and for 11 direction cancelling the same. In this s\iit the Bank took out a notice of motion No. 1156 of 1981 seeking to restrain by an interim injunc tion 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 .suit or other proceed ings including winding-up proceedings under the Companies Act, 1956 · and/or the Banking Regulation Act, 1949 against the Bank. Notice of motion also included a prayer for an interim injunction restraining

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COTTON CORPN. v. U.J. BANK (Desai, J.)

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967

the defendants in any manner whatsoever either endorsing or negotiating or transferring the said bills of exchange or hundies and for appointment of a receiver to take custody of the bills of exchange and hundies listed in Exh. 'K'. An ex-parte ad-interim injunction was granted as prayed for. When the notice of motion came up fot hearing, the learned judge made the following order:

" ... Mr. Cbagla confines prayer (a} o1lly to the filing_ of winding up petition by Defendant No. I and 3. He presses prayer (b) in full. Notice of motion as against the Defendant No. I dismissed. The Notice of Motion made absolute in terms of prayer (a) in so far winding up is concerned as against the defendant No. 3, so far as prayer (b) is concerned, the bills are in the possession of the 1st Defendants arid there is no question of other defen dants negotiating the same.

Notice of Motion dismissed as regards prayer (b) also

against Defendants 2 and 3 ... "

The. Bank having been dissatisfied with the rejection of the Notice of Motion against the Corporation preferred Appeal from an order No. 527 of 1981. A Division Bench of the Bombay High Court allowed the appeal and issued interim injunction restraining the Corporation from presenting a winding. up petition, the order being in the same terms as made against the 3rd defendant by the - learned Single judge. The co(rectness and validity of this order is impugned in this !lppeal.

As the suit is pending awaiting adjudication on merits, every attempt would be made by us to avoid any expression of opinion on the. merits ofthe suit. The few facts which we propose to set out .are for the purpose of understanding and appreciating the contention only, the correctness or otherwise of the allegation of facts being immaterial for the present purpose.

The Corporation is engaged in th_e bussiness of purchasing and selling cotton to textile mills in India. The policy of the Corporation appears to be to sell cotton against cash payment, but in some cases to accommodate the textile .mills the sale is effected on credit against acceptance of usance bills co-acceped by the bankers of the textile mills guaranteeing payment on due d~tes. 3rd defendant ·Bradbury

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Mills Limited is alleged to have purchased cotton of the aggregate value of Rs. 45, 75, 000 and in payment of the price issued t"6 usance bills. The 3rd defedant by Its letter dated May 21, 1981 had informed the Corporation that the Bank has given an undertaking, to Govern ment of Maharashtra to monitor the cash flow of the 3rd defendant · and hence it had to operate account with that Bank only, and it requested the Corporation to accept usance bills co-accepted by the Bank. The Corporation asserts that the Bank through defendant No. 2 its Chief Branch Manager at Worli co-accepted the 16 usance bills and according to the Corporation the acceptance was. evidenced by four letters issued by the Bank. When the usance bills matured and became due for payment, the Bank of Baroda on behalf of the Corporation called upon the Bank to make the payment of the amounts covered by the various usance bills. Simultaneously, the 3rd defendant was asked to direct its bankers, the plaintiff-bank in this case; to discharge the usance bills and make the necessary payment. The Solicitors of the Bank informed the Corporation that they were awaiting instruction from the head office of the Bank at Calcutta. .Thereafter, the Solicitors of the Corporation served a notice .dated August 5, 1981 on the Bank calling upon it to make the payment under the usance bills co-accepted by the Bank within 4 days from the receipt of the notice. Soon thereafter the Bank filed a suit against the Corporation and 2 others as stated hereinbefore. The main contention of the Bank in the suit is that the Chief Branch Manager defendant No. 2 had not the requisite authority to co·accept the bills on behalf of the Bank and therefore, the Bank had incurred no liability under the usance bills. There is some allegation of fraud but it is not relevant for the present purpose. The suit is pending on the Original Side of the Bombay High Court.

A very narrow question which we propose to examine in this appeal is : Whether in view of the provision contained in Sec. 41 (b) of the Specific Relief Act, 1963 ('Act' for short), the Court will have· jurisdiction to grant an injunction restraining any person from insti tuting any proceeding in a court not subordinate to that from which the injunction is sought ? The contention may be elaborated thus : Can a person be restrained by.an injunction of the Court from institut ing any proceeding which such person is otherwise entitled to institute in a court not subordinate to that from which the injunction is sought? In the facts of the present case, the narrow question is whether the Corporation can be restrained by an injunction of the court from presenting a winding·up petition a8ainst the Bank ? The liigh Court

CoTTON CORPN. v. U.I. BANK (Desai, J.)

seems to hold that the Court has such powers in view of the provi sions contained in 0.39 of the Code of Civil Procedure read with Sec. 37 of the Specific Relief Act, 1963 or in exercise of the inherent· powers of the Court under Sec. 151 of the Code of Civil procedure. Thfs position is seriously contested by the appellant in this appeal.

The reliefs which the Bank as plaintiff is seeking in the suit filed by it are a declaration that Bank is not liable'to honour and· discharge the usance biIIs co-accepted in its name by its Chief Branch Manager-defendant 2 as envisaged by Sec. 34 and a further relief that the disputed bills of exchange and hundies be delivered to the Court for cancellation and be cancelled as envisaged. by Sec. 31: It is in this suit that the Bank has obtained an interim injunction restrain· ing the Corporation from presenting a winding-up petition against the Bank.

·Part III of the Act bears the heading 'Preventive Relief' and fasciculus of sections therein included. provido for injunctions generally. Sec. 36 provides that preventive relief is granted at the discretion of the Court by injunction, temporary or prepetual. Sec. 37 specifies the nature and character of temporary and prepetual injunGtions. Temporary injunctions are such as are to continue until a specified time, or until the further order of the Court, and they may be granted at any stage of a suit, and are regulated by the Code of Civil Procedure, 1908. Permanent injunctions can only be granted by the decree made at the hearing and upon merits of the suit and thereby defendant in th~ suit is perpetually enjoined from assertion of a right or from commission of an act, which would be contrary to the rights of the plaintiffs. Section 38 sets out situations in which the court can grant a perpetual injunction to the plaintiff to prevent the breach of an obligation existing in its favour, whether expressly or by impli• cation. Sec. 38 is thus an enabling section which confers power on the court to grant perpetual injunction in situations and circumstances therein enumerated. Sec. 41 caters to the opposite situation. It provides that an injunction cannot be granted in the situation and circumstances therein set out. The Corporation relies on Sec. 41 (b) in support of its· contention that the court had no jurisdiction to grant temporary injunction because perpetual injunction could not have been granted by the Court in terms in which temporary or interim injunction was sought. Sec. 41 (b) reads as under :

"41. An injunction cannot be granted:-

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(a)

............ _ ................ - ........ ..

(b) to restrain any person

from instituting or prosecnting any proceeding in a court not subordinate to that from which the injunction is sought ;

···············---··················· " · The predecessor of Sec. 41 (b)~ Sec. 56 (b) of the Specific Relief Act

of 1887 repealed by 1963 Act read as under :

"56.

Injunction cannot be granted :-

(a)

······-·· .. - - ............ - ... .

(b) to stay proceeding in a ·court not subordinate to that from which the injunction is sought,"

A glance at the two provisions, the existing and the repealed would reveal the legislative response to judicial interpretation. Under Sec. 56 (b) of the repealed Act, the Court was precluded by its injunction to grant stay of proceeding in a court not subordinate to that from which the injunction was sought. In other words, the Court ·could stay by its injunction a proceeding in a court subordinate to the court granting injunction.· The injunction granting stay of proceeding was directed to the Court and the Court has to be the Court subordi nate to the one granting the injunction. This is postulated on the . well recognised principle that the superior court can regulate pro ceedings in a court subordinate to it. It is implicit in this assumption and the language used in Sec. 56 (b) that the court could not grant injunction under Sec. 56 (b) of the repealed Act to stay proceeding - in a court superior in heirarchy to the Court from which injunction is sought. But by judicial interpretation, a consensus was reached that · as injunction acts in personum while the Court by its injunction can not stay .Proceedings in a Court of superior jurisdiction ; it could certainly by an injunction restrain a party before it· from further prosecuting the proceeding in other courts may be superior or inferior in the heirarchy of courts. To some extent this approach not only effectively circumvented the provision contained in Sec. 56 of the repealed Act but denuded . it of its content. The Legislature took notice of this judicial interpretation and materially altered .the

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COTTON CORPN. v. u.1. BANK (Desai, J.)

971

language of the succeeding provision enacted in Sec. 41 (b) replacing Sec. 56 (b) of the repealed Act while enacting Specific Relief Act of 1963. The Legislature manifestly expressed its mind by enacting Sec. 41 (b} in such clear and unambiguous language that an injunc tion cannot be granted to restrain any person, the language takes . care of. injunction acting in personnm, from instituting or prosecuting any proceeding in a court not subordinate to that from which injunction is sought. Sec. 4l(b} denies.to the court the jurisdiction to ·grant an injunction restraining any person from instituting or prose cuting any proceeding in a court which is not subordinate to the court from which the injunction is sought. In other words, the court can still grant an injunction restraining a person from instituting or prosecu ting any proceeding in a court which is subordinate to the court from which the injunction is sought. As a necessary corollary, it would follow that the court is precluded from granting an injunction restraining any person from instituting or prosecuting any proceeding in a court of co-ordinate or surerior jurisdiction. This change in language deliberaiely adopted by the Legislature after taking note of ' judicial vacillation has to be given full effect.

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It is, t'herefore, necessary to unravel the underlying intendment of the provision contained in Sec. 41 (b). It must at once be conceded that Sec. 41 deals with perpetual injunction and it may as well be conceded that it has nothing to do with interim or temporary . injunction which as provided by Sec. 37 are dealt with by the Code of Civil Procedure. To begin with, it can be said without fear of contradiction that 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 law courts. The expression 'court' here is used in its widest amplitude comprehendiug every forutn where relief can be obtained in ·accordance with law. Access to justice must not be hampered even at the hands of judiciary. Power to grant injunction vests in the court unless the Legislature.confers specifically such power on some other forum. :Now ,access to court in search of justice according to law 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 action impede access to justice. This principle is deducible the Constitution which seeks to set up a society governed by rule of law. As a corrolary, it must yield to another principle that the superior court can injunct a person by restraining him from instituting or

from

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prosecuting a proceeding before a subordinate court. Save this specific carving out of the area where ·access to justice may be impe ded by an injunction of the court, the Legislature desired that the courts ordinarily should not impede access to justice through court. This appears to us to be the equitable principle underlying sec. 41 (b). Accordingly, it must receive such interpretation as would advance the intendment, and thwart the mischief it was enacted to suppress, through court and unobstructed.

to keep the path . of access

justice

to

Viewed from a slightly different ·angle, it would appear that the legal system in our country envisages obtaining of redressal of wrong or relief against unjust denial there of by approaching ·the court set up for the purpose and invested with power both substantive and procedural to do justice that is to grant relief against invasion or violation of legally protected interests which are jurisprudentially called rights. If a person complaining of invasion or violation of his rights, is injuncted from approaching the court set up to grant relief.by an action brought by the opposite side against whom he has a claim and which he wanted to enforce through court, he would have first to defend the action establishing that he has a just claim and he cannot be restrained from approaching the couh to obtain relief. A person having a legal right and complains of its violation or infringement, can approach the court and seek relief. When such person is injuncted from approaching the court, he has to vindicate the right and then when injunction is vacated, he has to approach the In other words; he would have to go through the court for relief. gamut over again : W.hen defending against a claim of injunction the person vindicates the claim and right to enforce the same. If success ful he does not get relief but a door to court which was bolted in bis face is opened. Why should he be expqsed to multiplicity of proceedings ? . Jn· order to avoid such a situation the Legislature enacted sec. 41 (b) and statutorily provided that an injunction cannot be granted to restrain any person from instituting or prosecuting any proceeding in a court not subordinate to that from which the injunction is sought. Ordinarily a preventive relief by way of prohibitory injunction cannot be granted by a court with a view to restraining any person from instituting or prosecuiing any proceeding · .and this is subject to one exception enacted in larger public interest, namely, a superior court can injunct a person from instituting or prosecuting an action in a subordinate court with a view to regulating the proceeding before the subordinate courts. At any rate the court

COTTON CORPN. v. u.1. BANK (Desai. J.)

973

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is precluded by a statutory provision from granting an injunction restraining a person from instituting or prosecuting a proceeding in · a court of coordinate jurisdiction or superior jurisdiction. There is an· unresolved controversy whether a court can grant an injunction against a person from instituting or prosecuting a proceeding before itself but that is not relevant in the present circumstances and we do not propose to enlarge the area of controversy.

Mr. Se.n, learned coutisel for the respondent-Bank, contended that sec. 41 (b) is not at all attracted because it deals with perpetual injunction and the temporary or interim injunction is regulated by the Code of Civil Procedure specially so provided in Sec. 37 of the Act. Expression 'injunction' in sec. 41 (b) is not qualified by an adjective and therefore, it would comprehend both interim and perpetual injunction .. It is, however, true that Sec. 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 Sec. 41 to perpetual injunctio~ only and Sec. 37 read with 0. 39 of the Code of Civil Procedure being confined to temporary injunction, an unnecessary grey area will develop. It is indisputable. that temporary injunction is granted during the pendency 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 pendency of the proceeding an unfair advantage is not taken by the party in default or against whom te~porary injunction is sought. But power to grant temporary injunction was conferred in aid or as auxiliary to the final relief that may be granted. · It the final relief cannot be granted in terms as prayed for, temporary relief in the same terms can hardly if ever be granted.

In The State of O~issa v. Madan Gopa/ Rungta(') a Constitution . Bench of this Court clearly spelt out .the contours within which interim relief can be granted. The Court said that 'an interim relief can be granted only in aid of, and as ancillary to, the main relief whieh may be available to the party on final determination of his rii:hts in a suit or proceedings. If this be the purpose to achieve which power to grant temporary relief is conferred, it is inconceivable that where the final relief cannot be granted in the terms sought for the because the statute bars granting such a relief

facto

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(I)

(1952J S.C,R. 28.

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temporary relief of the same nature cannot be granted. To illustrate this point, let us take the relief which the Bank seeks. in its suit. The prayer is that the Corporation be restrained by au injunction of the Court from presenting a winding-up petition under the Companies · In other Act, 1956 or under the Banking Regulation Act, 1949. words, the Bank seeks to restrain the Corporation by an injunction of the c~mrt from instituting a proceeding for winding-up of the Bank. There is a clear bar in Sec. 41 (b) against granting this relief. The Court has no jurisdiction to grant a perpetual injunction restrain ing a p~rson from instituting a proceeding in a court not subordinate to it, as a relief, ipso facto temporary relief cannot be granted in the same terms.

The interim relief can obviously be not granted also because the obj~ct behind granting interim relief is to maintain status quo ante so that the final relief can be appropriately ·moulded without the the party's position being altered during· the pendency of proceedings.

Mr. Seu, however, urged that even though the Legislature has materially altered the language of the corresponding provision iit sec. 56(b) of 1877 Act while enacting Sec. 41(b), yet the change in language would have no impact on the. view of law taken by the courts while interpreting sec; 56(b) of the repealed Act. proceeding along this line, Mr. Sen urged that under sec. 56(b) of the 187.7 Act even though injunction could not be granted to stay proceedings tn a court not subordinate to that from which injunction is sought, the Court by an interpretative process spelt out a power to grant injunc tion 'in personum against a party from instituting a proceediqg. It is true that giving a· literal meaning to the provision contained in sec. 56(b) which denied the power to the Court to grant injunction . to stay proceedings in a court ·not subordinate to that from which injunction is sought, the cou<t demarcated the unoccupied area by - holding that even if the court cannot grant injunction to stay the proceeding, it can certainly iujunct a party from ins.tituting_ or prosecuting a proceeding in a court not subordinate to that from which the injunction was sought But it is this very interpretatipn which attr~cted the aitention of the Legislature, and it respondent by specific change in language to nullify the interpretation so that it becomes crystal clear that an injunction cannot be granted to restrain any person from instituting or prosecuting any proceeding in a court not subordinate to that from which the injunction was sought. The

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COTTON CORPN. v. u.1. BANK (Desai, J.)

975

power to grant injunction ill personum was thus legislatively curtailed. Legislative response to court's interpretation has to be noticed and in our opinion the alteration in the language provides the legislative response to the judicial interpretation, and cannot be wished away, but must be given effect.

Mr. Sen, however, urged that the Specific Relief Act, 1877 was founded on English equity jurisprudence and therefore, it was permissible to refer to English law on the subject wherever the Act

. did not deal specifically with any topic.

(See Hungerford Investment ,,,.

Trust Limited v. Haridas Mundhra & Ors.)( 1) It was further sub mitted that 1963 Act is equally based on the experience derived from the working of the 1877 Act and the English equity jurisprudence aild therefore, where light is shed by decisions in England, the same must illumine our path. Where _provisions. are in pari materia between the English Act and the Indian Act and where local condi tions do not materially differ from the conditions in U.K., one may keeping in vi~w the conditions in our country look at the view by the English courts and if consistent with our· jurisprudence, our ·social conditions, our chalked out path in which the law must move, one can profitably take help of the decision. There would be nothing wrong in referring to the same. But ignoring all the relevant consi derations, one cannot bodily import English decisions in our system to develop a hybrid legal system and one cannot be so hypnotised by English decisions to overlock legislative changes introduced in Indian Law.

taken ·

With this caution, let us refer to one or two decisions relied on by Mr. Sen to el<pand the sweep of the language of Sec. 41\b), sci that the court can still injunct a person from instituting a proceeding is otherwise entitled to institute in a co-urt of which the person coordinate or superior teeth of express 'prohibition' enacted in sec·. 41(b).

jurisdiction,

the

in

To start with, it wonld be advantageous first to notice Sec. 24(') of the Supreme Court of Judicature Act of 1873 now reenacted as Supreme Court of Judicature (Consolidation) Act 1925, which reads as tinder :

"No case or proceeding at any time pending in the High Court of Judicature or before the Court of Appeal shall be restrained by prohibition ,or injunction."

(1) [1972] 3 S.C.R. 699 at 701.

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It would appear at a glance that an injunction cannot be issued to stay_ a ·pending proeeeding in the High Court of Judicature or before· the Court of Appeal. The section does.not refer to initiation or institu tion of proceeding. On a grammatical interpretation oftbe section it would be open to the court to spell out a power to grant injunctfon to restrain a person from ·.instituting a proceeding because what is barre4 by the statute is injunction from prosecuting a ·pending proceeding. Compare this language 1Yith Section 41(b) which specifi cally provides that an-injunction cannot be granted to restrain a '-person from instituting aud prosecuting any proceeding. The rele vant provision in our country covers both the situations while in England it covers only one situ~tion. This clear distinction in law bas to be kept in view before applying English decisions to which our attention was drawn.

And now to the decisions: In Cadiz Waterworks Company v. Barnett('), the court on being satisfied that the Company was sqlvent and that the debt was bona fide disputed' and that· the object of the defendant in the case was not the bona fide purpose of honestly compelling the payment of bis debt but for the purpose of making an unjust attempt to compel them to submit to an unjust demand, res trained the respondent from presenting a petition for winding-up the In reaching this conclusion it was the Company in the Court. observed that if a winding-up petition is presented and advertised, it would inflict irreparable injury on the -plantiffs, while at the ·same moment it could not possibly do the defendant slightest good. Let it be definitely made clear that not a whisper was raised. challenging the jurisdiction of the Court to grant such an injunction and obviously in view of the provision in Supreme Court of could not be raised Judicature Act of 1873 extracted hereinbefore which did not deny to the Court the power to grant an injunction restraining a person from _ instituting a proceeding. Similarly in Circle Restaurant Castiglione Company v. Lavery(') the court by its short order restrained defen dant Lavery from presenting any petition to wind-up the company in respect of any debt then due or alleged to have been due to him on certain- conditions. In giving the short order, Jessel and followed the decision in Cadiz Waterworks Company. One more decision to which onr attention was drawn was the New Traoeiters' Chambe;s Ltd. v. Messrs. Che~se and Gree1r(') in which the defendant was restrained

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(I) (1874-75] 19 Equity Cases 182. (2) (3) {1894] Law Times Reports 171.

[18811 18 Ch.Div. 555.

co'rroN CORPN. v. U.I. BANKi (Desai, J.)

977

by an injunction -or the court from presenting a winding-up In the last two mentioned cases also, no contention was petition. raised, because obviously it could not be raised, that the court had no jurisdiction to giant the injunction. In our opinion these decisions - · are not at all helpful for two reasons : one that the Supreme Court of Judicature Act clearly provided that injunction cannot be granted restraining prosecuting a pendin·g proceeding and the provision was silent on the question of granting an injunction restraning instituting a proceeding and in respect of which the 1963 Act is more specific, clear and unambiguous·; and secondly, at no time in all the three decisions, the defendant against whom the injunction was sought' ever questioned the jurisdiction of the court to issue an injunction restrain ing it from presenting a winding-up petition thereby inviiing the court to give a specific ruling on the subject. We are, t)lerefore, disposed to take no notice of these decisions.

_ However, in the course of further investigation 011 ihe point, we tumbled across Clza/es Forte Investments Ltd. v. Amanda.(1) The Court of Appeal in that case unanimously held that the presentl!tion of a winding-up petitio~ could be restrained by an injunction, granted under the inherent jurisdiction of the court to stay proceedings which were vaxatious or an abuse of the ·process of the court, for amongst· others the principal -reason thai a winding tip petition was not the In t]lat proper remedy in the circumstances of the particular case. case a minority share-holder was sought to be restrained by an in junction of the court at the instance' of tJie company from presentin_g a winding-up petition· on the ground that it was just and equitable to wind up the company. Pennycuick, J. declined to grant the interim injunction and the company appealed. The Court of Appeal while reversing the decision held that in the circumstances of the case winding-up pe_tition was. not a proper remedy and granted the injunction. The power to grant injunction· in such circumstances was not shown to be referable to any ·statutory provision nor was it pointed out that there was any statutory inhibition against granting it and the source of power was traced to .the inherent powers of the Court.

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One more decision we came across and which to some extent deviates from the consistent view taken in all- the aforementioned decisions, is the one Bryanston Finance Ltd.\ v. De Vries.(') While

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[19631 2 All E.R. 940. [197611 All E.R, 251.

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vacating the injunction granted in broad terms, the Court of Appeal held tbat the presentation of a petition in the circumstances discussed 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 In that case an injunction Stonegate Securities Ltd. v. Gregory.(') 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 credi tor. 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 Seven teenth 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 a suit 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

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(I) [1980] 1 All E.R. 241. (2) A.l.R. 1975 Boru. 158.

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COTTON CORPN. v, U.I. BANK (Desai, i.) .

979

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 can not 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 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 con trary 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 Hanumanprasad Tibrewala and Ors.( 1) He also took note of the fact 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 over rule any of these decisions and proceeded to dispose of the conten tion 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:

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"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."

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Mr. Sen, learned counsel for the respondent-Bank however, contended that even if the respondent-Bank is not entitled to injunc-

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(I) A.l.R. 1976 Born, 233.

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SUPREME COURT REPORTS

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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 view and relied upon Padam Sen v. State of U. P.(1 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 the invocation of the we find not the· slightest reference 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

to

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[19621 Supp. 1 S.C.R, 450.

(1) (2)_ [19611.1 $.C.R. 884.

COTTON CORPN. v.u.1. BANK (Desai, .J.)

981

open and some restrained by injunction. Neither in statute law nor in enquity, we find any justification for this dichotomy.

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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 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 It provides that : upon the filing of the ·petision, it shall material. 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.

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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 pre admission notice to the company so that the company is .not taken the judge that. the unaware and may appear and point out to ,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 a view if accepted, would make the 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

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COTTON CORPN. v. U.1. BANK (Desai, J)

983

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 In fact, the Kerala High Court in George v. The the proceeding. Athimattam Rubber Co. Ltd. Thodupuzha( 2 } 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 bona fide 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 winding up.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 con tained 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 winding up 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 a 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 injunc tion can be granted. The decision of the Appellate ~ench is

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conspicuously silent on these relevant points and for this .additional

A reason also the appeal must.succeed.

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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.

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