Saturday, March 20, 2010

Inherent Powers of the Court: When Can They be Invoked?

Section 151 of the Civil Procedure Code (CPC) is probably one of most frequently (ab)used(?) provisions and is more often than not, the one provision that saves our (blackcoats’) rears. Sometimes we use it to push through an application before the Court, blissfully ignorant that the CPC specifically provides an express provision to move such an application. Does this go against the structure of the Code? To find an answer to this, I thought I might as well spend some time understanding the “metes and bounds” of Section 151.

There’s this 1983 judgment of the Gujarat High Court delivered in the case of In Re Shri Ambica Mills which sets out the limits of Section 151 in great detail and I think it’s a must read for those who intend to understand the CPC better.

The factual matrix is interesting and helps one understand the reasons for decisions taken by counsels and how the Court sees through some of them.

In this case, an application was made under Section 151 of the CPC read with Rule 9 of the Companies (Court) Rules, 1959 invoking the inherent powers of the Court to have certain remarks expunged from the judgment of the same Court in an earlier company petition.

The applicants were the managing directors of the company Shri Ambica Mills. The earlier company petition was moved by the company under Section 101 of the Companies Act to get an order confirming the reduction in its equity share capital. The presence of paid-up capital which exceeded the needs of the company was cited as the reason for the decision to reduce the share capital. To this end, a resolution with three quarters majority had been passed by the shareholders of the company.

However, this petition was opposed by a certain group of shareholders whose objection to the reduction in the share capital was that the entire scheme was a humbug, aimed at serving the private interests of the 3 managing directors (MDs), who were brothers. The company petition was accordingly dismissed relying on the said objections.

Prior to moving the 151 application by the MDs, the company had already preferred an appeal before the Division Bench of the High Court which had been admitted too. The MDs i.e. applicants in the instant case, too had filed for a stay order on the decision of the Single Judge of the HC dismissing the company petition.

Subsequent to the application for a stay order, the 151 application was filed to seek expungement of certain remarks in the earlier order made against the MDs. The contention of the MDs was that they were never given the opportunity of being heard or defending themselves in the earlier petition and consequently, such remarks were unwarranted and unnecessary for the purpose of arriving at a decision in the earlier petition.

The Court first delved into the issue of maintainability of the 151 application read with Rule 9 of the Company Rules. (Rule 9 too deals with inherent powers of the Court, so it stands on par with s.151 of the CPC.)

The Court first observed that:
1. S.151 is not to be exercised as a substantive power for it is procedural and
2. Use of inherent powers under s.151 cannot have the object or effect of going against the provisions of the Code, express and implied.

These observations were paraphrased from the celebrated decision of Manohar Lal v. Rai Bahadur Rao Raja Hira Lal Seth (AIR 1962 SC 527). I remember this decision particularly well thanks to the booming voice of Barrister Bimol K. Chatterjee (popularly known as BKC) who taught us the fundamentals of the CPC in Law School.

In this case, the Hon’ble Supreme Court observed with clarity that the reason that s.151 should not be interpreted to contravene the provisions of the CPC was not because the latter controlled the former, but because the other provisions reflected the express will of the Legislature and in its wisdom, served the interests of justice in the circumstances envisaged.

Simply put, to use s.151 to read down the other express provisions would go against the cardinal principle of interpretation of statues- to respect and to give effect to the will of the Legislature.

The Court then considered other alternatives which the MDs could have preferred instead of a 151 application. Order 20, Rule 3 accordingly was given some thought; Rule 3 of Order 20 provides for addition to or alteration of the judgment either under Section 152 or through a review under Section 114 read with Order 47.

To this the counsel for the MDs clarified that he had no intention of invoking the review powers of the Court. The Court contended that if review was not sought, and if an application under 152 does not lie since the case was not that of an accidental slip or arithmetic error, then an application under 151 wouldn’t lie either since the impugned remarks were material to the Court’s findings in the earlier petition.

The Court compared s.151 to s.561 of the CrpC and said that remarks which are material to the Court’s analysis cannot be sought to be expunged. Expungement, according to the Court, is possible only if sweeping observations, which are irrelevant to the case, are made by the Court. Such expungement may be sought by parties to the case or a stranger who has been named by the Court in its remarks.

In this case, since the very allegation against the Company was that the whole scheme of reduction of paid-up capital was a sham to feather the nests of the MDs, it was inevitable for the Court to discuss the conduct of the MDs to decide the case on merits.

Going a step further, the Court discussed certain other alternatives as well; the Court observed that since strangers to a case could not avail of the review option, they could resort to a writ under Article 226 wherein the Court could justifiably exercise powers of review.

In short, what the Court was alluding to was that the 151 application was ruse on the part of the MDs since a review was not possible (as an appeal had already been preferred) and an application under 152 wouldn’t lie here since the case was not that of an accidental error.

In light of the Court’s observations on s.151, there’s another question which I feel must be asked. Section 151 may not be used to contravene other express provisions, but can it be used to supplement them? The answer is in the affirmative since quite a few applications which we move before the Court (like the ones under Order 13) are usually read with Section 151 so as to invoke the powers of the Court if express provisions, although invoked, do not adequately provide for suitable remedies.