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Gleitlargor (India) P. Ltd. and H.S. Kamlani, Official Liquidator Vs. Mazagaon Dock Ltd. and Others - Court Judgment

LegalCrystal Citation
SubjectCompany
CourtMumbai High Court
Decided On
Case NumberAppeal Nos. 57, 59 and 61 to 71 of 1977, from Company Application Nos. 162, 95, etc., of 1975 and 1,
Judge
Reported in[1985]57CompCas742(Bom)
ActsCompanies Act 1956 - Sections 447, 448, 451, 451(1), 451(2), 456, 456(1), 457, 457(1), 458A, 467, 529 and 552
AppellantGleitlargor (India) P. Ltd. and H.S. Kamlani, Official Liquidator
RespondentMazagaon Dock Ltd. and Others
Excerpt:
.....with consent of secured creditors took out judge's summons against respondents for recoveries of debts - company judge dismissed judge's summons stating that section 458a not attracted to extend period of limitation - official liquidator is under obligation to collect debts of company - section 458a intended to extend limitation period for benefit of company in liquidation - official liquidator appointed to carry on its winding up process by collecting assets and distributing same between those entitled - proceedings initiated by liquidator is within ambit of provisions of companies act - company judge erred in dismissing judge's summons. - maharashtra scheduled castes, scheduled tribes, de-notified tribes (vimukta jatis), nomadic tribes, other backward classes and special backward..........liquidator to initiate the proceedings and the question of his having initiated proceedings on the bank's behalf could ever has arisen. the liquidator could not have been appointed by the bank as its agent for such recoveries. the learned judge, amount others, inferred the agency from the circumstances of the bank having agreed to pay the commission. section 451 read with r. 291 authorise the liquidator to recover fees for his work of realising the company's property as such liquidator. thus, describing such fees as commission cannot make the liquidator the creditor's agent when the act and the rule do not so contemplate and when the dues happen to be of the company and not of the bank. that the receiver appointed in the suit of the bank against the liquidator could have instituted the.....
Judgment:

Deshpande, C.J.

1. This group of 13 appeals raise a common question of law as to the scope of ss. 458A of the Companies Act, 1956 (hereinafter referred to as 'the Act'), and can, therefore, be disposed of by this common judgment.

2. The official liquidator is the appellant in all these appeals. Respondents in all these appeals are the debtors of Alcock Ashdown Co. (hereinafter referred to as 'the company'). The company claims this amount for the repair works of the vessel carried on in the year 1971 at the instance of the debtors. An order for winding up of this company was passed on December 13, 1972, in Company Petition No. 86 of 1971 dated August 24, 1971. The appellant was appointed as liquidator therein.

3. The State Bank of India (hereinafter referred to as 'the bank') is one of the secured creditors of the company, the books debts of the company having been hypothecated, amongst others, therewith as security. The bank filed a suit being Suit No. 426 of 1973, against the official liquidator for recovery of its debts to the tune of Rs. 1,18,88,504 on April 24, 1973, with the leave of the court. At the instance of the bank, a receiver was appointed on May 4, 1973, with authority, amongst others, to recover these book debts. This order was, however, modified, firstly, on May 16, 1973, and finally with the consent of the liquidator, on July 11, 1973, excluding these books debts form his charge, presumably to enable the liquidator to enforce the recovery by recourse to his powers under the Act.

4. This order appears to have been preceded by negotiations between the official liquidator and the bank. An understanding was reached between them under which the official liquidator and the bank was to bear the costs of the litigation and their Attorneys, M/s. Crawford Bayley & Co., were to act for the official liquidator in all such proceedings. Over and above the fees payable to the official liquidator under r. 291(4), the bank was to pay commission at the rate of 10 per cent. of the recovery in the contested matters and such commission for the uncontested matters may very as the court as the court may fix, obviously for the benefit of the unsecured creditors.

5. The official liquidator submitted his report to the company judge on April 20, 1973, setting out the terms of this understanding and solicited directions. The learned company judge granted leave for the purpose and gave him necessary directions by this order dated July 23, 1973. He fixed commission in uncontested recoveries at 5 per cent.

6. The official liquidator thereupon took out a judge's summons against the respondents on or about November 7, 1975, for the recoveries of the debts. The debtors in Appeal No. 63 of 1977 owed this amount to the company for the repair work of the vessels carried out in the year 1971 at the debtor's instance. The claim was resisted by the respondent debtors on various grounds, one being that the claim had become time-barred by the date on which judge's summons were taken out.

7. That the company's claim had become so time-barred was and is not disputed. Reliance is, however, placed by the liquidator on s. 458A of the Act for the extended period of limitation. Section 458A of the Act reads as follows :

'458A. - Exclusion of certain time in computing periods of limitation. - Notwithstanding anything in the Indian Limitation Act, 1908 (IX of 1908), or in any other law for the time being in force, in computing the period of limitation prescribed for any suit or application in the name and on behalf of a company which is being wound up by the court, the period form the caste of commencement of the winding-up order is made (both inclusive) and a period of one year immediately following the date of the winding-up order shall be excluded.'

8. This section thus provides for longer periods of limitation for the suits or claims instituted 'in the name and on behalf of the company (under liquidation) '. The period from the commencement of the winding up to the date on which winding-up order is made and a further period of one year thereafter, is liable to be added to the ordinary period of limitation applicable under the Limitation Act. It is not disputed that the claim would be within time on the date of judge's summons if limitation is computed by adding this period.

9. The short question that arises for consideration is whether the recovery of the dues from the respondents by the judge's summons under the above understanding with the bank can be said to be 'in the name and on behalf of the company' as contemplated under s. 458A of the Act. That the claim in the name of the liquidator in these proceedings is a claim in the name of the company was and is not disputed by the respondents. The learned company judge found that the claim having been expressly made on behalf of the bank, section 458A of the Act cannot be attracted and the extended period of limitation cannot be availed of. In this view of the matter, the judge's summons was dismissed as being time-barred. Hence, these appeals.

10. It will be convenient at the outset to find out what the rights, duties and powers of the liquidator are in regard to such debts claimable by any company under liquidation. Section 448 contemplates appointment of official liquidator when an order for winding-up of the company is made under s. 447 of the Act. Section 451(1) casts an obligation on him to conduct the proceedings in winding up the company and perform such duties in reference thereto as the court may impose. Sub-s. (2) permits payment of such fees to the official liquidator, out of the assets of the company, as may be prescribed. Rule 291 does prescribe such fees for certain of his acts. Section 456 requires and authorises the liquidator to take into his custody and under his control all the properties, effects and actionable claims to which the company is or appears to be entitled. Section 457 provides for enforcement of delivery of properties to him in cases where the property of the company is in the possession of a third person. Section 457(1)(a) authorises him to institute and defend any suit' in the name of and on behalf of the company'. Section 467 requires the court, amongst others, to cause assets of the company to be collected and applied in discharge of its liabilities and also direct delivery of the property to the liquidator. Section 529 makes the insolvency rules applicable to the winding-up of insolvent companies.

11. It is not dispute that the book debts stood hypothecated with the bank. Such hypothecation, however, cannot make the bank owner of the debts and by itself authorises the bank to claim debt amounts from the company's debtors in its own right or institute suits or any other proceedings against such debtor for such recovery directly in its own name. No one else also can sue or initiate proceedings for such recovery on behalf of the bank when it cannot sue on its own. The company continued to be the owner of the debts. The official liquidator alone can enforce its recovery representing the owner company on its going into liquidation. That is why the bank instituted a suit, Suit No. 426 of 1973, against the official liquidator and not against the company's debtors for recovery of its dues from the company. The receiver appointed in this suit by the court at the instance of the bank was initially authorised to enforce the recovery of the book debts. Even such receiver could not have sued on behalf of the company. He could have sued in his own name, claiming to be suing for the creditor of the company on the authority of the court's order. Secondly, the task would have been both expensive and time consuming. That appears to have prompted the bank to approach the official liquidator who was also under an obligation to collect the assets including such debts of the company from its debtors and could, as the representative of the company, directly initiate recovery proceedings under s. 457(1)(a) of the Act. This explains why the receiver was relieved of the charge of these book debts by subsequent order dated July 11, 1973, with the consent of the official liquidator. By that time, the understanding between the official liquidator and the bank was already reached. As seen earlier, judge's summons were taken out by the liquidator only after getting leave of the court to that effect on July 23, 1973, virtually permitting the liquidator to effectuate the understanding.

12. The assumption, in the impugned order, of the official liquidator having initiated proceedings 'on behalf of the State Bank' is thus illfounded and totally incorrect. When the bank could not enforce recovery of the company's debts in its own right notwithstanding the hypothecation, it could not authorise the official liquidator to initiate the proceedings and the question of his having initiated proceedings on the bank's behalf could ever has arisen. The liquidator could not have been appointed by the bank as its agent for such recoveries. The learned judge, amount others, inferred the agency from the circumstances of the bank having agreed to pay the commission. Section 451 read with r. 291 authorise the liquidator to recover fees for his work of realising the company's property as such liquidator. Thus, describing such fees as commission cannot make the liquidator the creditor's agent when the Act and the rule do not so contemplate and when the dues happen to be of the company and not of the bank. That the receiver appointed in the suit of the bank against the liquidator could have instituted the suits for recovery of the company's debts under the authority of the court hearing the said suit, is not relevant to the point.

13. On the other hand, the official liquidator is under an obligation to collect the debts of the company. The official liquidator is empowered to do so under s. 457. It was all the more necessary for the liquidator to initiate recovery proceedings when mere hypothecation could not enable the bank to sue or otherwise recover the same in its own right. It could not allow the debts to become time-barred without committing breach of the obligation. Hypothecation could only prevent the official liquidator from impairing the security of the bank. Subject to this limitation, the liquidator had to act. He did act accordingly. The circumstance that the bank furnished the required money and legal services cannot alter the legal position.

14. Section 458A is clearly intended to extend the limitation period for the benefit of the company (in liquidation) and the official liquidator, appointed to carry on its winding up process by collecting the assets and distributing the same between those entitled to the same. The underlying object in extending the limitation obviously is to enable the liquidator to take charge of the company's affairs, to examine the records, account books, study the statements, decide against whom to proceed and in what manner. He has also to find resources for initiating and conducting the proceedings. The proceedings so initiated by him, whether by way of suit or judge's summons, for enforcement of recoveries of debts cannot but be on behalf of the company having regard to his source of authority of the provisions of the Companies Act and the statutory obligation in discharge of which he has to act in this behalf. The Act does not contemplate his acting in the matter of such recoveries excepting as such official liquidator and excepting on behalf of the company.

15. Mr. Andhyarujina, Mr. Chagla, Mr. Dalal and others, learned advocates appearing for the respondents-debtors, could not dispute the above legal position or the authority of the official liquidator to enforce recoveries of the debts on behalf of the company. They, however, contend that, in point of fact, recoveries in these cases have not been initiated on behalf of the company as the same are expressly indicated to be on behalf of the State Bank of India. Strong reliance is placed on certain indisputable facts. Thus, the debts are expressly claimed by the official liquidator, on behalf of the bank, (a) In the judge's summons taken out by the liquidator as a result of the understanding with the bank; (b) In the report dated July 20, 1973, made by the official liquidator to the company judge setting out the terms of understanding with the bank; (c) in the direction solicited from the company judge for initiating proceedings for such recovery; (d) in the notice of demand served on such debtors after the company judge had authorised him to so enforce recovery; and (e) in the affidavit by the liquidator in support of the judge's summons. Secondly, costs of these proceedings are being borne by the official liquidator for this purpose. Thirdly, over and above fees permissible under r. 291 of the Companies (Court) Rules, 1959, for such recovery, the bank has agreed to pay some more commission on the recoveries. Fourthly, this arrangement is expressly admitted to be for having the benefit of the extended limitation available to the liquidator. The learned advocates for respondent, therefore, contend that the recoveries sought to be enforced in the proceedings cannot be said to have been on behalf of the company when the same are avowedly made on behalf of the State Bank of India in all these material documents and the costs of the proceedings are entirely borne by the bank.

16. The recitals in these material documents and other facts relied on are not in dispute at all. These recitals on the face of the true legal position and other equally indisputable facts shall have to be ignored as being clear instances of misdescription. The repeated references to the claims being made 'on behalf of the State Bank of India' are really intended to show how the same are being made at its instance and costs and for its benefits. Mere such requitals in the authentic documents cannot make these claims 'on behalf of the State Bank' when it is clear that the State bank could neither have initiated such recovery proceedings itself, not could authorise anybody else as its agent to initiate the same on its behalf. The words merely loosely reflect the understanding reached between the liquidator and the bank. On the other hand, the official liquidator alone can claim these debts from these debtors because the debts happen to be still owned by the company notwithstanding their hypothecation. The official liquidator is authorised (1) to be the custodian thereof under s. 456 of the Act, and (2) to seek recovery thereof under s. 457 of the Act. He cannot be said to need any authority from the State Bank of India to enforce recovery of these debts. He cannot be said to be agent of the bank in any sense nor can he claim to have any authority whatsoever from the bank otherwise than for this purpose.

17. That their action is facilitated by the assistance given by the bank has no bearing on the point. The law does not prevent such assistance on the understanding on the basis of which it is furnished. In fact, such assistance may facilitate the process of collection of assets and winding-up process. But for such assistance, collection of the assets may prove to be illusive and beyond the means of the liquidator. The circumstance that this process extends the limitation and saves the court-fees also is beside the point. It is always open to the litigant to could their relief if possible, in such a way as to save the court-fees and bar of limitation. To our mind, the recoveries cannot but be held to be on behalf of the company notwithstanding misdescription thereof in several documents adverted to in the course of arguments before us by the learned advocates for the respondents.

18. It was then argued that the liquidator is not competent to act for the benefit of and at the instance of any secured creditors such as the bank as the winding-up proceedings are primarily intended for the benefit of the unsecured creditors and not for the benefit of secured creditors, who are outside the winding-up. Strong reliance was placed on an English judgment in the case of Food Controller v. Cork (1923) AC 647 and the judgment of the Supreme Court in the case of Ranganathan v. Government of Madras : [1955]2SCR374 . This contention weighed with the company judge who has quoted passages from these judgments.

19. The proposition that the secured creditors are outside the 'winding up' is now too well settled to admit of any doubt. In fact, the law laid down by the Supreme Court is binding on us. It is, however, difficult to see how recovery of debts of the company, under the arrangement with the creditor, when the same are hypothecated, militate against the rule of law laid down in these cases. The ratio of the case only go to emphasise that the winding-up proceedings cannot impair the security or the right of the secured creditor to satisfy his debt out of the property charged, without being required to prove his claim before the liquidator, and subjected to the rule of 'pari passu' or to share the proceeds of the charged property with any other creditor till his debt is satisfied in full.

20. This is not intended to relieve the official liquidator of his obligation to prevent the underselling of secured property and ensuring the return of the balance after meeting the claim of such creditor, when possible for benefit of the unsecured creditors and the shareholders. This also does not reliever him of his obligation to take possession of the company's properties including actionable claims and preventing their becoming time barred and find out ways and means for the recovery thereof if he is not possessed of the required means therefor, This rule does not prevent the official liquidator from dealing with such secured properties with the consent of the secured creditors consistent with their security, interest and rights, when it becomes necessary in the discharge of his duties, for the protection of the unsecured creditors. As indicated earlier s. 529 of the Act itself makes insolvency rules applicable in this behalf. Which, in turn, permits even sale of immovable property by the official liquidator under authority of the court if this can be done without impairing the security of the secured creditors. It will be sufficient in this behalf to refer to para 445 of the Law of insolvency in India by Mulla and rules 18-21 under the Insolvency Act referred to therein in this behalf.

21. Chagla drew our attention to the English judgment in Harrison v. Jackson [1877] 7 Ch 339 and henry Pound Son and Hutchines, In re [1889] 42 Ch 402 It is sufficient to note that these were cases where the property was sought to be interfered with by their liquidator to the detriment of the secured creditors without their consent. It was held that a secured creditor cannot be compelled to give up his security and prevented from enforcing his security otherwise than by reference to the official liquidator. Ratio of these judgments can have no relevance to a case before us where the liquidator is dealing with secured bets not only with the consent of the secured creditors but in accordance with an understanding reached with them.

22. Our attention was also drawn to palmer's Company precedent, Seventeenth Edition, Part II, winging-up, p. 316. The following state of law finds place under the heading 'Secured creditor.'

'A secured creditor is prima facie entitled to proceed, his security not being part of the estate and effects of the company, and this being so, it would not be proper for the court to refuse liberty to proceed, and so comply the secured creditor to allow the assets to be realised in the winding-up, and thus to forgo his just rights.'

23. With respect again, their is no quarrel with the proposition relied on by the learned advocates for the respondents. The official liquidator in the present case is enforcing the hypothecated debts in accordance with the understanding reached with the secured creditor for their benefit.

24. It also cannot be ignored that the property on which severity or charge is created, does not cease to be property of the company in its entirety. In a mortgage transaction, part of the property, i.e., equity of redemption, still stands vested in the company. In conceivable cases, where the property happens to be of far higher value than the secured debt or in the property happens to be of far higher value than the secured debt or in cases where the debts hypothecated happens to be far more in quantity than the debts for which a charge is created, the official liquidator would be required to find out ways and means in the discharge of his duties towards the unsecured creditors, of collecting the said assets without in any manner impairing the security of the secured creditor and without causing any damages to their interest. The steps required to be taken for the benefit of the unsecured creditors may turn out to be incidentally even for the benefit of the secured creditors. The contention, therefore, that the official liquidator is not competent to initiate judge's summons for recovery of the amount for the benefit of the secured creditors, appears to be thoroughly untenable.

25. It will be relevant to not that r. 291 of the Rules framed under the Companies Act, 1956, prescribes the quantum of the fees of the official liquidator in respect of his work of realising the property (1) for debenture holders, or (2) for the secured creditors. The authority for this rule can be traced to s. 451(2). This can be only on the hypothesis that such realisation is part of the liquidation process and the duty of the official liquidator in proceedings in winding up. This itself militates against any assumption that the official liquidator cannot deal with secured property in any manner.

26. According to the learned company judge, such identical acts of the official liquidator as liquidator of the company under cl. (1) of r. 291 are distinguishable from his acts in realising the property for the debenture holders and secured creditors under sub-rr. (3) and (4). We are unable to see any distinction of substance in these several acts. It cannot be held that the official liquidator acts as liquidator only when he takes steps contemplated under cl. (2) of r. 291 and acts otherwise than as official liquidator when he realises property for the benefit of the debenture holders or secured creditors. To our mind, he has no role to play excepting as and when he deals with the property of the company in his custody and realise the same, in discharge of his duties of collecting the assets of the company for the benefit of those who are entitled thereto before the company's ultimate dissolution. The fact that this process benefits secured editors and debenture holders along with unsecured creditors and shareholders cannot make the act otherwise than in discharge of his duties, or as such liquidator.

27. It was also strongly urged that such an interpretation of s. 458A will result in permitting two different periods of limitation for recovery of the identical debts from the debtors of the company depending on whether recovery proceedings are initiated by the liquidator or some other person. This contention is based on the assumption that (1) some person other than the official liquidator also can initiate recovery proceedings and (2) that such other person may not be able to claim the benefit of extended limitation under s. 458A of the Companies Act.

28. In our opinion, the contention is based on some misunderstanding. The section does not refer to official liquidator. The benefit of extended limitation is available whenever recovery proceedings are initiated 'in the name and on behalf of the company'. the liquidator alone is competed to initiate such proceedings under s. 457(1) of the Act. It is difficult to conceive of any other person initiating such proceedings and not getting the benefit of this section. It was argued that the receiver appointed in a suit of the bank court appointing such receiver. But, in that case, the cause of action itself may be different to make the section inapplicable. It will not be a case of two different periods of limitation for proceedings on the same cause of action. The contention is thus misconceived.

29. It appears that under the order of the company judge dated July 23, 1973, while sanctioning the arrangement with the bank, the official liquidator is directed to maintain a separate account of the receipts from such debtor. This is presumably intended to ensure preservation and continuation of the security of the secured creditors till the amount is paid to the bank as secured creditor. The learned advocate argued that maintenance of such separate accounts is not permissible under the provisions of Act and this involves breach of s. 552 read with r. 291 which requires depositing of all monies recovered by the official liquidator in the public accounts to be opened in the Reserve Bank of India. This circumstances also is relied on in support of the contention that intended recovery is not under the Act and is outside the purview of s. 458A. The learned company judge also appears to have been impressed with this contention. We regret our inability to agree with him. We are satisfied that there is absolutely no basis for the contention that the amounts of the book debts on receipt are not actually deposited in the Reserve Bank of India in terms of the legislative mandate in s. 552 of the Companies Act. The direction mainly requires the litigant to maintain a separate account in the books of the company and not open any separate account in the Reserve Bank of India. Maintaining separate account for such collection in the books of account of the company is one thing and opening a separate account in the Reserve Bank and depositing the amount so received in the Reserve Bank of India is quite a different thing. Our attention was not drawn to any provision which prevents the liquidator from maintaining separate account in the books of company's account for earmarking the same for benefit of the secured creditors. Mr. Chagla drew our attention to r. 286 which enumerates the registers, which are required to be maintained by the official liquidator, suggesting as if the same do not admit of any such separate account. The said books include a general ledger in a particular from. Mr. Chagla could not demonstrate to us how maintenance of such separate account of the receipts is not admissible under the form of general ledger prescribed in this behalf.

30. The impugned order of the company judge does not appear to us to be correct. We are unable to see why the extended period contemplated under s. 458A of the Act cannot be applicable to the recoveries initiated by the official liquidator under his judge's summons. It is not disputed that claims in that case would be within time and cannot be rejected as time barred once the extended period is made applicable to the same. The impugned order is thus liable to be quashed.

31. The result is that the 13 Appeals Nos. 57 of 1977, 59 of 1977, 61 of 1977, 62 of 1977, 63 of 1977, 64 of 1977, 65 of 1977, 66 of 1977, 67 of 1977, 68 of 1977, 69 of 1977, 70 of 1977 and 71 of 1977, are hereby allowed. The cases are remanded to the company judge for considering other points raised by the debtors and disposal in accordance with law. Costs in the cause.

32. Mr. Dalal, the learned advocate appearing for the respondents in Appeal No. 66 of 1977, applied for leave to appeal to the Supreme Court. Leave refused.

33. Mr. Mahesh Master, the learned advocate appearing for the respondents in Appeal No. 70 of 1977, also applies for leave to appeal to the Supreme Court. Leave refused.

34. Mr. Variava, the learned advocate appearing for respondent in Appeal No. 71 of 1977, also applies for leave to appeal to the Supreme Court. Leave refused.


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