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In Re: Jaifabs Textile Mills Pvt. Ltd. - Court Judgment

LegalCrystal Citation
SubjectCompany
CourtMumbai High Court
Decided On
Case NumberCompany Petition No. 126 of 1974
Judge
Reported in[1977]47CompCas434(Bom)
ActsCompanies (Court) Rules, 1959 - Rule 338; Companies Act
AppellantIn Re: Jaifabs Textile Mills Pvt. Ltd.;amersey and Sons
Respondent;jaifabs Textile Mills Pvt. Ltd.
Appellant AdvocateC. Kotwal, Adv.
Respondent AdvocateJ.I. Mehta, Adv.
Excerpt:
.....would not be protected. the observations/directions issued by supreme court in para 36 of judgment in the case of state v millind reported in 2001 91) mah. lj sc 1 is not the law declared by supreme court under article 141 of the constitution of india. said observations/directions are issued in exercise of powers under article 142 of the constitution and also have no application to the cases relating to appointments and are restricted to the cases relating to admissions. the protection, if any, to be granted in the fact and circumstances of case would depend upon exercise of discretion by supreme court under article 142 of the constitution. said powers under article 142 of constitution is not available to the high court. hence no protection can be granted by high court even in cases..........or the other. the company also framed a scheme of compromise which became the subject-matter of company application no. 12 of 1975 and the record shows that the scheme went overboard. the company has been responsible in lengthening the proceedings, in multiplying the proceedings and in making one application after another. ultimately, who is to pay for all this music the company would have a very small surplus even if i were to accept the plea of the company that it has assets in excess of its liabilities. on the company's own showing, the claims of the depositors and small money-lenders are to the tune of 80 lakhs of rupees. the trading debts are in the neighbourhood of rs. 30 lakhs. in the meantime, over the years interest has mounted on these claims. ultimately, it is doubtful.....
Judgment:

Aggarwal, J.

1. The company had been wound up by my judgment and order dated 6th/9th February, 1976. As regards the question of costs of the company, the question was left open in order to enable to learned counsel, Mr. Kotwal, for the company to cite some authorities. This matter has now come up for consideration of the question of costs of the company.

2. Mr. Kotwal has placed reliance on the observations of Pennycuick, J. in the matter of In re Bostels Ltd. [1969] 38 Comp Cas 209 (Ch D) in which case the learned judge had to consider the question of costs. In that case, the original petitioner (the Lawford Asphalte Co. Ltd.), for a compulsory winding-up order after spending Pounds 35 to Pounds 50 on advertising the petition, accepted payment of its debt and most of its cots from the company. The petition was when amended, pursuant to the order of the court, by substituting another creditor as petitioner, re-advertisement being dispensed with the original petitioner remaining in the proceedings as a supporting creditor. A winding-up order was made in the case on the amended petition. Ultimately, the learned judge in that case made an order, the effect of which was that the costs of the petition would include the costs of the original petitioner (the Lawford Asphalte Co. Ltd. who had resented the original petition for winding up of Bostel's Ltd.) limited to the fee on presentation of the petition and the costs of the advertisement. In that case, the following observations were made (See [1968] 378 Comp Cas 209 (Ch D) :

'The established practice today when a winding-up order is made on a creditors' petition is to give the petitioner and the company their respective costs of the petition and also one set of costs to supporting creditors, if any, and one set of costs to opposing contributories, if any ......'

3. Mr. Kotwal also placed reliance on rule 338 of the Companies (Court) Rules, 1959, which provision that the assets of a company in a winding-up by the court remaining after payment of the fees and expenses properly incurred in preserving, releasing or getting in the assets including, where the company has previously commenced to be wound up voluntarily, such remuneration, costs and expenses as the court may allow to the liquidator in such voluntary winding-up, shall, subject to any order of the court and to the rights of secured creditors, if any be liable to the payments which shall be made in the order of priority. We are concerned only with the first order of priority which says that the taxed costs of the petition, including the taxed costs of any person appearing on the petition, whose costs are allowed by the court. Mr. Kotwal also submitted that the company has not adopted any contentions disputes and was justified in defending the action, viz., the winding-up petition.

4. On the other hand, Mr. J. I. Mehta, the learned counsel of the petitioners submitted to the general observations of Pennycuick J. are not of much relevance on the facts of the present case. He pointed out that the conduct of the company has been cantankerous and it had been adopting one proceeding after another. He submitted that rule 338 has not application as it merely makes provision of priorities.

5. Assuming that the practice, to which Pennycuick, J. referred as prevailing in England should be followed in India, I am of the view that the following even established practice, the court cannot lose sight of the facts of each case. Before the theory of established practice can be invoked, the court must consider the facts of the case. In so far as rule 338 is concerned, it specifically carves out the discretion of the court. It in terms says that the order of priority contemplated in that rule is subject to any order of the court. If that be so, it is the Court's duty to consider in each case the question as to whether in applying rule 338 the facts permit the court to do so.

6. In the present case, the company, in the course of the correspondence had taken a frivolous contention which I have described as a cock and bull story in my judgment. After having taken up that stand, the company had no face to pursue that frivolous contention before the court and had no other go but to enter into consent terms. We have seen in this case that after entering into consent terms and after agreeing not to apply for further time before the period expired, the company made another applications for extension of time. Even in the second set of consent terms, the company could not fulfill its obligation and made a third application of extension of time. It has been noticed in these cases that affidavits after affidavits were filed for obtaining adjournments on one ground or the other. The company also framed a scheme of compromise which became the subject-matter of Company Application No. 12 of 1975 and the record shows that the scheme went overboard. The company has been responsible in lengthening the proceedings, in multiplying the proceedings and in making one application after another. Ultimately, who is to pay for all this music The company would have a very small surplus even if I were to accept the plea of the company that it has assets in excess of its liabilities. On the company's own showing, the claims of the depositors and small money-lenders are to the tune of 80 lakhs of rupees. The trading debts are in the Neighbourhood of Rs. 30 lakhs. In the meantime, over the years interest has mounted on these claims. Ultimately, it is doubtful whether these unfortunate unsecured creditors will get a slice of even their principal amount. Any payment to the company is this case will be reducing or defeating the claim of the unsecured creditors who will rank after the Bank of Baroda, the First National City Bank and other secured creditors and those creditors who will receive preferential payments. Here too, the element of interests on these claims cannot be ignored. The costs of the secured creditors will also go to reduce the surplus amount, if any. Therefore, having regard to the special circumstances of this case, in my opinion, there would be grave injustice to the unsecured creditors if a company of hits king is allowed not to suffer at least by way of costs.

7. Moreover, taking the defence of the company as revealed in the correspondence at its face value, it means that Kantilal Shah, the director in both the transferor and transferee companies, indulged consciously in manipulation of accounts and fabrications of documents. By this method, he also inflated the figures of his own company while being generous to oblige a friend. These are criminal acts. By their nature they are serious. Another act of the directors of the transferee-company, Jaifabs Textile mills Private Ltd. was to keep the order of amalgamation passed by this court guarded secret. Both the transferor and transferee companies continued to issue cheques to their creditors, many of which bounced.

8. Having regard to the material circumstances before the filing of the petition and thereafter, it is a fit case in which I should not award costs to the company. The court lacks in power to saddle the officers (of the company) personally with costs.

9. In the circumstances, the application for its costs is refused.


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