Skip to content


Rikhabchand Mohanlal Surana Vs. the Sholapur Spinning and Weaving Company Ltd. - Court Judgment

LegalCrystal Citation
SubjectCommercial
CourtMumbai High Court
Decided On
Case NumberLetters Petent Appeal No. 5 of 1971 and Civil Application No. 467 of 1971
Judge
Reported in(1974)76BOMLR748
AppellantRikhabchand Mohanlal Surana
RespondentThe Sholapur Spinning and Weaving Company Ltd.
Excerpt:
civil procedure code (act v of 1908), order xxi, rules 46, 46 a, 46b, section 73--companies act (i of 1956), sections 390, 392, 433, 441, 456, 529 -provincial insolvency act (v of 1020), sections 51, 45-50, 2 (e), 28 (2), 47--presidency-towns insolvency act (iii of 1909), sections 53, 46-50--bankruptcy act, 1869, [32 & 33 viet. ch. 71], sections 12, 16-rights of an attaching creditor, when garnishes has deposited money in court--court, whether to take into consideration future events--garnishee order, service of--effect in england and in india.;the plaintiff filed a suit against; the defendant company on december 24, 1958, for the price of goods supplied to the latter sometime in 1955-1956. the defendant company denied the plaintiff's claim. the plaintiff then obtained a decree on.....mukhi, j.1. this is a letters patent appeal against the decision in second appeal no. 1162 of 1963 dated august 6, 1970, whereby the learned single judge dismissed the appeal preferred by the appellant-plaintiff decree-holder, who may be hereinafter referred to as 'the appellant' or 'the judgment-creditor.2. in order to appreciate the point which has been raised in this letters patent appeal, it is necessary to notice some of the facts with relevant dates.3. it would appear that the appellant rikhabchand mohanlal surana supplied certain goods to the sholapur spinning and weaving company limited (hereinafter referred to as 'the respondent-company' or the 'judgment-debtor') and as the sale price of the said goods remained unpaid by the respondent-company, the appellant was constrained to.....
Judgment:

Mukhi, J.

1. This is a Letters Patent Appeal against the decision in Second Appeal No. 1162 of 1963 dated August 6, 1970, whereby the learned single Judge dismissed the appeal preferred by the appellant-plaintiff decree-holder, who may be hereinafter referred to as 'the appellant' or 'the judgment-creditor.

2. In order to appreciate the point which has been raised in this Letters Patent Appeal, it is necessary to notice some of the facts with relevant dates.

3. It would appear that the appellant Rikhabchand Mohanlal Surana supplied certain goods to the Sholapur Spinning and Weaving Company Limited (hereinafter referred to as 'the respondent-company' or the 'judgment-debtor') and as the sale price of the said goods remained unpaid by the respondent-company, the appellant was constrained to file a suit for a sum of Rs. 3141-13-3 and a decree for Rs. 2219-5-6 was ultimately passed on July 8, 1960, against the respondent-company and future interest at 4 per cent, per annum on Rs. 1845-14-6 from the date of the suit, which, it is to be noticed, was of December 24, 1958.

4. Reference may be now made to some of the events which took place before the filing of the suit and the obtaining of the decree.

5. It is to be noticed that the goods were said to have been supplied by the judgment-creditor in 1955 and 1956.

6. At the instance of some of the creditors of the respondent-company a petition, that is to say, I.C. No. 84 of 1958, was filed for sanctioning a scheme of arrangement whereby it was infer alia provided that the unsecured creditors of the respondent-company would be paid 25 per cent, of their dues in cash and the balance 75 per cent, in the form of 6 per cent, third mortgage debentures. This scheme of arrangement was sanctioned by this Court on August 18, 1958.

7. The appellant was compelled to file the suit for recovery of the amount due to him because it would appear that the respondent-company was not admitting the debt. Unfortunately the written-statement filed by the respondent- company in the suit, being Regular Suit No. 832 of 1958, is not on record and the counsel for the respondent-company has also not been able to produce it so that it cannot be ascertained as to what were the defences taken up by the respondent-company.

8. It would appear however that there is a reference in the judgment of the Second Extra Assistant Judge, Sholapur, that the claim of the judgment-creditor as the plaintiff was not admitted and the respondent-company had denied it. It was only when the Court gave a decree in the plaintiff's favour that the dues were recognised as really due. The learned Judge has also observed that till the time the decree was passed the company could not have made the payment.

9. But it requires to be noticed that ultimately a decree was passed. On September 8, 1960 the judgment-creditor filed an execution application seeking to attach certain moneys in the hands of the Canara Bank, Sholapur (hereinafter referred to as 'the garnishee'). An attachment under Order XXI, Rule 46 of the Code of Civil Procedure was accordingly effected and on November 28, 1960 the garnishee, viz. the Canara Bank, deposited into the Court a sum of Rs. 3701.15 pursuant to the said garnishee order.

10. Before the executing Court the judgment-debtor opposed the Darkhast mainly on the ground that the respondent-company was 'doing its work' under a scheme of arrangement passed by this Court in I.C. No. 84 of 1958; that this scheme was binding on all the creditors of the respondent-company, including the appellant; and that the scheme in so far as unsecured creditors were concerned provided that their debts would be paid, partly in cash and partly in the form of 6 per cent, third mortgage debentures. In other words, 25 per cent, of the amount payable to each of the unsecured creditors of the respondent-company was to be paid in cash and the balance of 75 per cent, was to be paid in the form of 6 per cent, third mortgage debentures. The judgment-creditor resisted this plea by contending that the scheme was not binding on him and that, in any event, be could not be a party to the scheme as at the date of the sanctioning of the scheme by the High Court he was not the defendants creditor, the respondent-company having denied the debt from the very inception.

11. It is significant that one of the issues, therefore, before the executing' Court was whether the judgment-creditor was a creditor at all so that the scheme may bind him. In other words, the issue before the executing Court was whether at the date when the scheme of arrangement was sanctioned by this Court the judgment-creditor was a creditor within the meaning of the relevant provisions so that the scheme of arrangement may bind him notwithstanding his1 not having agreed to the scheme of arrangement.

12. It is to be noticed that the word 'creditor' is not defined in the Companies Act, but in Section 390 of the Companies Act, which is a section with the heading 'Interpretation of sections 391 and 393', it is provided in Sub-clause (c) that 'unsecured creditors who may have filed suits or obtained decrees shall be deemed to be of the same class as other unsecured creditors.' Obviously 'the other unsecured creditors' would only mean those whose debts are admitted on proof of debt. The suggestion would appear to be that unsecured creditors who had filed suits or obtained decrees did not constitute a separate class from those unsecured creditors who had not filed suits or obtained decrees. It will, therefore, have to be considered whether the appellant was a creditor at the date of the scheme of arrangement so as to be bound by the scheme.

13. There is a further event which requires to be noticed and that is that during the pendency of this Letters Patent Appeal, that is to say, on August 30, 1963 a petition, being I.C. No. 84 of 1963 was presented in this Court for winding up of the respondent-company. The winding up order was actually passed on April 22, 1964, but in view of the provisions of Section 441 the winding up of the company was deemed to commence from the time of the presentation of the petition, that is to say, August 30, 1963. It is contended that by reason of the winding up order the scheme of arrangement ceased to exist. Now before concluding reference to the relevant facts, it is necessary to notice whether the Company Petition I.C. No. 84 of 1963 (in which the winding up order was passed) was a petition under Section 433 of the Companies Act, 1956, or whether it was an application under Section 392(2) of the Companies Act. We shall revert to the contention in relation to this aspect later on.

14. The main question that has to be determined in this Letters1 Patent Appeal is a short but interesting question, and that is: What are the rights of an attaching creditor when the garnishee has deposited the moneys in the Court and a final order is made by the executing Court?

15. To be sure, there are also other questions which may require to be determined. But this is the main one and Mr. Sukthankar has sub-divided it by contending firstly, that the judgment-creditor became a secured creditor by reason of the attachment and the subsequent bringing into Court by the garnishee of the moneys; and alternatively that the moneys which had come into Court were assets realised in execution prior to the date of the winding up and, therefore, the judgment-creditor was entitled to the benefit of the execution as against the Official Liquidator by virtue of Section 51(1) of the Provincial Insolvency Act, 1920, read with Section 529 of the Companies Act, 1956.

16. The other propositions of Mr. Sukthankar may now be set out. Mr. Sukthankar's contention was that the moneys deposited in the Court by the garnishee were for the benefit of the judgment-creditor and earmarked for his claim so that the claim of the judgment-creditor would prevail over that of the Official Liquidator. He further contended that by reason of the order of November 13, 1961 making the garnishee notice absolute and which order was deemed to be a decree against the garnishee and in favour of the judgment-creditor, the property in the moneys brought into Court had passed prior to the winding up order. It was suggested by Mr. Sukthankar that after the garnishee brought the moneys into Court pursuant to the garnishee order, the judgment-debtor went out of the picture and had no locus standi; the proceedings thereafter being between the garnishee and the judgment-creditor only.

17. The next proposition of Mr. Sukthankar is that the Court will take into consideration future events and adjust the rights and obligations of the parties in the light of the changed circumstances because the scheme of arrangement of the company ceased to be in force from the commencement of the winding up on August 30, 1963, which event occurred during the pendency of this appeal so that the scheme cannot now govern the rights and obligations of the parties.

18. Mr. Sukthankar also contended that the rights in security which have been effectually completed before the commencement of the winding up must still receive the effect which the law gives them and they are not affected by the winding up.

19. Mr. Buch, counsel for the respondent-company, made the proposition that the rights of the decree-holder can only be determined with reference to the rights which he had got under the scheme of arrangement which was binding on the appellant. The suggestion being that after establishing his claim by obtaining the decree the appellant could by reason of the scheme of arrangement receive only 25 per cent, of the decretal amount in cash, the rest being made payable under the scheme of arrangement in the form of 6 per cent, third mortgage debentures. The contention of Mr. Buch, in other words, is that after the appellant had obtained the money-decree, the execution thereof could only take place in terms of the rights of the parties under the scheme of arrangement.

20. Mr. Buch on behalf of the respondent-company has also contended that the attachment and the deposit of moneys in the Court by the garnishee did not invest the appellant as judgment-creditor with any right to the moneys which were held by the Court on behalf of the respondent-company--judgment-debtor.

21. Now, before dealing with the other contentions of the parties it would be appropriate to deal with Mr. Sukthankar's contention that Section 51 of the Provincial Insolvency Act, 1920, is applicable to the facts of the present case by virtue of Section 529 of the Companies Act, 1956.

22. Section 51 of the Provincial Insolvency Act, 1920, in terms provides that where the execution of the decree has been issued against the property of a debtor no person shall be entitled to the benefit of execution against the Receiver except in respect of assets realised in the course of execution by sale or otherwise before the date of the admission of the petition (in insolvency).

23. This section, therefore, provides that where the assets had been already realised before the presentation of the petition in insolvency then the same cannot vest in the Receiver or in the Official Assignee under a similar provision (s. 53) of the Presidency-towns insolvency Act. This would mean that when the assets are realised they cannot be got hold of by the Insolvency Registrar or the Official Assignee.

24. Now, it is to be noticed that in the case before us we are not concerned with any insolvency because the judgment-debtor is a limited liability company and has been ordered to be wound up under the provisions of the Companies Act. But Section 529 of the Companies Act provides for application of Insolvency Rules in winding up of insolvent companies. Sub-section (i) of Section 529 may be conveniently reproduced:

(1) In the winding up of as insolvent company, the same rules shall prevail and be observed with regard to--

(a) debts provable ;

(b) the valuation of annuities and future and contingent liabilities; and

(c) the respective rights of secured and unsecured creditors; as are in force for tile time being under the law of insolvency with respect to the estates of persons adjudged insolvent.

25. Mr. Sukthankar has contended that by reason of Section 529 of the Companies Act, 1956, Section 51 of the Provincial Insolvency Act is attracted and, therefore, the Court should consider the Insolvency Rules and in particular the fact that if the assets have already been realised then they would be beyond the grasp of the Official Liquidator and the judgment-creditor would be entitled to have the decree satisfied from the moneys already in Court as assets realised.

26. Mr. Sukthankar relies on Sub-clause (c) and says that his contention is that by reason of the garnishee order and the deposit of the moneys in Court by the garnishee pursuant to the order of the Court, 'the respective rights of secured and unsecured creditors' are affected. We find it difficult to see any substance in this contention because the words 'the respective rights of secured and unsecured creditors' do not include the question of assets realised by an unsecured creditor. The use of the word 'respective' in the sentence clearly shows that Sub-clause (c) covers those questions which arise and relate to the rights of the secured creditors as against the rights of the unsecured creditors.

27. Now, the Rules of Insolvency in India are to be found in the Presidency-towns Insolvency Act, 1909, and the Provincial Insolvency Act of 1920, and only those Rules which are contained in Sections 46 to 50 of the Presidency-towns Insolvency Act and Sections 45 to 50 of the Provincial Insolvency Act would appear to be relevant with regard to the consideration of the respective rights of secured and unsecured creditors. Section 51 of the Provincial Insolvency Act and Section 53 of the Presidency-towns Insolvency Act would obviously, therefore, not cover the question at issue in this Letters Patent Appeal. It is clear that no question of debts provable under Sub-clause (a) or valuation of annuities etc. arises in this Letters Patent Appeal.

28. We are, therefore, of the view that Section 51 of the Provincial Insolvency. Act will not apply and it is therefore not necessary to consider any of the contentions which are based on this section.

29. But that is not to say that the provisions of Insolvency law and authorities on insolvency law cannot be taken into consideration by this Court by analogy, and if they relate to questions of a similar nature, which may be required to be considered in this Letters Patent Appeal.

30. The question as to what are the rights of an attaching creditor in the circumstances of the matter before us will have, therefore, to be considered in the light of and with reference to the provisions of the Companies Act, 1956, with such assistance as the authorities on insolvency law may furnish by analogy.

31. Before discussing the several authorities which have been cited by Mr. Sukthankar, it is appropriate to notice that there are said to be differences in England and in India respectively as to the position of an attaching creditor. The position in India may first be noticed. In Mulla's Code of Civil Procedure, 13th edn. p. 318, it is stated:

Attachment creates no charge or lien upon the attached property. It only confers a right on the decree-holder to have the attached property kept in custoclia legis for being dealt with by the Court in accordance with law. It merely prevents and avoids private alienations; it does not confer any title on the attaching creditors. There is nothing in any of the provisions of the Code which in terms makes the attaching creditor a secured creditor or creates any charge or lien in his favour over the property attached. But an attaching creditor acquires, by virtue of the attachment, a right to have the attached property kept in custodia legis for the satisfaction of his debt, and an unlawful interference with that right constitutes an actionable wrong.

32. For this proposition the judgment of the Madras High Court in a case concerning insolvency law viz. Kristnasawmy Mudaliar v. Official Assignee of Madras I.L.R.(1908) Mad. 673 is relied upon and a passage occurring therein may be set out (p. 678) :.In our judgment the making of an order of attachment in favour of a judgment-creditor obtained under Section 268 of the Code of Civil Procedure only operates so as to give the judgment-creditor certain rights in exeoution. It does not operate, when these rights are not exercised before the presentation of a petition in insolvency, so as to create in favour of the judgment-creditorr a title which prevails against that of the Official Assignee under a vesting order in insolvency made after the order of attachment.

33. In a judgment of this High Court, in Govardhandas v. Official Liquidator, Electro-Metal Refining Co. : (1929)31BOMLR1209 , to which we will refer once again, the judgment of the Madras High Court has been referred to as well as the observations made by Mulla in the Code of Civil Procedure to show the state of the law in India.

34. There are many authorities dealing mostly with the question of insolvency, where the Courts in India have held that where the attachment is before judgment or in execution of a decree, the attaching creditor has no priority over the Official Assignee.

35. Reference may also be made to a decision of the Calcutta High Court in Frederick Peacock v. Madam, Gopal I.L.R. (1902) Cal. 428, which was also a case under insolvency law where it was observed by the Full Bench (p. 431) :

I think, therefore, it must be taken that the attaching creditor here did not obtain by his attachment any charge or lien upon the attached property, and if so, no question as to the Official Assignee only taking the property of the insolvent subject to any equities affecting it, can arise.

36. In England, on the other hand, the view taken has been that on the issue of a garnishee order and even at the stage of rule nisi the attaching creditor obtains a charge or lien on the moneys.

37. The reason for this 'difference' between the Indian and English views is said to lie in the peculiar feature of the English writ of fieri facias or fi. fa. Now, the most ordinary form of execution in England is by a writ of fieri facias or fi. fa. which commands the sheriff to 'cause to be made' out of the goods and chattels of the judgment-debtor the sum recovered by judgment together with interest, and immediately after the execution of the writ to bring the moneys and interest before the Court to be Paid to the judgment-creditor and the Calcutta High Court has held in In re Rajbari Ice Factory Ltd. [1937] I Cal. 632, that a distinction must be drawn between a seizure under the English writ of fieri facias and an attachment under the Indian law.

38. In our opinion, this difference arises because it is said that in England the sheriff seizes the goods and brings them to the Court, whereas in India attachment is in the form of a prohibitory order which basically restricts or restrains the alienation of the attached property. We shall presently revert to this aspect of the matter to show that on the facts of this case and by reason of the fact that the moneys had already been brought into Court the distinction between the English view and the Indian view will not prevail.

39. It is appropriate now to notice some of the authorities cited by Mr. Sukthankar. The first one to be noticed is Ex parte Joselyne, In re Watt. (1878) L.R. Ch. D. 327. This was a case where the judgment-creditor had before the filing of a liquidation petition by his debtor obtained a garnishee order nisi attaching debts due to the debtor and it was held that the judgment-creditor was a secured creditor within the meaning of Sections 12 and 16 of the Bankruptcy Act, 1869, and was, therefore, entitled to the attached debts as against the trustee in the liquidation. James L.J. referring to the case of Ex parte Williams, In re Davies (1872) 7 L.R. Ch. App. 314, observed that 'when a writ of fi. fa. has not been executed by seizure, the creditor has acquired no security upon his debtor's property within the meaning of the Bankruptcy Act, 1869.' It was further observed by James L.J. as follows (p. 330):.But we held that the creditor had acquired no security, because, according to well settled law, he had acquired no right of property in the goods. He had acquired a right to seize them, but he acquired no right of property in them till the seizure had been made.

(Italics supplied).

It was then further observed (p. 330) :.That shews the distinction between Ex parte Williams and the present case. The moment the order of attachment was served upon the garnishee the property in the debt due from him was absolutely transferred from the judgment debtor to the judgment creditor. The garnishee could then only pay his debt to the judgment creditor of his original debtor. The property in the debt was transferred, and there was a complete and perfect security the moment the order of attachment was served.

40. It must at once be stated that the decision in Ex parte Joselyne was based on Sections 12 and 16 of the Bankruptcy Act, 1869. Mr. Sukthankar has pointed out that Section 16(5) of the Bankruptcy Act, 1869, defines 'the secured creditor' and is para materia with Section 2(e) of the Provincial Insolvency Act, where the same definition occurs. Section 12 of the Bankruptcy Act, 1869, is pari materia with Section 28(2) and Section 47 of the Provincial Insolvency Act.

41. This then is authority for the proposition that in England as soon as the garnishee order nisi is served the attaching creditor becomes a secured creditor. In India that would not be so merely on the serving of the garnishee order on the garnishee. The distinction to be noticed is this that where there is a prohibitory order issued by the Court the object of attachment is clearly to prohibit alienation. It will, therefore, be not incorrect to say that at that stage the order of attachment does not and cannot create any security of similar rights in the attaching creditor. But when pursuant to such an order or by the coercive process the moneys are actually brought into Court, then the position in law is not unlike that prevailing in England when the writ of. fi.fa. is served by the sheriff.

42. Mr. Sukthankar then cited another English case, Culver house v. Wickens. (1868) L.R. 3 Court of Com. Pleas 295. That was a decision under Section 65 of the Common Law Procedure Act of 1854, which section is equivalent to Order XXI, Rule 46(3) of the Code of Civil Procedure and it was held that payment into Court by a garnishee under a Judge's order is payment within the meaning of Section 65 of the Common Law Procedure Act of 1854 and discharges the garnishee. The subsequent execution of a composition deed by the debtor will not prevent the debtor to pay the moneys in Court.

43. Willes J. observed (p. 298):.Murray v. Arnold (1862) 3 B. & Section 287, 32 L.J. (Q.B) 11, is an authority to shew that the payment into court was in effect a payment to the plaintiff. In that case the money was paid into court as a condition of the defendant obtaining an order to examine witnesses abroad. In effect, therefore, the defendant paid the money into court as a payment to the plaintiff if he was entitled to the money he was suing for.... The 65th section of that act must refer, I think, to all payments by the garnishee into court, whether made under the 63rd section as an acknowledgment of the debt, or subsequently under a judge's order, to be held for the creditor if he proves his claim to be just. The latter is, in fact, a payment to him if his claim is just, because it is payment into court in trust for him. The only argument that could be urged against its being treated as a payment to the creditor is that the latter may not make out his claim to the amount. That argument has failed, in point of fact, in this instance; and such a case can seldom occur under the garnishee septions, because the creditor must have already obtained a judgment for the amount he claims. If the garnishee be not really indebted to the amount paid into court, he is not liable to the debtor any more than to the creditor, and no such case as the present could therefore occur. If there be any cases in which, after money has been paid into court by the garnishee, the creditor may prove not to be entitled to it, it must be treated as a conditional payment to the creditor, and liable to be discharged if it should so turn out, and the payment of money into court is subject to the equitable jurisdiction of the Court. No inconvenience therefore will arise from the money being dealt with by the Court as if, at the time it was paid into court, it had been paid for the creditor, and the justice of the case requires that it should be so.

Bovill C.J. in the same case held that the plaintiff had a lien on the money which had been paid into Court within the meaning of 184th section of the Bankrupt Law Consolidation Act, 1849. But Willes J. thought it unnecessary to support that decision by reference to the doctrine of lien. It is to be noticed that 184th section of the said Act corresponds to Section 2(e) of the Provincial Insolvency Act, 1920.

44. It is appropriate at this stage to refer to the observations of Jessel M.R. in In re Printing and Numerical Registering Company (1878) 8 Ch. D. 535, a case which has been referred to by this High Court in Govardhandas v. Official Liquidator, Electro-Metal Refining Co.

The first question, then, I have to consider is, are the creditors in question secured or unsecured They are certainly secured in a sense, by having taken the property of the company, the debtor, in execution. Under that execution they were entitled to sell the property and pay themselves out of the proceeds: they ore secured in that way; they are not secured under contract. Persons holding security, whether under an execution or a garnishee order, or by judgment on tort, or by contract before judicial interposition, are secured creditors. (p. 588).

45. Mr. Sukthankar then cited a Kerala case, Varghese v. Varkey [1964] I Comp L.J. 83, which was in relation to a winding-up. The facts in that ease were that there was a decree against the bank i.e. a limited company, and an attachment order was made in respect of a debt due by the garnishee to the bank. The order nisi was made final and absolute and only subsequent thereto there were proceedings for winding-up of the bank (limited company). The relevant dates were that the notice under Order XXI, Rule 46-A (as applicable to the Kerala High Court) was served on the respondent-garnishee on February 10, 1955; the respondent entered appearance; on April 1, 1955 the Court passed an order under Order XXI, Rule 46-B and directed warrant to issue to the respondent-garnishee. Upon this the respondent-garnishee made an application to the Court on October 6, 1955 for exemption from personal execution, and while this application for exemption was pending, the bank (limited company) was ordered to be wound up on November 7, 1956 upon a petition presented on September 17, 1956. The respondent-garnishee applied for a stay under Section 446 of the Companies Act, 1956.

46. After quoting Order XXI, Rule 46 JJ, as applicable to the Kerala High Court, which is pari materia with Order XXI, Rule 46-B as applicable to this High Court, the Kerala High Court observed as follows (p. 84):

The concluding part of the rule is what is important. The final order is to be deemed to be a decree against the garnishee and necessarily in favour of the judgment-creditor; if so, it is logical to hold that the further proceedings are in execution of that decree and against the garnishee.

The Court, then, after referring to Halsbury's Laws of England, 3rd edn., page 90, para. 136, on the effect of the service of order nisi on the garnishee observed (p. 85):

From this it would follow, that upon the passing of the order absolute the judgment-creditor is entitled to 'insist on payment to himself by the garnishee.

The learned Judge then discussed the two other English cases and came to the conclusion that there was a distinction between an order absolute and an order nisi so that if a creditor did not issue execution until after the commencement of the winding up, he would not be allowed to proceed except under special circumstances so that the learned Judge came to the following conclusion (p. 86) :

I therefore come to the conclusion that the order nisi having been seived on the respondent and having been made final and absolute, on the terms of Order 21, Rule 46-B, the appellant is entitled to execute that order as a decree against the respondent, regardless of the fact, that the right of the appellant had sprung from the judgment recovered against the bank. A proceeding to exeoute the final order against the respondent cannot be construed to be a proceeding against the bank and is not within the prohibition of Section 446 of the Companies Act.

47. It requires to be stated that in the Kerala case moneys had not been deposited in the Court, but in the case before us the moneys were deposited in Court long before the winding up order was made and, in fact, the order in execution proceedings in appeal was made as far back as November 13, 1961. So that when the winding up order came to be passed, an order absolute in favour of the judgment-creditor had already been made. It is true that the order provided that 25 per cent, of the decretal amount would be paid in cash out of the moneys in Court and the balance decretal amount would be paid in the form of 6 per cent, third mortgage debentures. But that is another aspect of the matter which we will deal with at the appropriate time.

48. The next case cited was of Amrita Lal Kundu v. Anukul Chandra Das (1915) 20 C.W.N. 358, which was also a decision in relation to winding up of a limited company. In this case a creditor of a company with limited liability and registered under the Companies Act got a decree against the Company in the Court of Small Causes at Howrah. He took out execution and attached and removed certain moveable property to Court and was about to put them up for sale. Subsequently the company went into voluntary liquidation, appointing the petitioner a liquidator of their assets. The liquidator sought to stay the sale and obtain release of the attachment by the Court. The Small Causes Court, in which the application was made, held that it would be unjust to stay the sale in a case circumstanced as above. The question that arose for determination in that case was the effect of the fact that the moveable assets of the company had already come into Court. The Court held that the distribution of the proceeds in Court must be governed by the provisions of the Code of Civil Procedure. The proceeds came into the Court before the application was made to the Court to pass an order in favour of the liquidator. The liquidator's argument before the Court had been to a certain degree based upon the idea that the property of the company vested in the liquidator. The Court observed (p. 360):.It is better that that idea should be at once removed. The liquidator of a company differs in this respect from the Official Assignee in that the property of the Company does not vest in him.

49. Mr. Sukthankar then cited Firm of Tekchand v. Offl. Assignee A.I.R. [1931] Sind 164, which is a ease under Section 51 of the Provincial Insolvency Act, 1920, and deals with the question of assets realised. It is not necessary, therefore, to discuss this case in detail.

50. In Anantapadmanabhaswami v. Offl. Beer. Secundemoad , 351 BomLR 747, which is also cited before us, the question with which the Court was concerned was as regards the effect of a foreign order of adjudication and it was held that such an order did not have the effect of vesting in the Receiver any immoveable property of the insolvent and that the decree-holder was entitled to the benefit of his prior attachment. In substance, therefore, the question was as to what effect was to be given by the Madras Court to the adjudication order of a foreign Court in competition with the prior attachment of a decree in Madras Court. Such a question does not arise in the proceedings before us and it is, therefore, not necessary to deal with this case.

51. We shall now consider the decision of this High Court in Govurdhandas v. Official Liquidator, Electro-Metal Refining Co., to which we have referred earlier, because, in our opinion, this decision provides a clue to the question as to whether in the circumstances and on facts which exist in the matter before us the judgment-creditor can be said to be a secured creditor for the purpose of holding on to the moneys which were deposited in Court pursuant to the attachment order obtained by him against the garnishee.

52. Now, in Govardhandas' case, the facts were that on November 29, 1922 the decree-holder applied to the Ahmadabad Court to execute his decree and on December 4, 1922 got an engine 'belonging to the company attached. An order for sale was made on January 31, 1923. On April 16, 1924 an attempt was made to sell the property but the engine could not be sold.

53. In the meantime, on January 28, 1923 the company passed a resolution for voluntary winding up and the liquidator applied to the Court on March 12, 1923 that the sale of the engine, which had been attached, be stayed, but this application was dismissed by the Court on February 21, 1924.

54. Thereafter another creditor of the company, one Mangaldas, who had also obtained a decree, attached in execution of the decree the whole of the company's property and the Court, to facilitate the sale of the property, made an order on March 14, 1924 in the following words:

The whole property should be put up to sale. The value of the engine should be assessed separately.

It would appear that on December 22, 1924 a creditor filed a petition for compulsory winding up of the company and obtained stay of the execution proceedings temporarily and ultimately a winding up order was made on January 26, 1925.

55. Thereafter on February 13, 1925, that is to say, nearly a year after the winding up order the Official Liquidator applied to the Court for an order on the Nazir to hand over possession of the engine which had been attached and taken possession of by the Nazir and the Court passed an order accordingly so that the engine no longer remained in the possession of the Nazir. The two execution applications before the Court were thereafter said to have been 'disposed of' but we are not concerned with that aspect of the matter.

56. The point that arose for consideration of the Court was as to the rights of the attaching creditor and it was observed by the Court that the real point was: whether or not the attaching creditor was technically a secured creditor; that he as the attaching creditor had certain rights; that those rights had to be dealt with in the insolvency of a private individual or of the winding up of a company as in the case before that Court in accordance with the particular statute regulating those rights. Marten C.J. speaking for himself felt that it was unnecessary to decide' in that case whether an attaching creditor was a secured creditor or not. Certain authorities had been cited before the Court. He dealt with several cases, three of which have been referred to by us in this judgment. He brought out the distinction which is said to exist between the practice in England and the practice in India and on the facts of the case came to the conclusion that the judgment-creditor having given away the engine, had lost the very position of an attaching creditor. It was observed that when the Court made an order on February 14, 1925 that the property of the company be handed over to the Official Liquidator, the attaching creditor took no steps to set aside this order. Consequently the attachment was raised and the property removed by the Liquidator. It was on these facts that the Court came to the conclusion that whatever rights the attaching creditor may have had, apart from the question whether he was a secured creditor or not, were lost by reason of the events that happened, viz. the handing over of the attached property by the Nazir to the Official Liquidator. The learned Chief Justice then went on to discuss, what the Court felt should have been the remedy adopted by the attaching creditor. Marten C.J. observed as follows; (p. 1218):

The result then of the whole case, in my opinion, is that even if the applicant fails to establish his claim to be a secured creditor--which technically he seems not to be--and if his real position was only that of an attaching creditor, yet he has apparently lost that position by reason of the events that have happened.

The Court held that the proper remedy of the attaching creditor was to make an application to the Court to be allowed to proceed unrestrictedly, or on such terms as the Court might impose, with his application for execution after the winding up order was made.

57. On the facts and circumstances of that case it was held that the applicant was not a secured creditor although he had certain rights by reasons of his attachment. Now, it is to be noticed that at one stage Marten C.J. had said that it was unnecessary to decide whether an attaching creditor was a secured creditor or not, and indeed the question was not really decided.

58. In our view, this judgment goes to show that an attaching creditor who had obtained the bringing into Court of certain moveable property, viz. the engine, had certain rights perhaps falling short of being a secured creditor but those rights had also been' lost because the attaching creditor had misconceived his remedy and had allowed the engine to be given away to the Official Liquidator.

59. Now in the light of the discussion of the authorities cited before us, it is necessary to consider what are the rights of the judgment-creditor in the matter before us. At this stage, we may refer to Section 456 of the Companies Act because it is in the light of the relevant provisions of the Companies Act that this point will have to be decided.

60. It has already been noted that unlike a Receiver in Insolvency or an Official Assignee, the property of a company on winding up does not vest in the Official Liquidator. The property, if at all, continues to remain as the property of the company and the Official Liquidator is only given the custody thereof. Section 456 of the Companies Act contains the heading 'Custody of Company's property' and enjoins on him where a winding up order has been made to 'take into his custody or under his control, all the property, effects and actionable claims to which the company is or appears to be entitled'. That is what Sub-section (1) says.

61. It is significant that Sub-section (1-A) has been introduced because the liquidator could not obtain possession of books, papers, properties and assets of the company on his own and it was, therefore, thought necessary that he should have the assistance of the Chief Presidency Magistrate or the District Magistrate; so that Sub-section (1-A) provides that the Official Liquidator may request the Chief Presidency Magistrate or the District Magistrate to take possession of the company's property to 'which the Official Liquidator may lay claim. Now, it will be at once noticed that when the property is in the hands of the Court then it would not be possible for the Chief Presidency Magistrate or the District Magistrate to be of any assistance to the Official Liquidator in getting hold of such property.

62. Section 456 would, therefore, go to show that certain properties which may have belonged to the company may by reason of intervening judicial process be outside the reach of the Official Liquidator no matter whether he has the assistance of the Chief Presidency Magistrate or the District Magistrate or not. It would follow that it would not be possible also for the Official Liquidator to get into possession of the property which may have been earlier attached without applying to the Court concerned and obtaining a suitable order on proving the necessary facts.

63. We have seen that an order of attachment simpliciter does not create any charge or lien on the property attached because such an order is invariably of a prohibitory nature. In the case of immoveable property it must obviously be so. In the case of moveable property it may ordinarily be so but need not be and as we have seen in Govardhandas's case, the engine being moveable property was brought to the Court and was in the physical custody of the Nazir.

64. But what happens when, after an order of attachment has been issued, a further stage is reached whereby the property and in the case before us very conveniently the money itself is brought into the Court? Can it be said that even though the money has come into the executing Court and as an asset realised is capable of being immediately and physically handed over to the judgment-creditor at whose instance the attachment order was made, the judgment-creditor has no specific rights in relation to that money which as we have said is within his reach? It has been suggested that the property or the money which is brought into Court is on account of the judgment-debtor to whom it belongs and that it is in the custody of the Court for the judgment-debtor. Apart from the fact that it cannot be necessarily so, this argument overlooks the fact that in the case of a diligent judgment-creditor his efforts in filing an execution application, obtaining an order of attachment, obtaining the deposit, or the bringing into Court of the money, would lead to nothing and be totally lost to him if some other creditor per chance files a petition for winding-up of the judgment-debtor-company.

65. In our opinion, although so long as the attachment order is of a prohibitory nature, the judgment-creditor may have no rights or security in the property, once the money is brought into Court the attaching creditor is entitled to insist that that money should be handed over to him in satisfaction of his decree. As stated in Halsbury's Laws of England, 'the judgment creditor is entitled to insist on payment to himself by the garnishee.'

66. We have noticed that in Culverhouse v. Wickens, Bovill C.J was of the view that the plaintiff had a lien on the money which had been paid into Court. After all a lien is a right to retain possession of a thing unless the claim is satisfied. Of course, there would be no lien where there was no possession either actual or constructive. That is why we are of the view that when the attachment is only by a prohibitory order then the attaching creditor has no rights in the property attached but once the property or the moneys come into the possession of the Court then it would follow that they are constructively held by the Court for the judgment-creditor. There would be otherwise no point in attaching the moneys and bringing them into Court. It can never be said that such custody of the Court is so tenuous that the Official Liquidator could for the mere asking take away the moneys from the Court. It is stated in the commentary by Mulla that in certain cases when the property is brought into Court it is custodia legis. No doubt that is so, but for whom? Here is a judgment-creditor who files execution proceedings, obtains an attachment order, obtains an order for bringing the money into Court and gets the money to be actually brought to the Court. In fact he takes all steps to obtain payment against the decree. Can he then be told by the judgment-debtor that all that may be to the good but the Court is holding money not for the judgment-creditor but for the judgment-debtor? In the ease, particularly of a garnishee order, the payment by the garnishee in the Court gives him complete discharge. In 'other words, the judgment-creditor can no longer proceed to recover that amount. To put it in different language, it may be said that the amount or property has gone from the judgment-debtor's hands and it is even now in the custody of the Court for the purpose of satisfying the decree of the judgment-creditor. Any other construction would lead to the undesirable result that inspite of diligence the attaching creditor may get no satisfaction of his decree whether the assets are realised or not, if some other person over whom he has no control obtains a winding up order of the judgment-debtor-company.

67. Our attention was invited by Mr. Buch to a decision of a single Judge of this Court in Sorabji Edulji Warden v. Govind Ramji I.L.R. (1991) Bom. 91, to show that there was no difference between the assets realised and money brought in Court so that both of them have the same character. In that case the only point that the Court had to consider was whether the money being in fact paid into the custody of the Court was to be regarded as falling under the words 'assets realised by sale or otherwise in execution of a decree' within the meaning of Section 295 of the old Code of Civil Procedure and Telang J-, who decided the case, held 'And I am of opinion that it must be so regarded.''

68. Now, Section 295 of the old Code of Civil Procedure is Section 73 of the Code of Civil Procedure, 1908, with a slight change that for the words 'whenever assets realised are by sale or otherwise in execution of a decree', the words used are 'where assets are held by a Court'. It is to be noticed that the assets held by a Court are available for rateable distribution among judgment-creditors who have obtained decrees for payment of moneys against the same judgment-debtor. One of the assets said to be held by the Court within the meaning of Section 73 are debts attached under O.XXI, Rule 46 and paid into Court by a garnishee. It is obvious that the assets held by the Court for rateable distribution amongst the judgment-creditors of the judgment-debtor cannot with any show of logic or reason be said to be assets held by the Court for the benefit of the judgment-debtor.

69. We shall now proceed to consider cases cited by Mr. Buch in his effort to show that when the moneys are brought into Court they are held by the Court for the judgment-debtor. Our attention was invited to Gavt. of U.S. of Tra.-Co. v. Bach of Cochin Ltd. A.I.R. [1954] Tr-Co 243 Mr. Buch referred to para. 8 at p. 247 where the following observations occur:.No doubt if the garnishee concedes that he is in possession of the amount of the debt covered by the attachment and offers to pay it into court, such payment could be accepted by the court. The result of such payment will be to absolve the garnishee from further liability in respect of that amount and also to obviate the necessity of selling the debt in court auction, because the debt has ceased to be a debt and has become converted into money held by the execution Court on behalf of the judgment-debtor.

Mr. Buch relies on this stray observation to show that the money which the garnishee had deposited in the executing Court is 'held by the execution Court on behalf of the judgment-debtor'. There is no discussion as to how the Court had arrived at the conclusion that when the money is deposited by the garnishee in the Court it is held by the Court on behalf of the judgment-debtor. The point was never considered by the Court and with respect we are unable to consider this judgment as an authority for the proposition canvassed by Mr. Buch.

70. It is further to be noticed that the Travancore Cochin High Court proceeded on the view already discussed by us that the attachment does not create any charge on the attached property and that it merely prevents private alienation of the attached property. The Court does not appear to have taken into consideration the effect of the bringing of the money into the Court on the character of the money or the property.

71. In any event, assuming that this were to be the correct position of the law, it is not to be forgotten that in the present case before us there was a further stage and that was the final order made by the execution Court on November 13, 1961. By that order at least 25 per cent, of the decretal amount became the property of the judgment-creditor. Mr. Buch has not disputed this point. His contention is really that the execution Court can only order execution of the decree obtained by the judgment-creditor in terms of the scheme of arrangement which was sanctioned by the Court in relation to the respondent-company. This aspect no doubt requires consideration.

72. Mr. Buch then referred to Dhian Singh v. Secy, of State. A.I.R. [1945] Nag. 97. But that case does not help us in any way because the money was not brought into Court.

73. Mr. Buch then invited our attention to Harinath Chowdhury v. Haridas Acharya Chowdhury. A.L.R. (1915) Cal. 269. We need not discuss that case in detail because there was a special feature there in so far as the deposit made by the garnishee was conditional on the determination of the question of henami.

74. Mr. Buch then referred to Anglo-Baltic and Mediterranean Bank v. Barher & Co. [1924] 2 K.B. 410, to show what were the rights of a decree-holder after a winding up order was passed. He contended that once a winding up order is made execution must be stayed and further argued that once a winding up order was made the real question at issue was whether the Court would permit an execution to continue. Now, we have all along considered a slightly different aspect viz. that a garnishee order coupled with the fact that the moneys had been actually brought into Court creates certain rights in the attaching creditor. In the case before us, the final order had already been made before the commencement of the winding up order. The question, therefore, of a pending execution need not detain us.

75. Mr. Buch has sought to distinguish the case of Varghese v. Varkey, by saying that that was a case of the garnishee applying and not that of a judgment-debtor. This, in our view, is not a ground for distinguishing the case.

76. So far as the cases on insolvency law are concerned, Mr. Buch has stated that Section 529 does not bring into consideration Section 51 of the Provincial Insolvency Act or Section 53 of the Presidency-towns Insolvency Act and, therefore, those cases are not relevant. Now, we have already held that even though Section 51 or Section 53 of the respective Insolvency Acts may not in terms be applicable, authorities on insolvency law are of great persuasive value in so-far as the principle involved is concerned. The question of assets realised also figures in a construction of Section 73 of the Code of Civil Procedure.

77. So far as the English authorities are concerned, Mr. Buch has urged that they should be discarded because, according to him, the English law and the Indian law are different in material particulars. Now, we have already dealt with the relevant cases and shown how they are of value in assisting this Court to decide the main question before this Court. At this stage, Mr. Buch points out that Rules 46A and 46B of O.XXI of the Code of Civil Procedure were introduced only in 1966. It may be so but, in view of O.XXI, Rule 46(5), we do not think that this can make any difference.

78. In these circumstances we hold that the appellant was a secured creditor and, therefore, stood outside the scheme of arrangement as well as the winding up. In view of this finding it is unnecessary for us to decide if the appellant was a creditor of the company at the date of the scheme of arrangement.

79. The other question that requires to be considered is the effect on the present proceedings, which are in continuation of the execution application, of the winding up order made in 1964 after the filing of this Letters Patent Appeal, which winding up order, we have noted, commences from August 3, 1963.

80. Now, Mr. Buch argues, and in our opinion rightly so, that if the judgment-creditor was an unsecured creditor on the date of the execution proceedings and the order on the execution application made on November 13, 1961, then in view of the scheme of arrangement sanctioned by this Court and which was then binding on the judgment-creditor, the only order which the execution Court could conceivably make was the one which it has made, viz., that the decretal amount be satisfied by payment of 25 per cent, thereof in cash and the balance in 6 per cent, third mortgage debentures. On this footing Mr. Buch argues that the order made on the Darkhast was perfectly legal and should not be interfered with. 'We have of course, held that the judgment creditor was a secured creditor but for the purposes of argument we may assume that ha was only an unsecured creditor on November 13, 1961. But what about the flow of subsequent events? If this Letters Patent Appeal is a continuation of the execution application, can the Court ignore the fact that subsequently during the pendency of the appeal there was an order for winding- up which had the effect of cancelling the scheme of arrangement? We shall assume that the cancellation was only with effect from August 30, 1963 which was the date of the commencement of the winding up. But on that date the execution proceedings were still pending. Can it then be said that the Court should shut its eyes to subsequent events and maintain an order which would clearly be an anachronism in the sense that the scheme of arrangement no longer exists. Mr. Buch would have us hold that the rights of the judgment-creditor were settled on November 30, 1961 so that he must take his place in the queue as the owner of 6 per cent, third mortgage debentures under the scheme which is now gone.

81. Our attention was invited to a judgment of the Supreme Court in M. Laxmi & Co. v. A.R. Deshpande : [1973]2SCR172 , where the Supreme Court observed as follows (P- 177):

It is true that the Court can take notice of subsequent events. These cases are where the court finds that because of altered circumstances like devolution of interest it is necessary to shorten litigation. Where the original relief has become inappropriate by subsequent events, the Court can take notice of such changes. If the court finds that the judgment of the Court cannot be carried into effect because of change of circumstances the Court takes notice of the same. If the Court finds that the matter is no longer in controversy the court also takes notice of such event. If the property which is the subject-matter of suit is no longer available the court will take notice of such event. The court takes notice of subsequent events to shorten litigation to preserve rights of both the parties and to subserve the ends of justice.

82. If this is then the state of the law, this Court cannot ignore the fact that the scheme of arrangement has been cancelled and that if an order is to be passed today then it cannot be said that the judgment-creditor is only entitled to satisfaction of his decree by receiving 25 per cent, of the decretal amount in cash and 75 per cent, in the form of 6 per cent, third mortgage debentures. As a matter of fact, complications can arise because it will be noticed that by the order dated November 13, 1961 the judgment-creditor was to receive Rs. 793.67 out of the deposit amount of Rs. 3,701 and the 6 per cent, third mortgage debentures of the value of Rs. 2,000. Now that was the stage of affairs twelve years ago. If interest is now calculated the amounts would be different and the value of the debentures would also be different. We do not see how the company can be in a position to give to the judgment-creditor 6 per cent, debentures now of a different value than Rs. 2,000 which according to Mr. Buch, were prepared and signed and ready for delivery way back in 1967. It is significant that the Supreme Court has held in the above cited case that where the original relief has become inappropriate by subsequent events, the Court can take notice of such changes.

83. The proper approach therefore to the problem would be to take into consideration the subsequent events of the order of winding up and hold that even on this account the order on the Darkhast cannot be allowed to stand.

84. We may lastly refer to a judgment of the Supreme Court in J.K. (Bom) P. Ltd. v. New Kaiser-I-Hind Sp. & Wvg. Co : [1969]2SCR866 , which is a judgment on Sections 391 and 392 of the Companies Act, 1956, and which has been cited before us by both the parties. The passage in that judgment on which reliance, was placed is to be found in para. 37 of the judgment. The contention of Mr. Sukthankar for the appellant-plaintiff was that by reason of the winding up order passed on April 22, 1964 commencing from August 30, 1963, the scheme of arrangement no longer exists. According to Mr. Buch, for the respondent-company, even though a winding-up order was passed the rights and obligations under scheme of arrangement continued. It is the contention of Mr. Buch that under the scheme of arrangement the judgment-creditor was only entitled to receive 25 per cent, of the decretal amount in cash and 75 per cent, in the form of third mortgage debentures and that this being so the judgment-creditor after the winding up order must take his place in the queue of holders of 6 per cent, third mortgage debentures to be paid pari pasu by the Official Liquidator.

85. Now, the Supreme Court held that Sub-sections (3) and (4) of Section 391 on which reliance was placed do not mean that the scheme becomes part of the constitution of the Company. The Court observed (p. 1958) :.The contention, therefore, that the scheme becomes part of the company's constitution or of its memorandum, and therefore, winding up order cannot be passed except in conformity with the altered constitution of the company, is not tenable. So long as the scheme is in operation and is binding on the company and its creditors, the rights and obligations of those on whom it is binding are undoubtedly governed by its provisions. But once the scheme is cancelled under Section 392(2) on the ground that it cannot be satisfactorily worked and a winding up order passed such an order is deemed to be for all purposes to be one made under Section 458. It is not as if because the scheme has been sanctioned under Section 391 that a winding up order under Section 392(2) cannot be made. If the appellants' contention, that a winding-up order can only be made subject to the rights and obligations of the parties under the scheme, Were to be right, it would mean that where a company makes default in paying an instalment on the date prescribed by the scheme and a creditor files a winding-up petition, even though a winding-up order is made on the basis that the debt has become presently payable, still the creditor is bound by the scheme and his debt is to be payable by instalments as provided by the scheme.

86. Now, these observations of the Supreme Court, in our opinion, clearly show that when a winding up order is being made, and it does not matter whether the winding up order is under Section 392(2) or under Section 433 of the Companies Act, 1956, the parties cannot be governed by the scheme of arrangement. In the present case it was suggested that the winding-up order was passed under Section 392(2) and not under Section 433. That does not appear to be correct because the petition in which the order was passed is clearly one under Section 433. But, in our view, this makes no difference at all because it is clearly provided that a winding-up order under Section 392(2) shall be deemed to be an order under Section 433. It is obvious that when the order for winding-up was made on April 26, 1964 by this Court, the Court had full knowledge that the scheme of arrangement was in existence. It would follow, therefore, that the Court considered that the scheme of arrangement could not be worked or should not be allowed to continue. In this view of the matter, there is no substance in the argument of Mr. Buch for the respondent-company that the rights and obligations of the parties must, notwithstanding the winding-up order, continue to be determined by the provisions of the scheme of arrangement.

87. In the result this Letters Patent Appeal is allowed and the judgment and decree of the learned single Judge in Second Appeal No. 1162 of 1963 is set aside and the order of. the execution Court dated November 13, 1961 is modified. We direct that the judgment-creditor be paid the decretal amount together with interest upto the date of payment from out of Rs. 3,701.15 deposited in Court by the garnishee.

88. The respondent-company will pay the costs of the judgment-creditor throughout and the same will come out of the assets of the company.

89. The judgment-creditor shall be entitled to withdraw the money, i.e. the decretal amount, from the Court on or after January 10, 1974.

90. Rule and interim stay granted in Civil Application No. 467 of 1971 is discharged with no order as to costs.


Save Judgments// Add Notes // Store Search Result sets // Organizer Client Files //