1. This is an appeal against an order passed by the District Judge of Satara under Section 215 of the Indian Companies Act granting a perpetual injunction restraining the appellant from executing his decree against the assets of the Deccan Match Manufacturing Company in liquidation.
2. The facts are that the appellant's father obtained a decree in the High Court against the Deccan Match Manufacturing Company in Summary Suit No. 279 of 1927 on April 5, 1927. The decree was ex parte, and there was no appeal against it. Nor was any application made to set aside the ex parte decree. The decree was transferred for execution to the First Class Subordinate Judge's Court at Satara. In the meantime the company had gone into liquidation, and the liquidator presented an application to the District Judge under Section 215 of the Indian Companies Act asking the Court to determine whether the hundi transaction entered into by the Chitale Bros, was binding against the company, whether therewas any consideration for the said hundi and whether any amount thereunder was required for the company's purposes, whether the Chitale Bros, were authorised to contractthis debt under the hundi, whether the ex parte decree is binding on the company and the liquidator on account of fraud of the appellant or his father in collusion with the Chitales, and whether the execution and attachment sought under the decree in question isvalid in law.
3. The District Judge found that the Chitales, who were the managing agents, were not authorised to contract the debts and the, hundi was not binding on the company ; it followed that the company was not properly made a party to the suit and that the decree was not binding; the mortgage mentioned in question No. 5 was ultra vires and was void against the liquidator inasmuch as it was not registered under Section 109 of the Act; the execution and attachment were, therefore, invalid, and therefore could not affect the liquidator; and although consideration was paid for the hundi, the money was not required for the company. He, therefore, granted a perpetual injunction restraining the appellant from executing the decreee against the assets of the company. The decree-holder appeals.
4. A preliminary objection is taken by the learned Counsel for him that it was not open to the Court to go behind the decree of the High Court, which has not been set aside on appeal, nor was there any application under Order IX, Rule 13, to set aside the ex parte decree, nor was any suit brought, and it is contended that the points which are raised and decided go behind the High Court decree, which is binding on the company, although it was ex parte. The learned Counsel for the respondent has pointed out that under Section 229 of the Indian Companies Act the rules regarding the winding up of an insolvent company are the same as those which apply to the estates of insolvents, and he refers to Section 34(2) of the Provincial Insolvency Act, by which all debts and liabilities, present or future, certain or contingent, to whom the debtor is subject when he is adjudged an insolvent, or to which he may become subject before his discharge by reason of any obligation incurred before the date of such adjudication, shall be deemed to be debts provable under that Act. There is a special exception to the ordinary rule that a matter decided by a decree cannot be re-opened, in the case of insolvency matters. He refers to Sir Dinshah Mulla's Law of Insolvency in British India, Tagore Law Lectures for 1929, p. 121, para. 161, in which it is laid down that the insolvency Court has power to go behind a judgment and inquire into the consideration even for a judgment debt, and this although the judgment may have gone by default or by consent and though the judgment may have been affirmed on appeal. The authorities for this are Ex parte Kibble. In re Onslow (1875) L.R. 10 Ch. 373 Ex parte Lennox. In re Lennon (1885) 16 Q.B.D. 315; see also In re Hawkins. Ex parte Troup(1895) 1 Q.B. 404 and In re Frazer, Ex parte Central Bank of London (1892) 2 Q.B. 633 The Indian cases on the point are: In re The Union Indian Sagar Miills Co., Ltd v. Brij Lal Jagannath I.L.R. (1927) All. 728 and Ram Lal Tandon v. Kashi Charan (1927) 26 A.L.J. 241 The insolvency Court will not as a matter of course inquire into the validity of a judgment-debt, but only when there is evidence that the judgment has been obtained by fraud or collusion or that there has been some miscarriage of justice : In re Flatau. Ex parta Scotch Whisksy Distilters (1888) 22 Q.B.D. 83 The rule has been very clearly expressed in the case of Van Laun, In re. pattullo, Ex parte (1907) 1 K.B. 155 where it is said (pp. 162, 163):-
The trustee's right and duty when examining a proof for the purpose of admitting or rejecting it is to require some satisfactory evidence that thedebt on which the proof is founded is a real debt. No judgment recovered against the bankrupt, no covenant given by or account stated with him, can deprive the trustee of this right. Ha is entitled to go behind such forma to get at the truth, and the estoppel to which the bankrupt may have subjected himself will not prevail against him.
5. This case was confirmed by the Court of Appeal in Van Laun In re, Chatterton, Ex parte (1907) 2 K.B. 23 where the decision of Bigham J. was affirmed. I may refer to the judgment of Buckley L.J. where it is stated (p. 31):-
If there be a, judgment it is not necessary to shew fraud or collusion. It is sufficient, in thelanguage of Lord Esher, to shew miscarriage of justice-that is to say, that for some good reason there ought not to have been a judgment.
6. The law being thus clear on the point, there is no doubt that the liquidator in voluntary winding up, who occupies the same position as the trustee in bankruptcy, was entitled to ask the Court sitting in insolvency jurisdiction to go behind the judgment. It is not necessary that fraud or collusion should be shown. It is sufficient if it can be shown that there ought not to have been a judgment.
7. Turning to the merits, it is clear from the articles of association that the managing agents, the Chitale Bros, had no power to borrow money. The learned Counsel for the appellant has relied on Article 105 of the articles of association, But this article gives no such power. The reference in it to drawing, accepting cheques, hundis and the like refers only to ordinary business transactions, and not to borrowing money. As a matter of fact, by Article 5 of the memorandum borrowing was strictly forbidden till by a subsequent resolution the directors alone were allowed to borrow up to Rs. 40,000, and were given the power to mortgage not more than one-third of the company's property. Inasmuch, therefore, as theChitale Bros., to whom the advance was made and who were the managing agents of the company, had no authority to borrow on behalf of the company, and inasmuch as the amount borrowed admittedly does not appear in the books of the company, and there is no evidence that the amount was received by the company, and it appears to have been used by theChitale Bros, for their own purposes, the company did not get the benefit of the amount, and Ramchandra Sakharam, the father of theChitale Bros., who was himself not a member of the managing agents' firm, appears to have taken part in the dealings with the plaintiff, the debt is not binding on the company. The fact that the amount may have been paid into an account in the company's name in a Bombay bank does not advance the matter any further, as this account was only operated on by the managing agents.
8. It has been contended by the learned Counsel for the appellant that consideration being proved, the amount having been paid by cheque, and some re-payment having been made by the managing agents ostensibly on behalf of the company, the creditor is protected, inasmuch as it is not his business to see to the application of the money, it being sufficient if he paid it to the agents. I do not myself think that there is any evidence of fraud or collusion, but the appellant or his father was himself a shareholder in the company, and it was his business before he advanced the money to the managing agents, ostensibly on behalf of the company, to ascertain from the memorandum and the articles of association whether the managing agents had power to borrow money on behalf of the company, The remarks in para 6 of the learned District Judge's judgment set forth this position very dearly, and I entirely agree with them.
9. In these circumstances, this appears to be a case in which, if the true facts had been before the Court, there should have been no judgment. The case falls within the principle of Van Laun, In re: Chatterton, Ex parte, and the order of the District Judge should be confirmed, and the appeal dismissed with costs.