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Maneklal Mansukhbhai Vs. the Suryapur Mills Co. Ltd. - Court Judgment

LegalCrystal Citation
SubjectCompany
CourtMumbai
Decided On
Case NumberO.C.J. Appeal No. 38 of 1927 and Suit No. 2732 of 1926
Judge
Reported inAIR1928Bom252; (1928)30BOMLR549; 110Ind.Cas.33
AppellantManeklal Mansukhbhai
RespondentThe Suryapur Mills Co. Ltd.
DispositionAppeal allowed
Excerpt:
indian companies act (vii of 1913), schedule table a, article 28-shareholder-calls, non-payment of-forfeiture of shares-liability to pay call-moneys due-debt-period of limitation to recover the moneys-indian limitation act (ix of 1908), section 14, article 115-exclusion of time-time taken up by liquidator in sealing list of contributories not excluded for a suit to recover call-moneys due on forfeited shares.;the defendant was allotted shares in the plaintiff company after its incorporation; but on march 11, 1922, his shares were forfeited by the board of directors for non-payment of calls. the company was taken into liquidation on july 21, 1923. the liquidators prepared a list of contributories on october 10, 1924; but the defendant objected to the inclusion of his name as a.....amberson marten, kt., c.j.1. the plaintiff company by its liquidator brought this suit in the high court on november 24, 1926, against the defendant as its former shareholder based on a claim under article 28 of table a which applied to this particular company, viz.:a person whose shares have been forfeited shall cease to be a member in respect of the forfeited shares, but shall, notwithstanding, remain liable to pay to the company all moneys which, at the date of forfeiture) were presently pay if and when the company in respect of the shares, but his liability shall cease if and when the company received payment in full of the nominal amount of the shares.2. the forfeiture in the present case was on march 11, 1922. accordingly, at the outset a question arises as to what article of the.....
Judgment:

Amberson Marten, Kt., C.J.

1. The plaintiff company by its liquidator brought this suit in the High Court on November 24, 1926, against the defendant as its former shareholder based on a claim under Article 28 of Table A which applied to this particular company, viz.:

A person whose shares have been forfeited shall cease to be a member in respect of the forfeited shares, but shall, notwithstanding, remain liable to pay to the company all moneys which, at the date of forfeiture) were presently pay if and when the company in respect of the shares, but his liability shall cease if and when the company received payment in full of the nominal amount of the shares.

2. The forfeiture in the present case was on March 11, 1922. Accordingly, at the outset a question arises as to what Article of the Indian Limitation Act applies, because if, for instance, Article 115 applies, as has been found by the learned trial Judge, then this suit is barred unless the company can claim exemption for certain periods under the Indian Limitation Act.

3. The company contends in the first place that the proper Article to apply is not Article 115 but Article 120, or alternatively Article 116. That is one part of the case. The other part is as regards certain periods which the learned Judge has allowed to the company under Section 14 of the Indian Limitation Act, amounting in all to some twenty months and thirteen days. He has consequently arrived at the conclusion that allowing those periods to the company the suit is within time. He, accordingly, passed judgment in favour of the company. The defendant appeals.

4. Now, as regards the question as to which Article applies, we have, in the first place, to see exactly what is the liability which the company is seeking to enforce in the present case. It is, I think, clear on the authorities that Article 28 of Table A imposes on forfeiture a new obligation or a new debt, and that as the shareholder thenceforth ceases to be a member of the company, his liability to pay future calls is gone, and all that is left is this new liability to pay the company 'all moneys which at the date of forfeiture were presently payable by him to the company in respect of the shares'. For instance, in Ladies' Dress Association v. Pulbrook [1900] 2 Q.B. 376 where the defendant's shares were forfeited after calls had become due, and the company had subsequently gone into liquidation, it was held by the Court of Appeal in England that the defendant could be sued in respect of the unpaid calls as he was liable not as a contributory but as a debtor to the company. Lord Justice Romer said (p. 881):-

With regard to the first point it is clear that a person in the position of the defendant is liable with regard to unpaid calls, not as a contributory, either as a present or a past member of the company, but as a debtor to the company under the provisions of the articles of association. This was pointed out as long ago as 1867 by Romilly M.B. in Needham's Case. (1867) L.R. 4 Eq. 135.

5. Similarly, in Habib Rowji v. The Standard Aluminium and Brass Works, Ltd. I.L.R.(1925) Bom. 715 s.c. 27 Bom. L.R. 574 Sir Norman Macleod and Mr. Justice Coyajee followed that ease, and Mr. Justice Coyajee said (p. 723):-

The foundation of the suit is the special contract evidenced by Article 32 of the plaintiff company's articles. On forfeiture of his shares, the defendant ceased to be a member, and the company could not thereafter sue him Mills Co. for past calls. But although his liability to pay such calls came to an end, he incurred, under the terms of Article 32, a fresh liability to 'forthwith pay to the company all calls, instalments, interest and expenses owing upon or in respect of such shares at the time of the forfeiture, together with interest thereon, from the time of forfeiture until payment'. This, in my opinion, was a new obligation giving the company a fresh cause of action against the defendant; and the period of limitation for a suit to enforce this new obligation began to run from the time the shares were forfeited.

6. We start then with this-which is, I think, common ground-that the period of limitation, whatever may be the correct period, began to run from the date of the forfeiture of the shares on March 11, 1922. Now comes one crux in the ease. Was this claim by the company one within Article 115 of the Indian Limitation Act 'for compensation for the breach of any contract, express or implied, not in writing registered and not herein specifically provided for'? The company say that here there was no contract, express or implied, and that there was no breach of any contract, and lastly, that if there was, this suit is not one for compensation for the breach of the contract.

7. Now, we have to go back for a moment to consider what is the effect of a person applying for shares in the company and being accepted as a member with regard to his future obligations to the company. Under Section 21(1) of the Indian Companies Act 1913:-

The memorandum and articles shall, when registered, bind the company and the members thereof to the same extent as if they respectively had been signed by each member and contained a covenant on the part of each member,... to observe all the provisions of the memorandum and of the articles, subject to the provisions of this Act.

8. Sub-section (2) provides that:-

All money payable by any member to the company under the memorandum or articles shall be a debt due from him to the company.

9. It is clear, therefore, that at any rate this section imposes a statutory obligation on the member as between himself and the company.

10. It is, however, said that this does not amount to a contract within the meaning of the Indian Contract Act. But in the present case we must bear in mind that the defendant is not one of the original subscribers to the memorandum and articles of association. He has become a member by applying to the company for shares, which the company subsequently allotted to him see para. 4 of the plaint and para. 2 of the written statement). There was, therefor an offer and acceptance in addition to the bare statutory covenant referred to in Section 21 of the Indian Companies Act. Indeed, the statutory covenant cannot come into effect until the person in question has agreed to become a member of the company. This circumstance is one which was relied on by Mr. Justice Astbury in Hichman v. Kent of Romney Marsh Sheepbreeders' Association [1915] 1 Ch. 881. There a question arose in the first place as to whether in an ordinary case the articles constitute a contract between the company and its members. After considering a large number of authorities on that point, the learned Judge in effect decided, as stated in the head note, that-.though articles of association can neither constitute a contract between a company and an outsider, nor give any individual member special contractual rights beyond those of the members generally,... [yet] they do in fact constitute a contract between a company and its members in respect of their ordinary rights as members.

11. Stopping there, the present alleged contract depends mainly on Article 28, which is an Article applicable to all the shareholders and not to any one individual shareholder. Mr. Justice Astbury in the case before him came to the conclusion at p. 903, that

general articles dealing with the rights of members as such' [should be] treated as a statutory agreement between them and the company as well as between themselves inter so, and, in my judgment, Article 49 in the present case does constitute a submission to arbitration within the true meaning; and intent of the Arbitration Act.

12. Next, the learned Judge proceeded to consider an alternative ground for holding that there was a contract between the defendant in that case and the company. He says (p. 903) :-

The defendant's second contention is that the contract contained in the plaintiff's application for membership, and the association's acceptance of it, amounts to a submission within the Act... In consideration of being elected a member and of his offer to join the association being accepted, the plaintiff contracted in writing with the association to conform to its rules and regulations. One of those regulations was a general submission to arbitration of all differences between the association and any of its members as such, amply wide enough to cover the matters in dispute in this action. The association at the date of the contract was already bound to each and all its corporators to act in conformity with those regulations, and was at the date of the writ in this action, and has been since, ready and willing to so act.... In my judgment, the contract so made between the plaintiff and the association is also a submission in writing within the true meaning and intent of the Arbitration Act, and I make an order to stay under Section 4 and direct that the matters in dispute in this action be referred to arbitration accordingly.

13. Now, it is quite true, as pointed out by Mr. Kemp in his able argument for the company, that in that particular case there was an express application in writing for membership, which is set out at p. 885 of the Report. In the present case we have not got before us the exact application that the defendant made. But admissions in the pleadings already referred to show that the con-tract between the parties is not merely confined to Article 28, but includes the bargain between the parties that the defendant would become a member of the company on the terms applicable to all shareholders of the company. Therefore, in my judgment there was here an express or implied contract contained in the Article itself and in the initial agreement between the parties whereby the defendant was to become a member of the company.

14. That being so, was there a breach of that contract? Clearly there was. Next comes the question as to 'compensation'. Now, no doubt, in the past there has been a considerable controversy as to whether 'compensation for the breach of a contract' is an apt expression to include a mere action for debt. But as regards this point we have the clear guidance of their Lordships of the Privy Council in Tricomdas Cooverji Bhoja v. Gopinath Jiu Thahur which decided in effect that under similar words in Article 116, viz., 'for compensation for the breach of a contract in writing registered', an action for a sum certain or a debt was included. That particular case was a suit for arrears of rent, and the contest was whether the appropriate Article was Article 110 in which case the period of limitation was three years; or whether it was Article 116 in which case the limitation was six years. Their Lordships held that the latter was the true view, and in setting out the conflicting arguments at p. 69 Lord Sumner says:-

On the one baud it has boon con tended that the provision as to rent is plain and unambiguous and ought to be applied, and that in any case ' compensation for the breach of a contract' points rather to a claim for un liquidated damages than to a claim for payment of a sum certain. On the other it has been pointed out that 'compensation' is used in the Indian Contract Act in a vary wide sense, and that the omission from Article 116 of the words which occur in Article 115, 'and not herein specifically provided for,' is critical. Article 116 is such a special provision, and is not limited, and therefore, especially in view of the distinction long established by these Acts in favour of registered instruments, it must prevail, There is a series of Indian decisions on the point, several of them in suits for rent, though most of them are in suit a on bonds. They begin in 1880, and are to be found in all the Indian High Courts.

15. Then, after referring to a decision of the Bombay High Court in Lakhand Nanohand v. Narayan Hari I.L.R. (1913) Bom. 656, s.c. 15 Bom. L.R. 836 the judgment proceeds (p. 70) :-.their Lordships accept the interpretation so often and so long put upon the statute by the Courts in India, and think that the decisions cannot now be disturbed.

16. That being so, I regard that decision as an authority that an action for debt may come within Article 115 as well as within Article 116. We were invited to hold that although that was the construction given to the words 'compensation for the breach of a contract' as regards Article 116, we ought to give a different meaning to the similar words in Article 115, because in Article 115 we have not got 'in writing registered' and therefore there is not the same reason for holding that a longer period should be awarded to a registered as opposed to an unregistered document. To my mind it is quite impracticable to give to the words 'compensation for the breach of a contract' any different meaning in Article 115 to that in Article 116. Consequently, in my view Article 115 applies to an action for debt like the present just as much as Article 116 does or may do.

17. Then it was said in the alternative that in any event the appropriate Article is 116 and not 115, because here the contract was contained in the articles of association which had to be registered under the Indian Companies Act, and therefore we had a contract in writing registered. More than one answer may be given to that argument. One is that the sole contract here is not to ha found merely in the articles. If we went to the company's register and saw merely the articles of association, that would tell us nothing as to whether the defendant had or had not contracted with the company to become a member. Inspection of some other document would be necessary before we could ascertain from the company's register whether the defendant had entered into any contract of membership with the company.

18. A further point on which there has been a difference of opinion in the Madras High Court as exemplified in Rama Seshayya v. Sri Tripurasundari Cotton Press, Bezwada I.L.R.(1925) Mad. 468 overruling Ripon Press and Sugar Mill., Ltd. v. Rama Venlcataramna Ghetty I.L.R (1918) 42 Mad. 33 is whether the expression 'registered' includes registration under the Companies Act. In this connection there is a preamble in the Indian Registration Act showing that it was intended thereby 'to consolidate the enactments relating to the registration of documents''. It is also material to observe that if one turns to the Transfer of Property Act, there is a somewhat similar definition of 'registered' to what one finds in the General Clauses Act, I do not propose to pursue that point. Even if Article 116 includes documents registered only under the Indian Companies Act-which I doubt-the only document so registered here on the evidence before us was the memorandum and articles of association; but in my opinion as already indicated the contract between the company and the defendant is not contained merely in these articles of association, and therefore Article 116 would not apply. Similarly, I think that Article 120 does not apply, because it is only an Article which provides for suits for which no period of limitation is provided elsewhere in the first schedule. In the view I take the period of limitation is provided elsewhere, viz., in Article 115. Consequently, in the result I agree respectfully with the decision which the learned trial Judge arrived at on this part of the ease that Article 115 is the appropriate Article.

19. I now turn to the second branch of the case dealing with the three separate periods which the learned Judge has allowed to the company under Section 14 of the Indian Limitation Act. Now, those periods are three in number. The first period from October 10, 1924, to October 13, 1925, was taken up with settling the list of contributories filed by the liquidator. The second period from March 12, 1926, to October 30, 1926, was taken up by a suit filed in the Surat Court against the defendant. The third period was between October 30, 1926, and November 23, 1926, the former being the date when the order was made by the Surat Court returning the plaint, and the latter being the date when it was actually returned to the company. As regards those three periods we need not trouble about the second period. It is conceded by the appellant that that period was rightly allowed by the learned Judge, The only point that arose there was whether the plaint in the Surat suit was presented on March 12, 1926, as the learned Judge held, or whether it was presented three days afterwards, viz., on March 15, 1926, But an examination of the original document satisfies us that the learned Judge was accurate in what he held. That point, as I have already indicated, is no longer persisted in by the appellant.

20. But as regards the first period, I should mention a few dates to mike the point clear. The winding-up order by the Surat Court was on July 21, 1923. On October 10, 1924, the liquidator filed his list of contributories under Section 156 of the Indian Companies Act. On October 13, 1925, the Surat Court held that the name of the defendant had been wrongly entered in the list of contributories, and it directed a suit to be filed. On March 12, 1926, a suit was accordingly filed in the Surat Court. On October 30, 1926, there was an order of the Surat Court returning the plaint because in its view no cause of action had arisen within its jurisdiction. On November 23, 1926, the plaint was actually returned by the Surat Court, and on November 24, 1926, the present suit was filed.

21. Now, as regards the first period, the question that arises is whether under Section 14 the plaintiff was

prosecuting with due diligence another civil proceeding,...against the defendant. where the proceeding is founded upon the same cause of action, and is prosecuted in good faith in a Court which, from defect of jurisdiction, or other cause of a like nature, is unable to entertain it.

22. One has, therefore, to consider whether the liquidator's action in putting the defendant on to the list of contributories was a proceeding founded upon the same cause of action and was prosecuted in a Court which from defect of jurisdiction or other cause of a like nature was unable to entertain it.

23. Now, I have already explained what is the cause of action that we have in the present case, viz., under Article 28 of Table A. But in the view I take, the liability which the liquidator was attempting to enforce by putting the defendant on the A or B under Section 156 was quite a different liability. Unfortunately, we have only got the covering letter which the liquidator sent to the Judge. We have not got the actual list of contributories. But it is clear that the defendant could only have been put on that list of contributories under Section 156 as either a present member or else a past member who had ceased to be a member for less than a year. A present member clearly he was not. His shares had been forfeited some two years and a half before the liquidator had filed his list. Then as regards his being a past member, there again he had ceased to be a member for more than one year prior to the commencement of the winding up. In this respect counsel have not overlooked the point that the winding up order of July 21, 1923, was not the date of the commencement of the winding up. The real date was the date of the presentation of the winding up petition. But counsel have been good enough to check that point, and they tell us that the winding up petition was presented more than a year after the original forfeiture. We, therefore, get this that the liquidator was attempting to obtain an order which no Court either in Surat or in the High Court could possibly have made inasmuch as the defendant was neither a present member nor a past member within the meaning of Section 156. There would of course be a very material difference between the claim in the present suit and the defendant is liability v. as a contributory on the A or B list, because in the former event he was only liable for the amount due at the date of forfeiture in March 1922, but in the latter event he would be liable for all future calls whether before or after the winding up.

24. It seems to me, therefore, that on both these grounds the company fails, viz., that the liquidator's proceedings were not founded on the same cause of action, and further that they were not prosecuted in a Court which from any defect of jurisdiction was unable to entertain them. They failed because they were utterly wrong and misguided, and no Court could have made the defendant liable on that ground. That being so, it follows that, with all respect, I am unable to agree with the decision of the learned trial Judge on this point. Consequently, in my judgment the company cannot rely upon this particular period of a year and three days, and therefore their suit is barred by limitation.

25. But as the point has been argued I should briefly refer to the third period, viz., that between the date of the Surat Court's decision to return the plaint, and the date of actual return. Now here the learned Judge has relied on two decisions, one in Basvanappa v. Krishnadas I.L.R.(1920) Bom. L.R. 1387 and another in Nagindas Kapurchand v. Maganlal Punaohand I.L.R.(1921) Bom. 211, s.c. 23 Bom. L.R. 1023. But there was no question of the defeated party having been guilty of any delay. He had come to the Court and had endeavoured to obtain the plaint, but the Court had declined to give it up as it was wanted for being copied, and for making certain entries in the Court register. Under those circumstances it was very naturally held by this Court that the party in question was entitled to rely on explanation 1 to Section 14 of the Indian Limitation Act and that within the meaning of that explanation the proceedings had not up to that time ended. On the other hand, I am not prepared to hold that in every suit the plaintiff, whose plaint has been directed to be returned to him, can allow the plaint to remain in Court and yet count all the subsequent period as being allowed to him under Section 14. In the present case, as pointed out by the learned Judge, the company were taking legal advice as to whether they should file an appeal against the decision of the Surat Court, or whether they should file a suit here The learned Judge came to the conclusion that the time thus occupied, viz., twenty-three days, was, under all the circumstances of the case, not unreasonable, and that the proceedings had not ended till the plaint was actually returned to the company on November 23, 1926. It is unnecessary for me to say whether on that particular question I would agree with the decision of the learned Judge. I prefer to base my decision on the first of the above periods.

26. Under those circumstances, it follows that in my judgment this appeal must be allowed, and the decree of the learned Judge set aside, and the suit dismissed with costs here and in the Court below.

Crump, J.

27. I agree substantially with the judgment just pronounced, but as' we are reversing the decision of the Court below, I desire to add my statement of reasons as briefly as possible.

28. I agree with the learned Judge that there is here a special contract, and for that purpose I rely upon a decision in Habib Rowji v. The Standard illuminium and Brass Works, Ltd.I.L.R .(1925) Bom. 715, s.c. 29 Bom. L.R. 584. I do not think that there is any express contract, but that there is an implied contract arising from the operation of Section 21 of the Indian Companies Act, read with Article 28 of Table A. The question, therefore, is in a suit on such a contract what Article in the schedule to the Indian Limitation Act is applicable? The Judge below has applied Article 115, and I think correctly. We are asked to apply Article 120 on the ground that this is a suit for which no period of limitation is otherwise provided in the schedule. But holding as I do that it is a suit on an implied contract, and therefore that it is a suit for compensation for the breach of that contract, it is clear to me that Article 120 cannot be invoked. Therefore, we come back either to Article 116 or Article 115, and the short ground on which I hold that Article 116 has no application is that I fail to see here any contract in writing registered. Certainly, there is no contract in writing in the ordinary sense of the word, and even if there were, I am quite unable to hold that the word 'registered' in Article 116 means 'registered under the Indian Companies Act', assuming that Section 8 of the General Clauses Act is applicable. There it is laid down that ''registered', used with reference to a document, shall mean registered in British India under the law for the time being in force for the registration of documents.' I really have no doubt whatever that the expression 'the law for the time being in force for the registration of documents' is to be found in the Indian Registration Act of 1908, and nowhere else. I cannot regard the Indian Companies Act as being in any sense 'the law for the time being in force for the registration of documents'. I think what in meant is the general law on the subject of registration in the sense in which that term is ordinarily understood, and that is the law in the Indian Registration Act of 1908 as appears from the preamble of the Act.

29. That being so, here is a suit for compensation for the breach of a contract. It is sought to apply Article 116 on the ground that it is 'in writing registered', and if it proves that it is not registered and in writing, then surely we must fall back upon Article 115 where precisely the same phrase is used, 'suit for compensation for the breach of any contract.'

30. It is, however, argued that the words 'compensation for breach of any contract' in Article 115 are used in a sense different from the words 'compensation for breach of a contract' in Article 116. I find myself unable to take that view and I am fortified in that conclusion by what appears to be the plain meaning of the judgment of the Privy Council in Tricomdas Cooverji Bhoja v. Gopinath Jiu Thakur . That judgment cites with approval the judgment of this High Court in Lalchand Nanchatid v. Narayan Hari I.L.R.(1913) Bom. 656, s.c. 15 Bom. L.R. 836 where it is plainly stated that Article 116 applies to suits for debts or sums certain due upon registered instruments. It is, therefore, impossible to accept the distinction which the learned Counsel for the appellant sought to draw between a suit for compensation for the breach of a contract, and a suit to recover debt. The learned trial Judge has drawn attention to a passage in the judgment of the late Chief Justice Sir Norman Macleod in Ganappa v. Hammad : AIR1925Bom440 in which it is said that (p. 640) the word ' compensation' in Article 116 is not restricted to a claim for un liquidated damages, but includes also a claim for a sum certain.

31. That being so, and putting aside the possibility of regarding this as a contract registered in writing, we come back to Article 115 which has been applied by the lower Court. The question that remains is, what period of time is the plaintiff entitled to exclude? And it is here that I find myself unable to agree with the decision of the Court below. First, as to the proceedings in the District Court of Surat. The object of those proceedings was to settle a list of contributories. There was an application by the official liquidator to that effect, The Court had jurisdiction to settle the list under Section 184. That is what the Court was asked to do, and the reason why it refused to do it was not in the least that it had no jurisdiction to enforce the summary remedy against the defendant, but because the official liquidator failed to show that the defendant in this case came within the term ' contributory.' In effect that was the issue. On the merits of the case the Court decided the only point which it had jurisdiction to decide, and it decided against the company.

32. It seems to me impossible in this state of affairs to say that this proceeding was such a proceeding as would fall within Section 14 of the Indian Limitation Act. No doubt, it was a civil proceeding and speaking for myself I might be able to hold that the cause of action in that proceeding and in the present case is one and the same. But I cannot in any way see how it can be said that the Court was unable to entertain it either from defect of jurisdiction or other cause of a like nature. The Court, no doubt, did entertain it, and did decide on the merits. Therefore, that period cannot, in my judgment, be excluded. That is really sufficient for the disposal of the case. It follows that the plaint is time-barred.

33. But as to the final period between October 30, 1926, and November 23, 1926, I have grave doubts whether the plaintiff was properly entitled to the credit of that period. It seems to me that under Section 14 we have to consider when the suit in the First Class Subordinate Judge's Court was at an end. That is the plain meaning of the first explanation to that section, and, so far as the records go, I think that period was at an end as soon as the Court made an order for the return of the plaint. It may be that there were certain ministerial acts left to be performed after that order was made. That we do not know. All that we do know is that those acts might have, required some time, and if that time was necessary for the purposes of the Court, then I should be prepared to exclude that period also, following the decisions of Sir Norman Macleod in Basvanappa v. Krishnadas I.L.R.(1920) Bom. 443, s.c. 22 Bom. L.R. 1387. and Nagindas Kapurchand v. Maganlal Punachand I.L.R. (1921) Bom. 211, s.c. 23 Bom. L.R. 1023. But I do not think that those decisions lay down as a broad proposition that any time that elapses between the order directing the return of the plaint, and the actual withdrawal of the plaint from the Court should be excluded. To hold anything of that kind would be to allow a party to delay indefinitely and to take the advantage of his own delay. However, the circumstances are not sufficiently clearly ascertained to pronounce any definite opinion on this part of the case. I agree, therefore, that the appeal be allowed with costs.

Amberson Marten, Kt., C.J.

34. The question has arisen whether there should be an order for payment of the costs by the liquidator personally, or whether the company should be ordered to pay them. Now there are two classes of cases with regard to the payment of costs. One is a case where the Court is sitting in the winding-up and can therefore make such orders for payment out of the assets as it thinks fit. That is not the present case. What we have got here is the second class of case, viz., an ordinary litigation between the company and a third party. It must also be borne in mind that the suit is by the company and not by the liquidator. For that there is no doubt one very good reason, viz., that unlike cases in the insolvency of individuals the assets of a company do not vest in the liquidator. He merely has certain powers. Accordingly, as has been pointed out in Buckley, 10th Ed., p. 377

There is no jurisdiction to order the liquidator who is not a party litigant to pay costs, any more than directors of a going company could be ordered to pay costs.

35. We, therefore, think that the proper order in this case is to direct that the company do pay to the defendant the costs of this suit throughout including the costs of this appeal.

36. But to avoid any misunderstanding on the point, I would wish to point out that this will not debar the successful defendant from applying in the winding-up that these costs which we have directed to be paid by the company should be paid to him, and it may be that he will ask that they be paid at once and in priority to the costs of the liquidation. In that respect I would refer to In re Pacific Coast Syndicate, Limited, a decision of Mr. Justice Neville, where the head note runs :-

Costs of unsuccessful litigation incurred by a liquidator, whether in a voluntary or compulsory winding-up, are payable to the party entitled out of the assets of the company in priority to the costs of the liquidation This rule applies whether the order simply directs payment of costs, or directs that the costs be paid out of the assets of the company, or that the liquidator do pay the costs with liberty to recoup himself out of the assets.

37. This case must be considered along with In re London Metal-lurgical Company [1895] 1 Ch. 758 where Mr. Justice Vaughan Williams, as he then was, says (p. 764) :-

I am only concerned here to shew that by a long and uninterrupted stream of authority a successful litigant baa been held to be entitled to be paid his costs in priority to the general costs of the liquidation, and that being so I will not at the present moment consider what particular costs come before, or rank pari passu with his coats. Assuming for the moment that there are such casts, what are the rights of the successful litigant, and is he entitled to immediate payment? Prima facie, he is. If the estate is solvent, in practice he obtains immediate payment, although that does not shew that he has a right to it.

38. Then the learned Judge proceeds to deal with the case where the estate is insolvent, and the rest of the judgment which should be read in detail is thus summarised in the headnote :-

The onus is on the liquidator to shew that the condition of the assets ia such that immediate payment cannot be made; and if he shews that other persona have a prior right to, or are entitled pari passu with the successful litigant, no order for payment will be made without providing for the other claims. The date of the order gives no priority, but payment will not be indefinitely postponed until all claims have come in.

39. We are not sitting as Judges in the winding-up, and it would be very wrong of us to give now anything in the nature of a decision on this point. The decision will have to be that of the Surat Court in the winding-up ;and after hearing the claims if any of other persons. We have only got the company and this particular defendant before us, Accordingly, we merely draw the attention of the Surat Court to the above authorities. Further reference to the authorities on this point will be found in Halsbury, Vol. V, p. 450.

40. There is one other point, viz., that the defendant has paid to the liquidator of the company the amount decreed in the Court below. That money must be refunded. Accordingly, we think that as regards that particular sum there should be an order against the liquidator personally to repay it together with such interest, if any, as may have been earned thereon.


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