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Mandya National Paper Mills Ltd. Vs. Rai Bahadur Shreeram Durgaprasad Private Ltd. - Court Judgment

LegalCrystal Citation
SubjectCompany
CourtKarnataka High Court
Decided On
Judge
Reported in[1967]37CompCas313(Kar); (1967)1MysLJ80
ActsCompanies Act, 1956 - Sections 536 and 536(2)
AppellantMandya National Paper Mills Ltd.
RespondentRai Bahadur Shreeram Durgaprasad Private Ltd.
Appellant AdvocateG.R. Ethirajulu Naidu, Adv.
Respondent AdvocateParty in person
Excerpt:
.....whether it is a sham or make believe transaction or one which is genuine and therefore is eligible for deduction under the act. hence, courts have to look into the form of the transaction to find out its substance so as to ensure that there is no avoidance of tax by a method impermissible in law. on facts held, the creation of m/s. r.m.c. as well as m/s. o.m.c (as agencies) was nothing but a device adopted by the appellant for siphoning of the profits of the appellants company in the form of commission as well as marketing and sales promotion expenses. the assessing officer was therefore, right in not allowing the said expenses. considering the nature of product manufactured by the assessee i.e., agarbathi and out of a sum of rs.21,91,867/- paid as commission to its agents by..........prayer, firstly, because the main winding-up petition itself is pending at the initial stage of notice by advertisement, and, secondly, because at this stage of the proceedings, there is neither sufficient material before me nor any possibility of testing such material as the applicant may choose to adduce after giving an opportunity to all interested parties of being heard, to enable me to exercise properly the discretion under section 536(2) of the act or to feel reasonably sure that nobody's interests are injured or adversely affected. 9. there is another reason why i do not consider it proper that i should go into the merits of the case at this stage. 10. on the presentation of the winding-up petition, i made an order for issue of notice and advertisement of the date of hearing......
Judgment:
ORDER

1. This application under section 536(2) of the Companies Act, 1956, is posted for orders as to its maintainability.

2. The application is by the company which is sought to be wound up on a creditor's petition. The prayer is for grant of permission to the company to mortgage its assets to raise a loan from the State Government for the express purpose of paying arrears of wages and salaries of its employees.

3. The question of maintainability arises or is raised by the office, in the light of the language of the section.

4. Section 536 reads as follows :

'(1) In the case of a voluntary winding up, any transfer of shares in the company, not being a transfer made to or with the sanction of the liquidator, and any alteration in the status of the members of the company, made after the commencement of the winding up, shall be void.

(2) In the case of a winding up by or subject to the supervision of the court, any disposition of the property (including actionable claims) of the company, and any transfer of shares in the company or alteration in the status of its members, made after the commencement of the winding up, shall, unless the court otherwise orders, be void.'

5. The second sub-section under which this application is made refers to the powers of the court in the case of a winding up. the dispositions or alienations which are affected by the provision are those made subsequent to the presentation of the winding-up petition which would be the date of commencement of the winding up, if an order to wind up the company comes to be made. The order of the court, which could save such an alienation from becoming void, appears ordinarily to be, in the light of the section, an order made after winding up, because, until an order for winding up is made, the normal powers of the directors continue, and, unless an order for winding up is made, any disposition or alienation made by the directors does not become void. It becomes void only in the case of a winding up. If no winding up order supervenes, the validity of the disposition or alienation made by the directors depends upon the provisions of general law governing the same and not any special consequences relatable to the pendency of a winding-up petition or an order made thereon.

6. I am therefore of the opinion that the very foundation or the occasion for the court making an order referred to in sub-section (2) of section 536 is that there is a disposition of property made by the directors which has become void. Such an effect on the disposition follows upon an order of winding-up and not earlier. Considerations bearing upon the exercise of discretion by the court under the said sub-section are directly related to the interests of creditors and the equitable distribution of available assets among all creditors in accordance with law, avoiding all preference not expressly permitted by the law.

7. It may be that the suggestion that the court has not jurisdiction whatever to deal with situation arising between the date of presentation of the winding-up petition and the order of winding-up is not sound, because on the passing of a winding-up order, the date of commencement of winding-up is related back to the date of presentation of the petition, and, secondly, even before an order for winding up is passed, the court may find it necessary to make appropriate interim orders either for the protection of the company or for the protection of any of the creditors of the company.

8. But in the light of the principles and considerations set out above, I do not think that in this case, the occasion has now arisen for me to go into the merits of the prayer, firstly, because the main winding-up petition itself is pending at the initial stage of notice by advertisement, and, secondly, because at this stage of the proceedings, there is neither sufficient material before me nor any possibility of testing such material as the applicant may choose to adduce after giving an opportunity to all interested parties of being heard, to enable me to exercise properly the discretion under section 536(2) of the Act or to feel reasonably sure that nobody's interests are injured or adversely affected.

9. There is another reason why I do not consider it proper that I should go into the merits of the case at this stage.

10. On the presentation of the winding-up petition, I made an order for issue of notice and advertisement of the date of hearing. An application by the company for postponement of the advertisement of the date of hearing was dismissed because I did not find sufficient reason to grant the prayer. Against that order the company has presented an appeal to the appellate side of this court, and, pending disposal of the appeal, there is a stay of the issue of notice by advertisement.

11. The result, therefore, is that if, for the purpose of examining the merits of the present proposition, it becomes necessary to hear parties other than those that are already before me (viz., the company and the petitioning creditor), it may not be possible for me to have the benefit of their views because the only way in which the company court can put all interested parties on notice, so that they may appear with relevant information necessary to assist the court, is the advertisement. In the absence of such an advertisement, which gives an opportunities to the parties interested to come before the court, it may not be possible for me to act upon the confidence that all that is to be said on the matter has been said by the parties actually before me, nor is there material either already placed before me or capable of being called for or supplemented fully and satisfactorily in order to ascertain which persons might be affected and in what manner their rights may have to be protected.

12. Further, the present application is by the very party which has prevented the court from issuing notice by advertisement. I do not consider it correct on principle to hear an application for an interim order or interim relief or direction at the instance of the very party which has disabled the court from issuing notice in the manner ordinarily prescribed by company law and thus deprived it of the avenues of informing itself on all materials relevant to the prayer now made.

13. I therefore dismiss this application.

14. I need hardly add that this does not prevent either the company or any interested person from taking, at an appropriate stage, properly framed proceedings, such as are contemplated or provided by the Companies Act, complying with all the provisions of the Act designed to elicit the opinion of and ensure the protection of the rights of


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