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Marulasiddanna Gowda Vs. Mahadevanaik and C. Veerappa, Liquidators, Mysore Malleable Iron and Steel Foundry Ltd. - Court Judgment

LegalCrystal Citation
SubjectCompany
CourtKarnataka High Court
Decided On
Case NumberSecond Appeal No. 465 of 1958
Judge
Reported inAIR1963Mys61
ActsCompanies Act, 1913 - Sections 156, 159, 198, 212(1) and 216(1); Limitation Act - Schedule - Articles 112 and 120
AppellantMarulasiddanna Gowda
RespondentMahadevanaik and C. Veerappa, Liquidators, Mysore Malleable Iron and Steel Foundry Ltd.
Appellant AdvocateN.S. Gopal, Adv.
Respondent AdvocateD.M. Chandrasekhar, Adv.
Excerpt:
- - 1. this appeal raises many interesting questions. 1500/- together with interest thereon and when he failed to do so, they filed a suit on 14-7-1955. 2. the defendant contended that the liquidators had no right to sue him, they should have taken the permission of the court to file the suit and hence the suit itself is not maintainable. 3. both the learned munsiff of davangere as well as the civil judge, chitradurga concurrently held against the defendant......by an extra-ordinary resolution passed by the share-holders of the said company it went into voluntary liquidation on 12-1-1953. the plaintiffs were appointed as liquidators. plaintiffs are the respondents before this court. on their assumption of the office of liquidators, they issued a notice dated 19-7-1954 marked as exhibit p-2 in the case calling upon the defendant to pay a sum of rs. 1500/- together with interest thereon and when he failed to do so, they filed a suit on 14-7-1955.2. the defendant contended that the liquidators had no right to sue him, they should have taken the permission of the court to file the suit and hence the suit itself is not maintainable. he also pleaded that the plaintiffs' suit was barred by limitation, and article 112 of the limitation act applied.....
Judgment:

Mir Iqbal Hussain, J.

1. This appeal raises many interesting questions. Defendant who is the appellant before this Court was a share-holder of the Mysore Malleable Iron and Steel Foundry, Ltd., Harihar. He had purchased 100 ordinary shares of the company of the value of Rs. 50/- each. He paid a sum of Rs. 3500/- towards the share amount. There was still an outstanding balance of Rs. 1500/- in respect of the amount due for the purchase of those shares. On 30-11-1949, the company made a demand for the balance due by the defendant-appellant. But no amount was paid by the defendant. By an extra-ordinary resolution passed by the share-holders of the said company it went into voluntary liquidation on 12-1-1953. The plaintiffs were appointed as liquidators. Plaintiffs are the respondents before this Court. On their assumption of the office of liquidators, they issued a notice dated 19-7-1954 marked as Exhibit P-2 in the case calling upon the defendant to pay a sum of Rs. 1500/- together with interest thereon and when he failed to do so, they filed a suit on 14-7-1955.

2. The defendant contended that the liquidators had no right to sue him, they should have taken the permission of the Court to file the suit and hence the suit itself is not maintainable. He also pleaded that the plaintiffs' suit was barred by limitation, and Article 112 of the Limitation Act applied to the case which prescribes a period of three years. Counting that period from the date of the demand by the Directors of the company on 30-11-1949, the defendant contended, the plaintiffs' suit was barred by limitation.

3. Both the learned Munsiff of Davangere as well as the Civil Judge, Chitradurga concurrently held against the defendant. Both the Courts held that the liquidators had every right to file a suit. In a case of voluntary liquidation, permission of the Court was not needed for so doing. They also held that Article 112 applied only to the case of calls made by a company but did not apply to the calls made by the liquidators. According to the learned Judges, the residuary Article 120 applied in such a case. Hence they decreed the plaintiffs' suit. Aggrieved by those judgments and decrees, the defendant has preferred this second appeal.

4. Sri Gopal, the learned Advocate for the defendant-appellant, contends that the plaintiffs' suit is not maintainable as the liquidators have not settled the list of contributories; they have not taken the permission of the Court to file the suit and further, the liability that has arisen in this case is a contractual liability and not a statutory one. In other words, he submits that once the directors of the company have made a call regarding the amount due in respect of the unpaid share amount, on winding up, it becomes a contractual liability and that amount becomes a debt due to the company. By the superimposition of the liquidation proceedings, the nature of that liability does not change into a statutory one.

5. A brief reference has to be made to some of the provisions of the Indian Companies Act, 1913 (7 of 1913), which is the relevant Act applicable to the facts of the case. The mode of winding up is detailed in Section 155. Section 156 refers to the liability of the contributories and the relevant portion of it runs as follows :

'156 (I) In the event of a company being wound up, every present and past member shall, subject to the provisions of this section, be liable to contribute to the assets of the company an amount sufficient for payment of its debts and liabilities and the costs, charges and expenses of the winding up, and for the adjustment of the rights of the contributories among themselves, with the qualifications following..................'

Section 159 refers to the nature of the liability of the contributories. Clause (I) of that section runs as follows :

'159 (I) The liability of a contributory shall create a debt payable at the time specified in the calls made on him by the liquidator.' Section 179 deals with powers of the official liquidator under the chapter of winding up by Court. Section 212 which is the relevant section deals with the powers and duties of the liquidators in voluntary winding up.

6. In view of these provisions to which I have referred, could it be said that in a case of (voluntary liquidation it is necessary for the liquidators to exercise the power of the Court of making calls without its sanction? The answer to that is naturally in the affirmative as found in Clause (d) of Section 212, which reads as follows:

'The Liquidator may exercise the power of the Court of making calls.'

My view gets support from the decision in Gupta v. Vishnu Baburao Sarvate reported in AIR 1956 Nag 204, which is also a case of voluntary liquidation. It is held therein that there is no warrant for saying that the liquidator in a voluntary winding up cannot exercise the power of the Court of making calls without the sanction of the Court. The liquidator is under Section 212 (I) (d) empowered to exercise that power without reference to Court. It is true that he may under Section 216 (I) apply to the Court for enforcing the call and the Court may thereupon exercise all or any of the powers which it would exercise if the company were being wound up by the Court. But be is not bound to resort to Section 216 (I) and may proceed by way of suit for the recovery of the statutory debt. This is implicit in Section 159 and is made explicit by Section 198. Sri Gopal at one stage relied on the observations of his Lordship Chief Justice Chagla in the case of Mohomed Akbar Abdulla Fazalbhoy v. Associated Banking Corporation of India, Ltd.. reported in : AIR1950Bom386 . But he frankly admitted that so far as this matter was concerned, the observations of His Lordship were of obiter nature. The case under consideration by His Lordship the Chief Justice was not a case of voluntary liquidation, but it was a case of liquidation proceedings by the Court.

7. The same reasoning applies also to the next contention raised by Sri Gopal that a list of contributories should have been prepared by the liquidators, who are launching a suit against the defendant. Even that contention has no force. The liquidation proceedings are instituted by the liquidators under a voluntary proceeding, and in such a case, it is not incumbent or obligatory for the liquidators to prepare such a list and the non-preparation of such a list does not vitiate the proceedings or invalidate the suit filed by the liquidators. Such a list has got to be prepared in a case of compulsory liquidation. Even without pre-paring such a list, the liquidators have power to call upon the defendant to pay the balance of the share amount. Hence, even this contention of Sri Gopal has to be negatived.

8. The next contention raised in this appeal is that the liability of the defendant in respect of the balance due by him in respect of the share amount is a contractual liability and when once it has become a contractual liability on the call made by the directors of the company, it assumes the shape of the assets of the company. Hence by the supervening event of the voluntary liquidation, this contractual liability will not be altered into a statutory liability. The argument of Sri Gopal is of importance to the defendant, because, if it is considered to be a contractual liability, the Article of the Limitation Act that will be applicable will be 112 and consequently the suit against the defendant will be barred by limitation. In support of that contention, Sri Gopal relies upon the fact that as far back as 30-11-1949, a demand was made on the defendant for the unpaid share amount by the directors. No doubt, after the voluntary liquidation proceedings started and the liquidators were appointed, they issued a fresh notice dated 19-7-1954 marked as Exhibit P-2 in the case, calling upon the defendant to pay the amount of Rs. 1500/- together with interest thereon. But the question to be considered is whether by their issue of a fresh notice after voluntary liquidation, the nature of the liability of the defendant changes or not.

9. In this connection, it is urged that the liquidators cannot act arbitrarily. They have to conform to certain procedure and according to that, once a call is made by the directors with regard to the unpaid share amount and the date of payment has passed, it assumes the character of a debt due to the company. Thus it becomes indistinguishable from any other debts. It is therefore urged by Sri Gopal that when subsequently the company goes into liquidation, the debts become the assets of the company which had to be realised by the liquidators.

10. In support of that contention, Sri Gopal relies upon a decision of the Allahabad High Court in the case of J.C. Chandiok v. Pearey Lal, reported in AIR 1942 All 136, wherein it is held as follows :

'A call, once it has been validly made by the Directors prior to liquidation and once the date for its payment has passed, becomes a debt due from the share-holder to the company and is indistinguishable from any other debt. When subsequently the company goes into liquidation, that debt, or those debts become assets of the company which have to be realised by the liquidator.'

The facts of the above case are distinguishable from the facts of the present case. In the first .place, the provisions that were applicable to the liquidator acting in the Allahabad case were those under the Insurance Act. Secondly, there is no consideration of the provisions of Section 156 of the Companies Act regarding the liability of contributories in winding up proceedings. Under that section the nature of liability becomes a statutory one on the company being wound up. Thus such a member will be liable to contribute to the assets of such company under the statutory liability imposed on him.

11. This view finds support in a decision of the Privy Council in Hansraj Gupta v. N.P. Asthana reported in , where it is held by His Lordship Lord Russell as follows :

'Whatever may have been the rights and liabilities of the testator before the winding up intervened, the position was altered by the happening of that event. At the commencement of the winding up he was and had for over three years 'been entered on the register of share-holders as the holder of shares now in question, with his full knowledge, and assent. (3n the winding up, Section 156 of the Companies Act, came into play. His liability under that section in respect of the shares was absolute and flowed from the fact of his being on the register in respect of those shares. The original contract may supply the reason for his name having been placed on the register in respect of the shares, but after the winding up his liability in respect of the shares arose ex lege and not ex contractu.'

Taking into consideration the provisions of Section 156, His Lordship has held that on winding up, nature of the liability has changed. In other words the supervening event converts the contractual liability into a statutory one. So also it is in the instant case. The mere fact that the directors had given a notice calling upon the defendant to pay the unpaid share amount before winding up does not make it a contractual liability after the supervening event of the voluntary winding up of the company.

12. If so, the relevant Article that is applicable is not Article 112 of the Limitation Act which prescribes the period of limitation in the case of call by the company. On the other hand, the relevant Article that applies is that residuary Article 120. That proposition is supported by a number of authorities. It is not necessary for me to refer to them in any detail except to mention some of them. They are : Prayan Prasad v. Gaya Bank and Trades Association, Ltd. reported in AIR 1931 Pat 44; Jagraon Trading Syndicate Ltd. v. M/s Manak Chand Roshan Lal reported in AIR 1935 Lah 335 and Gupta v. Vishnu Babu rao Sarvate reported in AIR 1956 Nag 204.

13. In the result, this second appeal fails and is dismissed. In the circumstances of the case, I order each party to bear his own costs in this Court.


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