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Jamnalal Ramlal Kimtee and anr. Vs. Konda Lakshman Bapuji and anr. - Court Judgment

LegalCrystal Citation
SubjectCompany
CourtAndhra Pradesh High Court
Decided On
Case NumberOriginal Side Appeal No. 2 of 1960
Judge
Reported inAIR1961AP259; [1961]31CompCas315(AP)
ActsCompanies Act, 1956 - Sections 176(3), 546, 546(1) and 557
AppellantJamnalal Ramlal Kimtee and anr.
RespondentKonda Lakshman Bapuji and anr.
Appellant AdvocateK.V. Ayyapa Sastry, Adv.
Respondent AdvocateN. Narasimha Ayyangar and ;S. Suryaprakasam, Advs.
Disposition Appeal dismissed
Excerpt:
.....october 1958 with the condition that the liquidator should make good any loss that he might sustain in regard to this transaction. 10. it was maintained on behalf of the liquidator that extending the time for payment of the balance of the purchase price was well within his powers by virtue of the resolution of the general body meeting held on 7-5-1958 and the terms of section 546 of the indian companies act and that, further, he did so in the interests of the shareholders of the company with the concurrence of the members of the advisory committee. and (c) appoint a person to act as chairman of any such meeting and to report the result thereof to the court'.17. on the language of this section, there can be little doubt that it is well within the powers of a court to direct the holding..........of section 546 of the indian companies act and that, further, he did so in the interests of the shareholders of the company with the concurrence of the members of the advisory committee. it was further submitted on his behalf that with the amounts realised by the sale of the g. p. notes, and some other assets of the company and with the two instalments and part payment of the third instalment paid by the second respondent, the liquidator could distribute the share capital at the rate of rs. 8/-a share to most of the share-holders including the first appellant before us. it was also pointed out that the liquidator informed the share-holders by circular notice of all that had taken place prior thereto and how his action had benefited the general body of the shareholders and the.....
Judgment:

P. Chandra Reddy, C.J.

1. This appeal is against the order of our learned brother, Satyanarayana Raju, J. dismissing Application No. 206 of 1959, filed under Section 546(3) of the Indian Companies Act, 1956, by two of the shareholders of the Hyderabad Investment Syndicate Ltd. (in Voluntary liquidation), to direct the liquidator, the first respondent, to forfeit all the amounts paid by the auction-purchaser, the second respondent, and to resell all the assets and liabilities of the company by public auction.

2. It arises in the following circumstances. The-share capital of the Hyderabad Investment Syndicate Ltd. was covered by 50,000 shares of Rs. 50/-each. As the affairs of the company were not quite satisfactory at the 15th general Body meeting, the share holders passed a special resolution that the company should go into voluntary liquidation and appointed the first respondent, the liquidator. He was empowered to exercise the powers mentioned in Clauses (i) to (iv) of Sub-section (2), of Section 457 and Section 546(1) of the Indian Companies Act. By another resolution, an Advisory Committee consisting, of five members to be elected by the share-holders was constituted.

3. On 25th July 1958, the liquidator issued a public notice fixing 25th August 1958 for the sale of 'all the assets and liabilities of the company as a going concern' in public auction. Simultaneously, he issued a notice to all the share-holders of the company requesting them to be present at the sale. On the notified date, public auction was conducted in the presence of an extraordinary general Body Meeting of the share-holders of the company.

As required by the liquidator, the share-holders passed a resolution enabling the liquidator to accept the highest bid at the public auction. In the auction held on the 25th, there Was a keen competition between the first appellant, represented by Sri. S. E. Kimtee, and the second respondent. The bid of Rs. 7,55,000/- offered by the second respondent being the highest, the liquidator placed it before the share-holders for their acceptance by way of abundant caution.

4. The share-holders then passed the following resolution:

'The action taken by the liquidator by conducting public auction of all the assets and liabilities of the Company just now and in our presence, according to which the highest bid is of Sri C. Sambasiva Rao, of Guntur for Rs. 7,55,000/- is hereby approved by this Extraordinary General Body Meeting of the share-holders unanimously resolved by this special Resolution that the said highest bid he finalised and all formalities be completed by the liquidator'.

5. Under the terms and conditions of sale, the second respondent had to pay the amount of Rs. 7,55,000/- -in the manner indicated hereunder: Rs. 18,875/- at the time of auction Rs. 56,625/- on or before 35-10-1958, and Rs. 6,79,500/- on or before 25-2-1959. The auction purchaser paid the first and second instalments in time but did not pay the third instalment before 25-2-1939.

6. Meanwhile, the liquidator was anxious to return as early as possible a part of the share capital to the share-holders. For this purpose, he approached the second respondent by letter dated 9-10-1958 for permission to sell three percent Government promissory Notes belonging to the company and utilise the sale proceeds for the purpose of distributing that amount along with the deposits already made by the second respondent, to the share-holders at Rs. 8/- per share.

This was acceded to by the second respondent by his letter dated 10th October 1958 with the condition that the liquidator should make good any loss that he might sustain in regard to this transaction. Thereafter, the liquidator sold the G. P. Notes and the proceeds amounted to Rs. 2,23,641/-. In addition to this, a sum of Rs. 30,886/- standing to the credit of the company in two Banks was collected by the liquidator with the consent of the 2nd respondent.

The position as on 25-2-1959, which was the last date for the payment of the balance price by the auction purchaser, was that Rs. 2,54,527/- was realised out of the assets of the company which were sold in public auction. This amount was appropriated by the liquidator towards the purchase price to be paid by the second respondent. Besides these, the second respondent had already paid Rs. 75,500/- before the due date. In all, a sum of about Rs. 3,30,000/- was realised by the liquidator and the balance remaining unpaid by the second respondent was about Rs. 4,25,000/-.

7. It is to pay this sum that the second respondent prayed for extension of time, the reason adduced for the request being that he was unable to fulfil the terms of the contract On account of cyclone that had occurred a few days before. This liquidator, taking into consideration the fact that the second respondent assented readily to the sale of the G. P. notes and the circumstances mentioned in the appli-cation for extension of time, extended the time up to 11-5-1959 with the concurrence of the Advisory Committee.

8. Before the expiry of this time, two of the share-holders filed the application out of which this appeal arises for the reliefs already mentioned. Between 25-2-1959 and the filing of the application, some more amounts aggregating Rs. 87,000/- were realised. During the pendency of the application the auction-purchaser paid the balance of the third instalment.

9. In support of the application, it was urged before our learned brother, that the liquidator had no jurisdiction to extend the time for payment of the balance of the sale price and that he could not appropriate the sale proceeds of the assets of the company towards the purchase price.

10. It was maintained on behalf of the liquidator that extending the time for payment of the balance of the purchase price was well within his powers by virtue of the resolution of the general body meeting held on 7-5-1958 and the terms of Section 546 of the Indian Companies Act and that, further, he did so in the interests of the shareholders of the company with the concurrence of the members of the Advisory Committee. It was further submitted on his behalf that with the amounts realised by the sale of the G. P. notes, and some other assets of the company and with the two instalments and part payment of the third instalment paid by the second respondent, the liquidator could distribute the share capital at the rate of Rs. 8/-a share to most of the share-holders including the first appellant before us.

It was also pointed out that the liquidator informed the share-holders by circular notice of all that had taken place prior thereto and how his action had benefited the general body of the shareholders and the circumstances under which he extended the time for payment of the balance of the purchase price with the approval of the advisory committee and that the second appellant had signified his assent to the extension of time.

11. In this position, the learned Judge thought that it was desirable to ascertain the wishes of the share-holders in that behalf before he could dispose of the petition. For that purpose, he appointed Sri T. Lakshmayya, the Official Liquidator, to convene a meeting of the share-holders by giving them not less than fourteen days notice of the time and place of the meeting by advertisement in one issue of a daily newspaper in the English language and a daily newspaper in the Regional language and by sending individually to every one of the shareholders of the company notice of the meeting.

12. Accordingly, the Official Liquidator convened a meeting on 5-12-1959 to find out the attitude of the general body of the share-holders. At that meeting, the share-holders holding 35,832 shares were present and they ratified the action of the liquidator in extending the time for the payment of the balance of the purchase price and In appropriating the amounts realised by the sale of the assets of the concern with the consent of the auction purchaser towards the purchase price. It may be noted that the appellants did not participate in the meeting and oppose the resolution. Thereupon, the convenor filed his report on 11-12-1959 and it was accepted on 8-1-1060.

13. Statement was made at the bar that the learned Advocate General appearing for the appellants stated that he would not raise any objection to this report. Thereafter, the application came on for final disposal before our learned brother and he dismissed it in the view that it was competent for the liquidator to extend the time by reason of the provisions of Section 546 of the Indian Companies Act and the powers conferred on him by the resolution of the General Body Meeting of the share-holders at the time of the appointment of the liquidator especially having regard to the fact that his action was approved by the majority of the share-holders as recited above. It is this conclusion of the learned Judge that is impugned before us in this appeal.

14. In support of this appeal, Sri. Ayyappa Sastry made three submissions; (i) that the learned Judge had no jurisdiction to direct the convening of the meeting of the share-holders of the company by the official liquidator to ascertain their wishes; (ii) that the Official Liquidator had committed certain irregularities in the conduct of the meeting in that he did not give twenty one clear days notice and that he gave only 73 hours for lodging of proxies; and (iii) that it was not within the competence of the liquidator to grant time for payment of the balance of the purchase price or to appropriate the amounts realised by the sale of the assets of the company towards the purchase price.

15. We are of opinion that all the three points lack substance. As regards the first contention, it must be observed that an appeal carried by the appellants against the order of our learned brother directing the official liquidator to summon a meeting for ascertaining the wishes of the share-holders was dismissed by this Court in O. S. A. No. 8 of 1959. It is, therefore, not open to the appellants to agitate that matter once again. That apart, the relevant provisions of the Indian Companies Act empower the court to lake such course.

16. At this stage, it is convenient to read S. 557, in so far as it is material for the present enquiry:

'(1) in all matters relating to the winding up of a company, the Court, may-

(a) have regard to the wishes of creditors or con-tributories of the company, as proved to it by any sufficient evidence;

(b) if it thinks fit for the purpose of ascertaining those wishes, direct meeting of the creditors or contributories to be called, held and conducted in such manner as the Court directs; and

(c) appoint a person to act as chairman of any such meeting and to report the result thereof to the court'.

17. On the language of this section, there can be little doubt that it is well within the powers of a court to direct the holding of a meeting of the shareholders for the purpose of ascertaining the wishes either of the creditors or of the share-holders in all matters bearing on the winding up of the company. An attempt was made by the learned counsel for the appellants to restrict the scope of the section only to the actual winding up of a company.

We do not think that he has succeeded in his attempt. The terms of the section are comprehensive enough to include matters of this description. Emphasis has to be laid on the words 'matters relating to the winding up of a company.' Surely, it cannot be postulated that realisation of the assets of the concern are unrelated to the winding up of the company.

18. Corning next to the alleged irregularity as to sufficiency of notice, the argument is equally unsubstantial. A relerence to the notice will clearly indicate that the Official Liquidator had given twenty three clear days notice. In regard to the lodging ot proxies, we do not think that there is any error or irregularity committed by the liquidator. It is true that under the present provisions of the Indian Companies Act, more than forty eight hours need not be given for the lodging of proxies. But that is not the same tiling as saying that if more than forty eight hours is given for the lodging of proxies it renders the meeting irregular.

Be that as it may, it is not open to the appellants to raise this objection now having regard to the fact that the learned Advocate General appearing for them had categorically stated that he was not going to make any objection to the Official Liquidator's report and also to the fact that at the final hearing of the application before our learned brother no such contention was advanced. Nor was that point even taken in the memorandum of grounds of appeal against the order of the learned Judge. For these reasons, this contention is repelled.

19. The third point to be considered is whether the liquidator had power to extend the time for payment of the balance of purchase price by the auction-purchaser. For an appraisal of the contentions urged on either side it is useful to look at the terms of Section 546 of the Indian Companies Act.

20. That section, in so far as it is of immediate relevance, is in these words:

'The liquidator may-

XX XX XX XX (iii) Compromise any call or liability to call debt, and liability capable of resulting in a debt, and any claim, present or future, certain or contingent, ascertained or sounding only in damages, subsisting or alleged to subsist between the company and a contributory or alleged contributory or other debtor or person apprehending liability to the company, and all questions in any way relating to or affecting the assets or liabilities or the winding up of the company, on such terms as may be agreed, and take any security for the discharge of any such call, debt, liability or claim, and give a complete discharge in respect thereof'.

21. It is manifest that the power conferred by clause (iii) on the liquidator comprehends within its scope the power to compromise 'all questions in any way relating to or affecting the assets or liabilities or the winding up of the company'. By virtue of this clause, the liquidator is authorised to settle all matters inter alia affecting in any way the assets or liabilities. It is difficult to posit that the extension of time to pay the dues to the company does not come within the contemplation of this clause.

In our opinion, this clause is of very wide amplitude and embraces the power to extend time to an auction purchaser to pay the purchase money or to the debtor to discharge the debt by him to the concern. We do not think that there is any justification for circumscribing the wide scope of this section. No authority which supports such a contention has been placed before us. We are convinced that the language of the section is susceptible only of the meaning that we have attributed to it.

22. That apart, the liquidator extended the time with the approval of the advisory committee. It does not stop here. The liquidator's action was ratified by the general body of share-holders.

23. It could not be disputed that it was within the powers of the share-holders to extend time for payment of a debt due to the company or to register their approval to such a course adopted by the liquidator. But the argument pressed upon us is that while it was permissible for the liquidator to seek the permission of the general body of share-holders before he actually extended the time, he could not do so after he had actually granted further time in that regard. We do not think that this makes any difference.

All that matters is the approval of the action of the 1st respondent. If what was done by this respondent was not in any way detrimental to the interests of the share-holders, it would not have met with this assent, is not suggested that the general body had derived any advantage by ratifying the action of the liquidator (sic). In such a situation, at is not open to two of the share-holders holding only 205 shares out of a total of 50,000 shares to question the validity of the resolution in this regard.

Moreover, the Official Liquidator could not disregard the attitude of the 2nd respondent in regard to the realisation of the Government promissory notes and other assets earlier in considering the latter's request for extension of time. In this context it is to be remembered that the 2nd appellant intimated to the 1st respondent that he had no objection to further lime being granted provided security was offered. Further, there is not even a suggestion that the 1st respondent was influenced by any oblique motive in complying with the request of the 2nd respondent in that behalf. Jt follows that the action of the liquidator in extending the time could not be successfully impugned.

24. The only question that survives is whether the liquidator was justified in appropriating the sum realised by the sale of the assets of the company towards the purchase price. Unquestionably, if the assets and liabilities of the company were sold as a going concern, the liquidator could not realise them for and on behalf of the company. After the auction, the company was entitled only to the purchase price and it was the auction-purchaser who was entitled to realise all the assets, on the completion of the sale.

In such a situation, if the liquidator had realised the assets of the company, with the permission of the auction purchaser, it could not be postulated that credit could not be given for these sums to the auction purchaser. Surely, the liquidator could not regain the assets of the company and at the same time call upon the auction purchaser to pay the full purchase price.

It is true that the liquidator was under no obligation to collect the monies due to the concern for the benefit of the auction purchaser. But when once these amounts were collected by the liquidator with the consent of the auction-purchaser for the benefit of the share-holders as desired by them, he is bound to appropriate them towards the purchase price. He cannot keep the realisations of the assets and also demand of the auction purchaser to deposit the entire purchase price,

25. The argument advanced by Sri Ayyappa Sastry is that such sums as are collected by the liquidator out of the outstandings due to the company should be held by the liquidator in his hands to the credit of the auction purchaser as his trustee and make over them to the auction purchaser after he pays the balance of the purchase price. We do not think that there is any substance in this contention.

First of all, we cannot overlook the circumstance that the liquidator was anxious to sell the G. P. notes and utilise the proceeds before the date for distribution amongst the share-holders as desired by them specified for the payment of 3rd instalment by 11-2. There was, therefore, no question of the liquidator holding the monies realised by him as trustee of the auction-purchaser till 25-2-1959.

Moreover it makes no difference whether the liquidator adjusts the amounts realised by him towards the purchase price and then calls upon the auction-purchaser to pay the balance or whether he requires the auction purchaser to pay first the whole of the price and then delivers the sums collected by the liquidator from the assets of the company to the second respondent. We see no force in the submission made on behalf of the appellants in this behalf.

26. We must also notice here that subsequent to the presentation of this application the whole bid amount had been realised either by the realisation of other assets or by the second respondent depositing the amount. We are told that as required by our learned brother, the auction purchaser made two deposits Rs. 55,800/- each on two days, i.e., on 1-8-1959 and on 3-8-1959, and that this money was also distributed among the share-holders.

It is represented that nearly ninety per cent of the share-holders have received their share capital at tlie rate of Rs. 15/- a share and that only a few of the share-holders who migrated to Pakistan and the first appellant who refused to receive his share capital that remained unpaid. It is further represented that these amounts are lying with the liquidator to be distributed to the share-holders as and when they claim them. Further, a sale deed is since said to have been executed in favour of the 2nd respondent and that the latter had taken over the assets and liabilities of the company.

27. On this discussion, it follows that all the contentions advanced on behalf of the appellants arc devoid of substance and have to he rejected.

28. In the result, the appeal fails and is dismissed with costs.

29. The expenses connected with the convening of the meeting by the official liquidator will come out of the estate.


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