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Devi Dayal Marwah Vs. the State of Andhra Pradesh - Court Judgment

LegalCrystal Citation
SubjectCompany
CourtAndhra Pradesh High Court
Decided On
Case NumberOriginal Side Appeal No. 4 of 1960
Judge
Reported inAIR1963AP479
ActsCompanies Act, 1956 - Sections 125, 439 and 439(1); Limitation Act, 1908 - Schedule - Article 149; Hyderabad Industrial Fund Rules, 1347(H.); Andhra Pradesh Industrial Fund Rules (Amendment) Act, 1957
AppellantDevi Dayal Marwah
RespondentThe State of Andhra Pradesh
Appellant AdvocateN.V.B. Sankararao and ;G. Radhakrishnarao, Advs.
Respondent AdvocateV.K. Vaidya, ;L.P. Sahgal, ;M. Ramamohan Rao and ;M.P. Ugle, Advs.
DispositionAppeal dismissed
Excerpt:
.....company on basis of time barred claim - company executed mortagage in favour of industrial trust fund, nizam's government - whether industrial trust fund is corporation or department of government and accordingly article 149 to be applicable or not - mortagage deed clearly indicates that mortagee is department of government - essential features of corporation does not exist in this fund - such fund has no separate legal existence - no capacity to contract obligations and of being sued or of suing - government set apart money for being used for specific purposes in this fund - rules made for control and management - claim made by petitioner is governed by article 149 and not time barred. - maximssections 2(xv) & 3(1) & (3): [v.v.s. rao, n.v. ramana & p.s. narayana, jj] ghee as a live..........by the state of andhra pradesh represented by the secretary to government, industries (industrial fund) department, hyderabad under section 439 of the indian companies act (i of 1956) praying that in the circumstances stated in the affidavit filed therewith the high court may be pleased to wind up the said company by order of the court.2. the company was incorporated under the hyderabad companies act (iv of 1320 f) in the fasli year 1352 with its registered office at saifabad in hyderabad. it had a nominal capital of rs. 10 lakhs o. s. (rs. 8,57,142-13-9 i. g.) divided into 40,000 ordinary shares of rs. 25 o.s. each. the paid up capital was rs. 4,47,734-12-0 o.s. (rs. 3,83,772-10-4 i.g.). the company was constituted for the purpose of acquiring the business of the hyderabad potteries.....
Judgment:

Chandrasekhara Sastry, J.

1. This is an appeal by one Devi Dayal Marwah against the order of our learned brother, Satyanarayana Raju, J. in O. P. 4 of 1959 directing the winding up of the Deccan Porcelain and Potteries Ltd., Saifabad, Hyderabad. The Original Petition was filed by the State of Andhra Pradesh represented by the Secretary to Government, Industries (Industrial Fund) Department, Hyderabad under Section 439 of the Indian Companies Act (I of 1956) praying that in the circumstances stated in the affidavit filed therewith the High Court may be pleased to wind up the said company by order of the Court.

2. The company was incorporated under the Hyderabad Companies Act (IV of 1320 F) in the Fasli year 1352 with its registered office at Saifabad in Hyderabad. It had a nominal capital of Rs. 10 lakhs O. S. (Rs. 8,57,142-13-9 I. G.) divided into 40,000 ordinary shares of Rs. 25 O.S. each. The paid up capital was Rs. 4,47,734-12-0 O.S. (Rs. 3,83,772-10-4 I.G.). The Company was constituted for the purpose of acquiring the business of the Hyderabad Potteries and to carry on the business of manufacturers, buyers and dealers in all kinds of clay work, chemical preparations and glazes whatsoever and obtain patents for them to carry out the other objects as set forth in the memorandum of association. On the 1st October, 1947, the Company executed a deed of mortgage in favour of the Industrial Trust Fund, H.E.H. the Nizam's Government (Industrial Department, Government of Andhra Pradesh, now) for O.S. Rs. 2,50,000 (Rs. 2,14,285/- I.G.) for purchase of machinery tools and construction of furnace, buildings etc., agreeing to repay the amount with interest at 3 1/2 % per annum.

Under the deed of mortgage, the Company agreed to repay the loan in instalments of Rs. 8,000/-per month commencing from 1st October, 1950. On 19th September, 1949, the Company took a further loan of O.S. Rs. 13,000/- from the Industrial Trust Fund and executed a promissory note agreeing to repay the said amount with interest at 4% per annum. This promissory note was renewed by the Company on 6th December, 1952, and on the same date, the Company executed a further promissory note in favour of the Government for O.S. Rs. 1,655-8-0 the same being the amount of interest that had accrued on the promissory note of the 19th September, 1949.

3. As stated above, the petition was filed by the State of Andhra Pradesh represented by the Secretary to Government Industries (Industrial Fund) Department, Hyderabad. It is averred by the petitioners that the total amount due by the Company under the deed of mortgage and the promissory notes, including the interest that accrued thereon and the amount paid by the Government towards the insurance premia is Rs. 3,10,351-38 (I.G.) and that the petitioners made demands on the Company for repayment of the amount due to them. They also sent a registered notice through their advocate on 11th May, 1958, demanding repayment of the amounts due. This notice was refused by the Company. It is further alleged that the Company has ceased to function since 1949 consequent upon its managing agents migrating to Pakistan.

4. The winding up of the Company was sought on the following grounds:

1. That the company has neglected to pay the amount due to the petitioners in spite of repeated demands:

2. That the company ceased to function since 1949; and

3. that the assets of the company are insufficient to meet its liabilities.

5. The appellant in this appeal is one Devi Dayal Marwah, a lessee of the Company. He filed a counter opposing the petition for winding up.

He claimed that the Company leased out in his favour the entire factory buildings etc., of the Company for a period of 15 years under a registered deed dated 8th September, 1955 on a yearly rent of Rs. 10,000/- till the end of the 5th year of the lease and thereafter at Rs. 10,000/- annually or 25% of the gross profits, whichever is higher. It is claimed by him that pursuant to the said lease, he spent so far a sum of Rs. 1,23,000/- towards the costs of the buildings, furnace and kilns and that a sum of Rs. 1,52,212-8-0 was due to him with interest at 7 1/2% per annum towards the construction account and Rs. 4,500/- towards a loan advanted by him to the Company and that the aggregate amount due to him was Rs. 1,56,712-8-0 and that he in his turn had to pay to the Company an amount of Rs. 30,000/- till the year ending with September, 1959 which had to be adjusted towards the capital expenditure incurred by him and that therefore an amount of Rs. 1,26,712-8-0 was still due and payable by the Company to him. He also claimed that he has got a first charge and a right to preferential payment over the assets of the Company and valid lease in his favour till 8th September, 1970 and that as such, he is interested in opposing the petition for winding up.

6. The appellant's objections to the winding up are:

(1) The petitioners in the O.P. are not secured creditors:

(2) If they are secured creditors, they cannot maintain the petition for winding up of the Company without abandoning their security;

(3) The claims of the petitioners are barred by limitation; and

(4) The financial embarrassment of the Company is only temporary and that it is not in the interest of the Company to pass a winding up order.

7. The petitioners filed an affidavit in reply controverting the allegations in the counter-affidavit of the appellant. In a supplemental affidavit, the appellant reiterated that the debts of the petitioners are barred by limitation and that the mortgage deed in favour of the petitioners was not registered under the Companies Act and that therefore is void against all the creditors of the Company. Satyanarayana Raju, J. overruled all the objections raised on behalf of the appellant and as stated above, directed that the Company be wound up under the provisions of the Companies Act (I of 1956) and directed that the Official Liquidator shall forthwith take charge of all the properties and effects of the Company and shall cause a sealed copy of the order to be served on the Company. It was argued before him on behalf of the appellant herein that the mortgagee under the deed of mortgage dated 1st October, 1947, is a Corporation and not the State of Andhra Pradesh and that since the mortgage was not registered under the Companies Act, it is void under Section 125(1) of the Companies Act against any creditor of the Company, that under Clause (3) of the said section, the monies secured thereby immediately became payable and that therefore the claim under the mortgage is barred by limitation and that the petitioner's claim is not governed by Article 149 of the Indian Limitation Act. This contention was negatived by Satyanarayana Ram, J. who held that the Industrial Trust Fund, H.E.H. the Nizam's Government, is not a Corporation but that it is only a department of the Government and that therefore, the claim is not barred by limitation.

8. In this appeal, the only point argued before us is whether the debt due to the petitioners in the O.P. is barred by limitation. It is stated that the charge created in favour of the petitioners was not registered as required by the Companies Act and that therefore the charge is void against any creditor of the Company and that the money secured by the mortgagee became payable immediately as a result of which the claim is barred by limitation before the O.P. was filed. It is argued by the learned counsel for the respondent that the creditor under the deed of mortgage dated 1st ' October, 1947, is the State Government and that Article 149 of the Limitation Act prescribes a period of 60 years for any suit by or on behalf of the Central Government or a State Government. It is to meet this, that it is contended by the appellant's learned Counsel that the creditor Industrial Fund is a Corporation and not a department of the Government and that therefore. Article 149 would not apply.

9. At the very outset, we have to point out that the appellant did not raise this contention in the counter-affidavit filed by him in the O.P. But, on the other hand, he stated that the loan was advanced by the erstwhile Hyderabad Government in the name of the Industrial Trust Fund. It was also stated by him that 'the Industrial Trust Fund, that is, the Government, gave the loan'. He had not specifically pleaded either in the counter-affidavit originally filed or in the supplemental affidavit that the Industrial Trust Fund is a Corporation and not a department of the Government. The question was allowed to be argued by Satyanarayana Raju, J. and therefore, we also permitted the learned counsel for the appellant to argue the same question before us.

10. The only question argued before us by the learned counsel for the appellant is that the Industrial Trust Fund is a Corporation and not a department of the Government and that, therefore, Article 149 of the Limitation Act has no application. The very recitals in the mortgage deed dated 1st October, 1947 indicate that the mortgagee was a department of the H.E.H. the Nizam's Government and not a corporation. The recital is as follows:

'This deed executed this day of 1st October, 1947 equivalent to 1st Azar F. 1357 between Deccan Porcelain and Potteries Ltd., Company registered in Hyderabad under Hyderabad Companies Act IV, F. 1320 and shall henceforth be known as the mortgagor of the first part which term if not repugnant to the context shall also include not only the said company but also its successors, assignees and executors and Industrial Trust Fund, Nizam's Government, whose nominees are the said fund and shall be known henceforth, as the mortgagees of the second part which term includes if not repugnant to the context not only the said fund by also its Trustee, its Successors and transferors also'.

This recital shows that the Industrial Fund was a department of the erstwhile Government of H.E.H. the Nizam. But it is contended for the appellant that there is Other evidence which shows that this Fund is a separate legal entity unconnected with any of the departments of the Government.

11. The original Firman constituting the Industrial Fund is not available. But a copy of the Hyderabad Industrial Fund Rules, 1347, Hijri, which received the assent of H. E. H. the Nizam on 15th Shawal, 1347, Hijri, is filed. They are as follows :

'1(a) This fund shall be controlled by a Board comprising the members mentioned in the margin there taken at the end of 1 (a)). But they shall not be represented by any person deputed to represent in a meeting.

1. Minister, Finance.

2. Minister, Commerce and Industries.

3. Another member to be nominated by the Executive Council from time to time.

(b) The Director-General and Secretary, Commerce and Industries shall be the ex-officio Secretary of the Board.

(c) Each of the three members of the Board may directly initiate proposals and each such proposal shall be decided by a majority of votes except that keeping in view the provision of the Constitution of the Executive Council in regard to the duties of the Finance Department it shall be necessary to impose the condition that any proposal for expenditure not agreed to by the Finance Minister shall be deemed to be disapproved. But a proposal for expenditure initiated by the Finance Minister shall be subject to a majority of votes.

(2) The corpus of the Fund shall be invested for the purpose of aiding the large scale industries: in H. E. H. the Nizam's Dominions in such manner as the Board may think fit, and in this matter preference shall be given to debentures, and if necessary, to shares, and after full satisfaction of their needs, if the Fund still permits then it shall be invested in such industries outside H.E.H. the Nizam's Dominions, as may directly, indirectly or effectively be of benefit to these Dominions. Any surplus, remaining after satisfying these needs, shall be invented in such securities, as the Board may think fit.

(3) The interest on the Fund shall be invested for the following purposes :

(a) improvement and development of small industries and cottage industries;

(b) demonstration of industrial experiments, industries plants and processes:

(c) economic and industrial enquiry and research within H.E.H. the Nizam's Dominions:

(d) grants to assist industrial and technical research;

(e) grant of assistance to young men for obtaining education and practical training in industrial processes within or without H.E.H. the Nizam's Dominions.'

12. After the integration of the erstwhile State of Hyderabad and the formation of the State of Andhra Pradesh, the Legislature passed an Act (IV of 1957) with the declared object of amending the above Hyderabad Industrial Fund Rules. The material provisions are as follows:

'1. With effect from the commencement of the Hyderabad Industrial Fund Rules (Andhra Pradesh Amendment) Act, 1957 :

(a) the Industrial Fund shall be controlled and administered by the State Government in the Industries Department in accordance with the provisions of the Government Business Rules for the time being in force, and the Board which controlled the said fund before the commencement of the said Act shall stand dissolved:

(b) the powers, rights and liabilities of the said Board shall cease to be exercisable and enforceable by or against the State Government.'

13. A copy of the letter dated 8th May, 1929 from the Financial Secretary, H.E.H. the Nizam Government, addressed to the Accountant-General, Hyderabad, was placed before the learned Judge. By that letter, the sanction of H.E.H. the Nizam for the constitution of an Industrial Fund with a crore of Rupees with the object of extending State Aid to Industries was communicated to the Accountant General. The sanction shows that the share holdings of the face value of O.S. Rs. 54,83,333/- equivalent to Rs. 47,00,000 I.G. has been transferred to the Fund. Paragraph 3 of the letter provides for the investment of the corpus of the Fund. Paragraph 4 provides for the utilization of the dividends or interest earned on the corpus of the fund. The letter further recites that the Fund should be controlled by a Board of three members consisting of the Finance Member, the member for Revenue (Commerce and Industries), Ex-Officio and one other member to be nominated by the Executive Council and that the Director-General and Secretary, Commerce and Industries should be the Ex-Officio Secretary of the Board.

14. It is argued by Sri Sankara Rao, the learned Counsel for the appellant, that the Fund satisfies all the requisites of a corporation and therefore it is not a department of the Government. He has relied upon certain passages from Haisbury's Laws of England, 3rd Edn., Vol. 9 and Bagchi's Law of Corporation. He has also referred to certain decisions which we shall presently refer to. He argued that the Industrial Fund was created by means of a Firman issued by H.E.H. the Nizam and that therefore, the Fund is a Corporation created by a Charter, so to say, by H.E.H, the Nizam. At p. 4 of Vol. 9 of Halsbury's Laws of England (Simonds Edition) it is stated - -that a corporation aggregate is a number of individuals united into one body under a special denomination having perpetual succession under an artificial form, and vested by the policy of the law with the capacity of acting in several respects as an individual particularly of taking and granting property of contracting obligations and of suing and being sued, of enjoying privileges and immunities in common and of exercising a variety of political rights, more or less extensive, according to the design of its institution, or the powers conferred upon it, either at the time of its creation or at any subsequent period of its existence.

It is pointed out by the learned counsel that in recent years, a new class of corporations called national corporations, have come into existence and that corporations of this class are corporations aggregate and are created by Act of Parliament or by a Charter for the benefit or service to the Community and that the Industrial Fund is one such. He contended that these national corporations are public service corporations and carry on their undertaking as responsible independent organisations and not as part of any department of State. He submitted that the fact that the Corporation carries on the executive policy of the Government or that the Fund is supplied from the State Treasury and its management is controlled by a department of the Government are not relevant in deciding whether the Fund is a corporation or not.

In our view, one of the tests to find whether an institution is a Corporation or a department of the Government is to enquire whether the undertaking functions as a responsible independent organisation and not as part of any department of State. Another test would be to see whether it is endowed with the capacity to contract obligations and of suing and being sued. Further, the power to possess, use and change a seal is incidental to a corporation and a corporation aggregate can, as a general rule, only act or express its will by deed under its common seal. In Bagchi's Law of Corporations, at p. 177, it is stated that where a number of persons are so constituted by an Act of Parliament that they have perpetual succession, are to continue for all time, may take land, make contracts which shall be binding not upon themselves but upon the persons filling office, and are authorised to sue or to be sued in the name of their treasurer, they are in the nature of a corporation aggregate.

It is suggested by the learned counsel for the petitioner that the Industrial Trust Fund is a Commercial Corporation and that it is not a department of the Government. He also relied upon the definition and characteristics of a Corporation as stated on p. 366 of Corpus Juris Secundum, Vol. 18. It is as follows :

'A Corporation is a collection of natural persons, joined together by their voluntary action or by legal compulsion, by or under the authority of an Act of the Legislature, consisting either of a special character or of a general permissive statute, to accomplish some purpose, pecuniary, ideal, or governmental, authorized by the charter or governing statute, under a scheme of organization, and by methods thereby prescribed or permitted with the faculty of having a continuous succession during the period prescribed by the Legislature for its existence, of having a corporate name by which it may make and take contracts, and sue and be sued, and with the faculty of acting as a unit in respect of all matters within the scope of the purpose for which it is created.'

15. Bearing these principles in mind, we shall consider whether the Industrial Trust Fund, H. E. H. the Nizam's Government, is a Corporation and not a department of the Government.

16. The original Firman issued by H. E. H. the Nizam is not before us. We do not know what its terms are. The Hyderabad Industrial Fund Rules 1347 Hijri do not indicate that the Industrial Trust Fund, H. E. H. the Nizam's Government, is a corporation. Rule 1 (a) merely provided that the Fund shall be controlled by a Board comprising of the members mentioned therein. Admittedly, the persons entrusted with the administration of the Fund are civil servants and they are so entrusted with the power in the course of their official duties. The Fund was set apart, in our view, by the Government from the finances of the State and is administered by a department of the Government. None of the attributes essential to a corporation exist in the case of this Fund and this Fund has no separate legal existence. It is a department of the State. In our view, this is a Fund similar to the Harijan Welfare Fund, the Tribal Welfare Fund and many other kinds of funds set apart by the Government for specified purposes. Where the Government sets apart a particular sum of money for a specific purpose and makes rules for its control, there is no creation of a corporation.

We are unable to agree with the contention of Sri Sankara Rao, the learned Counsel for the appellant that the Fund has got perpetual succession and a seal. The rules do not bear out this contention. Further, the preamble to the mortgage bond describes the Fund as a department of the Government and the appellant himself, in his counter has described the Fund as a department of the Government. Generally, when a corporation is created by an Act or by a Charter, they themselves provide for the formation of a body corporate and invest it with powers to make rules, bye-laws, to have a seal and to contract, acquire property, etc. and also provide for its perpetual succession. In the present case, in the absence of the Firman itself, we are unable to agree with the learned counsel's contention that the Industrial Trust Fund is a corporation. On the other hand, we are of the view that the Industrial Trust Fund, H. E. H. the Nizam's Government, is only a department of the State.

The learned counsel relied upon the decision in Tamiln v. Hannaford, (1949)2 All ER 327. But, this decision, in our opinion, does not help the appellant. The present question did not arise in that case. The only question that arose for decision was whether the British Transport Commission which was admittedly a corporation is not a servant or agent of the Crown. The British Transport Commission was created as per the provisions of the Transport Act of 1947 which expressly provided for the creation of a corporation. The question whether the British Transport Commission was or was not a corporation did not arise in that ease. Having regard to the provisions of the Act under which it was created, the Court of appeal held that the British Transport Commission was not a servant or agent of the Crown and that its property was as much subject to the Rent Restrictions Act as the property of any other person.

Strong reliance was also placed on the decision of the Privy Council in Fox v. The Govt. of Newfoundland, 1898 A. C. 667. There, the question was whether the Boards, of Education in the Colony of Newfoundland which were constituted by the Education Acts of 1892 and 1893 were mere agents of the Government. The Privy Council, after a close scrutiny of the Sections of the Education Act, 1892, held that the said Boards were not agents of the Government and that they were independent bodies. It was pointed out that once money was paid to the Boards, the Government had no longer any control over the money. At p. 672, of the report, it is further pointed out that by Section 34, the Boards have power to make bye-laws and rules to be approved by the Governor in Council but are not bound to do so though by Section 37, their accounts have to be audited and returns of all schools duly audited are to be transmitted to the superintendent and these are, by Section 72, to be laid before the Legislature. That procedure was only for the information of the Government and the Legislature and not in order that any item of expenditure may be disallowed if the Government have not approved it. The Privy Council also stated in that case that the appointment of Boards for each of the three religious denominations concerned thereunder and the institution of the Board, indicate that it is not to be a mere agent of the Government for the distribution of the money but is to have within the limit of general educational purposes, a discretionary power in expending, which is a power independent of the Government. None of these factors is present in the case before us and this decision, in our opinion, does not support the contention of the learned counsel for the appellant that the Industrial Trust Fund, H. E. H. the Nizam's Government is a corporation.

17. It is also suggested on behalf of the appellant that this Trust Fund is a Commercial Concern created by the Firman issued by H. E. H. the Nizam. We are unable to accept this suggestion for the reason that there is no material to warrant such an inference.

18. In our opinion, the Industrial Trust Fund, H. E. H. Nizam's Government is not a corporation. The Government set apart a particular amount of money for being used for specified purposes and made rules for its control and utilised and it is a department of the Government and the persons in management as per the rules are merely agents or servants of the Government. It follows that any claim made by the petitioner in the O. P. who is the State of Andhra Pradesh, is governed by Article 149 of the First Schedule to the Indian Limitation Act 1908 and is not barred by limitation.

19. No other question is argued before us. In the result, the appeal fails and is dismissed with costs.


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