1. This is a special appeal from the decision of our brother Broome exercising Company jurisdiction. The U. P. Oil Industries Ltd., went into liquidation, on an application made by a creditor, by virtue of a winding-up order made on the 6th May, 1956. During the progress of liquidation, certain creditors claiming to be secured creditors attempted to get their money in liquidation by adducing proof of their debts. The creditors who attempted to get their money were Debenture-holders of two series, namely, the Debentures which were issued on the 24th April, 1948 and secondly, those which were issued on the 23rd June, 1950. We are in this appeal concerned with the Debenture-holders of the second series. There were 20 Debentures of the second series issued of Rs. 5,000/- each, totalling a sum of Rs. 1,00,000/-. Raja Sharda Narayaa Singh and Company took all the 20 Debentures of the second series. It may be mentioned that the Company, namely. Raja Sharda Narayan Singh and Company, was a partnership consisting of only two partners, the husband and the wife -- Raja Sharda Narayan Singh, the husband and Rani Shashi Pra-bha Kumari, the wife. The fact that the 20 Debentures of the second series were actually recorded in the name of Raja Sharda Narayan Singh and Company is not disputed and was never disputed. From the Official Liquidator's report dated the 29th April, 1959, and the third resolution recorded at the meeting of the Board of Directors dated the 28th February, 1950, as also from the account-books of the Company it was clear that Raja Sharda Narayan Singh had paid the consideration for these Debentures, i. e., a sum of Rs. 1,00,000/- and that the said sum had been duly credited in the books of the Company on the 23rd June, 1950.
2. By a notice dated the 7th December, 1956 Sri Bijay Shankar, an Advocate, wrote to the official Liquidator, under instructions from RajaSharda Narayan Singh, laying claim against the U. P. Oil Industries Ltd., (in Liquidation) in respect of 8 items stated in the notice. The first item of this, notice was a claim of Its. 1,00,000/- in respect of the Debentures' of the second series. This was the first, time when the controversy in regard to this claim was' raised. The Official Liquidator made certain enquiries in regard to the Debentures, their custody, etc., and by a letter dated the 26th December, 1956, Sri Bijay Shankar, Advocate, informed the Official Liquidator that the original trust deed -and the scrips concerning the Debentures of the second series were missing, and after a long correspondence between his client and the Company a resolution was recorded by the Company to issue a duplicate. Sri Bijay Shankar informed the Official Liquidator of the fact that a certified copy of the trust deed was being applied for and, would be produced before him for his satisfaction. The claim of the appellants in respect of the Debentures of the second series and interest due on them remained pending for a long time. There was a stage when the Official Liquidator was prepared to admit proof of these Debentures of the second series and was prepared to liquidate them, but it appears thatone Beni Prasad Agrawal, who purported to be the holder of Debentures of the third series, raised the question as to whether the alleged holders of the Debentures of the second series could get their money in liquidation, and further, whether they could get it without proof of the fact that they were not in a position to give a valid discharge in respect of the Debentures of the second series.
3. The question as to whether the Debenture-holders of the second series could give a valid discharge was decided against the appellants at one stage without going into the evidence which the parties, by virtue of an earlier order, could have given, and, therefore, the case went back to the learned Company Judge for giving the parties an opportunity to produce such evidence as they want ed. The learned Company Judge gave the parties the necessary opportunity. Three witnesses were called on behalf of the appellants, namely, Raja Sharda Narayan Singh, Rani Shashi Prabha Kumari and Sri Bindeshwari Prasad Singh, the present Manager of the Estate of the Raja. The fact that was attempted to be proved by these witnesses was the factum of loss of the Debentures because the primary ground, on which the want of power in the alleged holders of the Debentures of the second series to give a valid discharge was raised, was their incapacity to produce the Debentures for being cancelled as discharged. The Debentures were 'Bearer' Debentures and it was contended on behalf of the Official Liquidator that bearer Debentures could be negotiated by mere handing over of the Debentures and, therefore, unless and until the Debentures were produced or their loss satisfactorily established the Official Liquidator would have no protection against any claims that may subsequently be made by holders of those Debentures, the Debentures having been negotiated. It must in this connection be clearly seen that the right of the appellants being the Debenture-holders when those Debentures were issued was not disputed, and further that that right, of being the original Debenture-holders stood on a different footing from their right to be able to give a valid discharge in respectof those Debentures at the time when the question of giving a discharge arose. As we pointed out earlier, the Official Liquidator never challenged the assertion of the appellants that they were Deben--ture-holders, for indeed, at one stage, the Official Liquidator was prepared to pay up those Debentures. The question with which the Official Liquidator became later concerned, as we pointed out earlier, was raised subsequently, and the question that was raised was in regard to only the capacity of the appellants to give a valid discharge of those Debentures of the second series at the time when they were called upon to give a valid discharge in respect of the Debentures, It cannot be denied that one of the methods by which a Debenture can be discharged is by cancelling the Debenture, on the face of-it, and making an endorsement on the Debenture itself that payment in respect of the Debenture had been received, but then that was not the only method by which a Debenture could be discharged or the liability under a Debenture could be set at rest by discharge.
4. A secured creditor was not bound to come into liquidation in respect of his debt. He had under the law, if the company was an insolvent company -- and it was conceded in this particular . case that the Company in liquidation was an insolvent company -- to come into liquidation under the circumstances enumerated in Section 47 of the Provincial Insolvency Act by virtue of what was provided by section 229 of the Indian Companies Act. Section 229 of the Indian Companies Act (Act of 1913, for that is the Act with which we are concerned) provides as follows:-
'In the winding up of an insolvent company the same rules shall prevail and be observed with regard to the respective rights of secured and unsecured creditors and to debts provable and to the valuation of annuities and future and contingent liabilities as are in force for the time being under the law of insolvency with respect to the estates of persons adjudged insolvent; and all persons who in any such case would be entitled to prove for and receive dividends out of the assets of the company may come in under the winding up, and make such claims against the company as they respectively are entitled to by virtue of this section.'
Section 47 of the Provincial Insolvency Act is in these words :-
'(i) Where a secured creditor realises his security, he may prove for the balance due to him, after deducting the net amount realised.
(2) Where a secured creditor relinquishes his security for the general benefit of the creditors, he may prove for his whole debt.
(3) Where a secured creditor does not either. realise or relinquish his security, he shall, before being entitled to have his debt entered in the schedule, state in his proof the particulars of his security, and the value at which he assesses it, and shall be entitled to receive a dividend only in respect of the balance due to him after deducting the value so assessed.
(4) Where a security is so valued, the Court may at any time before realisation redeem. it on payment to the creditor of the assessed value.
(5) Where a creditor, after having valued his security, subsequently realises it, the net amountrealised shall be substituted for the amount of any valuation previously made by the creditor, and shalll be treated in all respects as amended valuation made by the creditor.
(6) Where a secured creditor does not comply with the provisions of this section, he shall be excluded from all share in any dividend.'
From the aforequoted section it is plain that a secured creditor had three options. The first one was that he could realise his security, and if there was some thing left due to him then he could come 'and prove for the balance. The second option that he had was to give up his security and come into liquidation ranking with other creditors and take his share in the distribution of the dividends; and the third was to value his security and to come into liquidation and prove for any dues that, according to him, remained outstanding in respect of his debt on his valuation of the security. It may be mentioned here that the learned Company Judge asked the appellants to make their election in regard to the three ways open to them to have their debt satisfied, and as a result of that the appellants chose the third option, namely, they valued their security and came into liquidation to prove for the balance. It may also be noted that the Official Liquida-'tor accepted the position taken up by the appellants. .There was no challenge on behalf of the Official Liquidator as to the value at which the appellants had valued their security. We should not be understood by this statement of fact to mean to say that in our view it was open to the Official Liquidator to challenge a valuation put by a secured creditor on his security. The Official Liquidator accepted the proof of the balance.
5. The only tangible assets available to the Official Liquidator for liquidating the debts outstanding against the Company were 'the Mills of the U. P. Oil Industries Ltd. The Mills were put up for auction on the 22nd March, 1959, (this date we got from learned counsel) and the highest bid offered at that sale was of Rs. 2,01,000/-. Objections were filed to this bid and the Liquidation Court held on the 8th April, 1959, that the bid was- inadequate and therefore it declined to confirm the sale. It was at this stage that the appellants offered to pay more for the Mills: they offered to bid for the Mills to the extent of the value of the Debentures held by them of the first and the second series which totalled, according to the calculations made by the then learn ed Company Judge, to Rs. 3.67-365/50 nP. The learned Company Judge in his order dated the 8th April, 1959, stated this:
'The Debenture-holders guarantee that theyare prepared to offer at least Rs. 367,365/50 forthe property. They, however, request that out ofthis amount they may be allowed to deposit Rs.27,428;- in cash and may be permitted to setoff the balance of Rs. 3,39,937'/50 on account oftheir Debentures. In order to show their goodfaith and guarantee they are prepared to depositRs. 27,428;- in cash with the Official Liquidatewithin ten days.'
It may be noted that the appellants deposited incash with the Official Liquidator the sum of Rs,27.428/- which they had offered to do within the time mentioned by them. After all this had been done, the question was raised whether the appellants could set off the value of their Debenture holdings of the second series. That question was specifically raised by one Beni Prasad Agarwal, who claimed to be the Debenture-holder of the third series. The question that was raised was that the appellants could not be permitted a set-off of their holdings of the second series unless they could establish to the satisfaction of the Court that they were able to give a valid discharge in respect of 'those' Debentures. The question, as to whether or not the appellants were in a position to give adequate discharge in respect of the Debentures of the second series, therefore, became the main question in controversy between the Official Liquidator, on the one hand, and the appellants, on the other. The learned Company Judge had, as we noticed earlier, decided the question against the appellants by his order dated the 4th October, 1960. The matter went back to him for re-decision and he has again held by the order under appeal dated the 6th October, 1962, that Raja Sharda Narayan Singh and the two other appellants, who claim to be the holders of Debentures of the Second series, were not in a position to give an effective discharge in respect of those Debentures.
6. The learned Company Judge primarily came to the aforementioned conclusion because he was. not satisfied with the contention of the appellants-that the Debentures in question had been lost. The learned Company Judge put this matter for decision' in these, words:
'The main point that requires to be elucidated is what has happened to the Debenture scrips and' interest coupons which were apparently issued by the Company for this second series of Debentures-in 1950.'
Raja Sharda Narayan Singh and Rani Shashi Prabha Kumari stepped into the witness-box to saythat they never received these scrips and, therefore,they were not in a position to say what happenedto them. It 'was pointed out before the learnedCompany Judge that there was an endorsement inthe books of the Company (in liquidation) that Thakur Kedar Nath Singh, who was a General Attorney of the Raja, had taken those Debentures andgiven a receipt for them. The receipt was not before the learned Company Judge nor is it before usand it was not contended on behalf of the OfficialLiquidator that he found any receipt in the papersof the Company evidencing receipt of the Debentares by Thakur Kedar Nath Singh and ThakuiKedar Nath Singh was certainly not produced. Before us was produced the original Minutes-book ofthe meetings of the Board of Directors of the U. P.Oil Industries Ltd., and we find that the Minutesof the 23rd October, 1952, make a record - & veryimportant record indeed -- in respect of these Debentures. What is recorded in respect of this matter is in Para 5 of the Minutes, and this is whatis recorded there:
'The correspondence passed between the Debenture Holders' Trustee and the Managing Agents-regarding payment of Debenture interest was react and considered. The receipts of the Debenture scrips in the possession of Managing Agents signed by the Thakur Kedar Nath Singh were shown to himat his request in the meeting, and he accepted them. He would apply for the reissue of Debenture scrips when the matter will be duly dealt with by advertising in the papers.'
The first appellant. Raja Sharda Narayan Singh, was one of the members present at the meeting and he has signed these Minutes. So it was contended on behalf of the Official Liquidator before the learned Company Judge and before us that Raja Sharda Narayan Singh could not be heard to say that the Debenture scrips had not been received by Thakur Kedar Nath Singh. The aforequoted portion of the Minutes of the Z3rd October, 1952, did not make two things clear, first, that the record that was made was in respect of the Debentures of the second series, and secondly, that Thakur Kedar Nath Singh had received the Debentures, whatever their series may have been, as and on behalf of the appellants.
It is no doubt true that it was admitted that Thakur Kedar Nath Singh was an Attorney of the appellants. The Debenture Holders Register of the Company records that 20 Debenture scrips of Rs 5,000/- each with interest coupons, which had been issued, were delivered to and were taken by Thakur Kedar Nath Singh on behalf of Raja Sharda Narayan Singh and Company and receipt dated the 21st July, 1950, granted. The Register in which the aforementioned fact finds a record is a book which has only 6 pages and that too not fully written. No evidence has been referred to us on which we could say that this Register could be accepted as a register having been maintained in due course of business by the Company under any requirement of the law. Therefore, we were not greatly impressed by the probative value of this Register. Be that as it may, two facts appear to be quite clear, first, that it was fairly early in the controversy that it was stated on behalf of the Company (in liquidation) that the scrips and interest coupons in respect of the Debentures of the second series had been handed over to Thakur Kedar Nath Singh. It, is significant in this connection to note that the Debenture? of the first series also appear from the record in the Register referred to above to have been taken delivery of on behalf of the respective holders of the Debentures by Thakur Kedar Nath Singh. The other thing that appears to us to be clear was that the Debentures were not forthcoming. Thakur Kedai Nath Singh never came forward to produce those Debentures or to claim any interest under them, no:- did anybody effectively come forward before the Official Liquidator to make any claim on these Debentures. On behalf of the appellants it was contended that they were prepared to execute an indemnity bond to the satisfaction of the Official Liquidator which could safeguard the interests of the Official Liquidator in the event of any one coming forward to claim under the Debentures, assuming that the Debentures were negotiable by mere delivery. The offer to put in an indemnity bond was made before the learned Company Judge also buthe refused to countenance that request on the ground that he saw no good reason why the Official Liquidator was to be forced to accept 'a security' at that stage of the proceedings. With profound respect we have been unable to appreciate any substantial reason in the view expressed by the learned Company Judge in regard to this matter. His view that there were several years of limitation to run did not, in our opinion, make any difference to the Official Liquidator accepting an indemnity bond and, acting on the strength of that bond, letting, the creditors of the second series of Debentures to set off the amount of the Debentures in respect of the sale price of the Mills. If we thought it was necessary for us to give a finding on the question of. loss then we would have had some difficulty in agreeing with the finding of the learned Company Judge on the question of the prool of loss of the Debentures of the second series, but in view of what. we shall presently say such a decision by us was-not called for.
7. There is one aspect of this matter wnich was not considered by the learned Company Judge possibly because it was not placed before him for) consideration by counsel, as it was not even before. us, and that was in respect of the right of the appellants to claim a set-off in respect of the Deben--tures of the second series, assuming that in respect of those Debentures the appellants could give a valid discharge. We have noticed earlier that under section 47 of the Provincial Insolvency Act a secured creditor had three options, and that this- particular creditor had selected the third option namely, of valuing his security and proving for the balance in liquidation. A creditor choosing this option, which we have called the third option has no right to claim that his security which he has valued should in any way be recognised in liquidation proceedings even to the extent of permitting a set-off of the value of the security in respect of a sale held in liquidation by the Official I iquidator of the property of the insolvent company. Under Sub-section (4) of Section 47 there is undoubtedly a power in the Court to redeem the security before the security had been realised by paying ' to the creditor the assessed value of the security. In this particular case there was on behalf of the Court no desire to redeem the security valued by the creditors. Therefore, it was not strictly open to the creditors to lay a claim to have the amount of their security set off against the sale price. In oirr judgment, the short answer to the appellants in respect of their claim for set off of the sale price was to tell them that they had no such right and that if they wished to be the purchasers of the Mills put up for auction they had to come in as any one else. The question whether the creditors could give a valid discharge in respect of the second series of Debentures or not did not, in oar opinion, arise for determination in the view which we have taken of the right of the creditors to claim a set-off in respect of their security. The position of the Debentures of the first series, we may mention here, was slightly different, for so far as the value of those Debentures was concerned it appears.-to have been accepted on all hands that the value-of those Debentures could be set off as against the-sale price; the situation in regard to them seems to have been an agreed one. So that in respect of them it could be said that the Court was prepared to redeem the security of the first series .of Debentures on payment of their value. That position does not obtain in regard to the Debentures of the second series, because in respect of the Debentures of the second series there was no offer to redeem them on behalf of the Court.
8. We may here mention that at one stage the Official Liquidator almost admitted the liability in respect of the Debentures of the second series, for we find that in a letter dated the 20th August, 1957, the Official Liquidator wrote to Sri Bijay Shankar, Advocate, who apparently was pressing the claim of Raja Sharda Narayan Singh with the Official Liquidator, this :
'Debentures second series Rs. 1,00,000/-. This as correct and the amount will be paid along with interest after the Mill is sold and the money isreceived by me.'
In our judgment, this could not amount to an admission which could entitle the appellants toargue that there was any offer or desire on thepart of the 'Court' to redeem the security as contemplated by Sub-section (4) of Section 47 of the Provincial Insolvency Act. The position, there-fore, was that, in our view, the Debentures of thesecond series could not be relied upon by the appellants to claim a set-off in respect of the prica fetched at auction or the price offered by them for the Mills. We are also of the opinion that the question as to whether or not the appellants could give a valid discharge in respect of the aforementioned Debentures of the second series was a matter which should not have been gone into in the liquidation proceedings. The appellants would have their legal rights, as they must have them, in respect of the Debentures, for the fact that the Debentures were actually issued to them and that theyhad paid good money for the same remains admitted on all hands.
9. In view of what we have said above, we are of the opinion that this appeal must fail because in substance we are upholding the order of the learned Company Judge, namely, that the appellants were not entitled to claim a set-off in respect of the Debentures of the second series,though on different grounds.
10. We, therefore, 'dismiss this appeal but under the circumstances of the case direct the par-ties to bear their own costs of this appeal.