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Hardit Singh Giani Vs. Registrar of Companies, New Delhi - Court Judgment

LegalCrystal Citation
SubjectCompany
CourtDelhi High Court
Decided On
Case NumberF.A.O. No. 47-D of 1996
Judge
Reported inAIR1969Delhi112; 4(1968)DLT6
ActsCompanies Act, 1956 - Sections 456(1), 463, 502, 515, 515(2), 524(4) and 647; Companies (Amendment) Act, 1960; Uttar Pradesh Abolition of Zamindari Act; Indian Companies Act, 1913 - Sections 176 and 213(2) and 224(3); Companies Act, 1862 - Sections 141
AppellantHardit Singh Giani
RespondentRegistrar of Companies, New Delhi
Appellant Advocate H.R. Sawhney, Sr. Adv. and; R.C. Beri, Adv
Respondent Advocate Dipak Chaudhary and ; Satish Chander Saxena, Adv.
Cases ReferredKaikhushru Nusservanji Chandabhoy v. Tata Industrial Bank Ltd. Air
Excerpt:
the court argued about the removal of liquidator in the case of winding up subject to its supervision and considering section 524 of the companies act, 1956 held that such removal could nto be arbitrary and must have proper supporting reasons - section 13: [altamas kabir & cyriac joseph,jj] custody of child - welfare of child vis--vis comity of courts - the minor girl child of 3 1/2 years was brought to india by her mother. the minor girl was a citizen of u.k. being born in u.k. her parents had set up their matrimonial home in u.k. and had acquired status of permanent residents of u.k. the child with her mother was supposed to return to u.k. but the mother cancelled her tickets and remained behind in india. the husband thereupon started procededings before the high court of justice,.....1. i have found it difficult to decide this case. both during the course of counsel's arguments and afterwards my mind has undergone several modifications and changes of opinion, even today, i find it a difficult question of jurisdiction and discretion.2. the appellant dr. hardit singh giani was liquidator of national planners limited which is now in liquidation. the company was incorporated on 23-2-1946 as a private company limited by shares under the indian companies act 1913, but was soon converted into a public company by a special resolution passed on 5-6-1946. the nominal capital of the company was rs. 20,00,000/- divided into 100,000 preference shares of rs. 10/- each and 20,000 ordinary shares of rs. 5/- each, while its paid up capital according to the latest balance-sheet of the.....
Judgment:

1. I have found it difficult to decide this case. Both during the course of counsel's arguments and afterwards my mind has undergone several modifications and changes of opinion, Even today, I find it a difficult question of jurisdiction and discretion.

2. The appellant Dr. Hardit Singh Giani was Liquidator of National Planners Limited which is now in liquidation. The company was incorporated on 23-2-1946 as a private company limited by shares under the Indian Companies Act 1913, but was soon converted into a public company by a special resolution passed on 5-6-1946. The nominal capital of the company was Rs. 20,00,000/- divided into 100,000 preference shares of Rs. 10/- each and 20,000 ordinary shares of Rs. 5/- each, while its paid up capital according to the latest balance-sheet of the company as on 30-6-1949 filed in the office of the Registrar of Companies Delhi was Rs. 96,394/50. One Roshan Lal (since deceased) was its Managing Director while his brother Kundan Lal was one of its Directors.

3. The main object for which the company was established was to carry on at Ghaziabad in the State of U. P. the business of land development and colonising. But its dealings with the public appear to have attracted the attention of the police and criminal prosecutions were launched in the State of Uttar Pradesh against all the Directors of the company on charges of cheating etc.

4. At a general meeting of the shareholders of the company held on 26-10-1953 it was resolved to wind up the company voluntarily and Dr. Hardit Singh Giani was appointed as a Liquidator. The winding up was subsequently brought under the supervision of the Court by an order made by the then District Judge Delhi, on 26-3-1954 and Dr. Hardit Singh continued to act as Liquidator. On 25-4-1955 the Liquidator settled the list of contributories and the examination of the Managing Director was also concluded by him on 4-11-1955. The Liquidator also filed 25 petitions in the court of the District Judge Delhi for recovery of amounts due from the contributories. Meanwhile on 1-4-1956 the Companies Act 1956, came into force and the District Judge forwarded the record to the High Court of Punjab in the belief that the High Court alone had jurisdiction to deal with the winding up proceedings. The High Court by its order dated 20-11-1957 directed the record to be sent back to the District Judge, Delhi. But it appears that the record was nto received in the Court of District Judge till August 1958. Mean: while on an application filed by Shri Roshan Lal in the court of a Magistrate at Aligarh, where he was being prosecuted, the record was summoned by the learned Magistrate which resulted in a stalemate.

5. The trial of the criminal case pending against Shri Roshan Lal and other Directors of the company ended sometime in 1960 resulting in their conviction and imposition of sentences of imprisonment on them. In the following year the appeals filed by them were disposed of by the High Court of Allahabad,

6. On 26-10-1961 the Liquidator applied for the return of the books and started liquidation proceedings in right earnest. According to his learned counsel, Mr. H. R. Sawhney, the Liquidator had to prosecute or defend 347 cases in various courts in and outside Delhi, out of which 105 cases were hotly contested. The company owned 74,000 sq. yards of land in Ghaziabad and about 700,000 sq. yards of land in Meerut. Due to mismanagement on the part of the Directors of the company land belonging to it was trespassed upon by strangers and the Liquidator had to take action under section 456(1) of the Companies Act and eventually succeeded in obtaining possession of 74,000 sq. yards of land in Ghaziabad on 31-5-1962. But the possession of the land in Meerut has nto been obtained by him till today as the persons in possession thereof have claimed ownership rights therein under the U. P. Abolition of Zamindari Act. The Liquidator, who will hereafter be referred to as 'the appellant' alleges that the proceedings relating to the said land are still pending.

7. In April, 1963, the appellant with the permission of the District Judge Delhi agreed to sell 68,000 sq. yards of land out of the company's land in Ghaziabad to one Prem Parkash Bhutani at the rate of Rs. 3.12 per sq. yard and received a sum of Rs. 100,000/- as earnest money from the purchaser. He alleges that the completion of the sale transaction was however stalled by the obstruction created by Shri Roshan Lal who had unauthorisedly sold out of the said land 27000 sq. yards at the rate of 10 annas per sq. yard thereby making it impossible for the appellant to fulfill his commitment with Shri Prem Parkash Bhutani. The latter moved the court of the learned District Judge and asked for the refund of his money on the ground that the company was nto in a position to convey a valid and subsisting title in respect of the land agreed to be sold to him.

By his order dated 12-3-1965, the learned District Judge, directed that out of the amount received from Shri Bhutani, the appellant should return Rupees 90,000/- to him in two Installments. The appellant alleges that the said amount has since been returned to the purchaser as directed by the learned District Judge. He further alleges that he filed two applications in the court of the District Judge Delhi against the persons to whom land had been unauthorisedly transferred by Shri Roshan Lal for restoration of possession to the appellant and that by an order dated 8-3-1966 the learned District Judge ordered restoration of possession of the said land to the appellant and proceedings for contempt being initiated against Shri Roshan Lal. Against the order passed by the learned District Judge, appeals (being F.A.O. Nos. 67-D of 1966 and 102-D of 1966) have been filed by the transferees which are pending in this Court and the appellants have obtained stay orders in those appeals.

8. The appellant further alleges that as a result of Shri Roshan Lal's examination several cases of criminal breach of trust were filed against him. He was convicted in five of these cases and sentenced to varying terms of imprisonment and fine while several other cases were still pending when he died.

9. The appellant submits that although Shri Roshan Lal was now beyond the reach of law, misfeasance proceedings against his brother Shri Kundan Lal were still pending. These proceedings, the appellant alleges had naturally created a great deal of resentment in their minds against him and they had started action for his removal from the office of liquidator. The first attempt in this behalf was made by Shri Kundan Lal and his nephew Sudershan Kumar in the year 1954 when they applied for his removal in the Court of the District Judge, Delhi. The application was however dismissed by Shri S. B. Capoor (now Hon'ble Mr. Justice S. B. Capoor of the High Court of Punjab and Haryana) by his order dated 20-8-1954.

The second application was filed by Shri Roshan Lal in the year 1958 before Shri H. R. Khanna (now Hon'ble Mr. Justice H. R. Khanna of this Court). The application remained under inquiry for two years till it was dismissed by an order dated 3-6-1960. The dismissal of this application was followed by a third application filed by Shri Kundan Lal and his associate Shri Kanti Prashad which was again dismissed by Shri H. R. Khanna on 22-7-1960. The fourth application was by one Lakshman Uppal along with Shri Roshan Lal and Kun- dan Lal; but this too was dismissed on 6-1-1961.

10. Undaunted by the dismissal of their repeated applications, Shri Kundan Lal and his brother set up one Maya Ram to move an application for the removal of the appellant but his application was also dismissed by Shri P. P. R. Sawhney, the then District Judge Delhi on 31-1-1963. Two more applications were then filed by Shri Kundan Lal and others, but both of them were dismissed on 21-2-1963 and 9-5-1963 respectively.

11. In 1966. Shri Kundan Lal addressed a lengthy complaint to the Chairman, Company Law Board and sent its copies to the Registrar of Companies, the Superintendent of Police, C.I.D. and the District Magistrate Delhi.

12. It appears that Shri Kundan Lal's efforts bore fruit at last and on 28-5-1966 the Registrar of Companies, filed an application in the court of the District Judge Delhi under sections 515(2) and 524(4) of the Companies Act, 1956, read with sections 213(2) and 224(3) of the Indian Companies Act, 1913, praying for the removal of the appellant as Liquidator of the company and for the appointment of the Official Liquidator attached to the High Court as Liquidator in his place. A notice of the application was issued by the learned District Judge to the appellant who was imp leaded as sole respondent in the said application. The appellant filed a lengthy reply accompanied by copies of documents and raised several preliminary objections besides replying to the allegations on merit

13. Learned District Judge (now Hon'ble Mr. Justice Jagjit Singh of this Court) relying upon the judgment of Malins V. C. in re: Marseilles Extension Railway and Land Company (1867) 4 Eq 692 held that it was nto necessary to take any evidence with regard to the allegations of misappropriation and misconduct on the part of the appellant because on a consideration of all the circumstances, it was advisable and in the interest of the creditors and contributories of the company that the appellant should be removed from his office and that his removal would help in putting more speed into the winding up proceedings. What the learned District Judge said, may better be reproduced in his own words:

'It seems to me that there are sufficient grounds for removing the Liquidator and it is nto necessary to take evidence regarding any alleged act of misconduct or personal unfitness of the Liquidator. In that view of the matter, it is also unnecessary to consider as to whether or nto from the written statement of the Liquidator any adverse inference can be drawn. The undisputed acts go to show that continuance of Dr. Hardit Singh Giany as Liquidator is nto desirable and in the interest of the Creditors and the Contributories of the Company. I would like to make this clear that his removal will nto imply that any allegation of misconduct, misappropriation or unfitness has been established against him. That will be matter for determination in other appropriate proceedings.'

14. The present appeal is directed against the aforesaid order of removal passed by the learned District Judge, Delhi.

15. In the earlier part of this judgment I have given a somewhat lengthy account of the various proceedings initiated by and against the appellant. My main object in doing so was to show that there is a considerable amount of animosity and bitterness against the appellant on the part of Shri Kundan Lal who appears to be the prime mover behind the action taken by the Registrar against him. It is, thereforee, natural that there should be a great deal of exaggeration in the charges leveled against the appellant This, however, does nto mean that the appellant's own conduct is entirely free from blemish. The winding up proceedings which commenced 14 years ago are nowhere near their end. Neither the creditors nor the Contributories have been paid anything out of the assets of the company. Three different firms of auditors and accountants, namely, Messrs. Walker Chandiok and Company, Messrs. H. L. Gupta and Company and Messrs. R. N. Bhatnagar and Company have made several qualifications and reservations in their audit reports on the Liquidator's statements of accounts for the period ending 26-10-1953 to 31-10-1965. Net realisation of assets by the appellant during this period was stated to be Rs. 1,52,433/09 as against disbursement of Rs. 1,64,888/31 out of which nothing has been paid to the creditors or contributories of the company.

It is true, as has been contended by Mr. H. R. Sawhney, learned counsel for the appellant, that the realisations and disbursement included the sum of Rupees 1,00,000/- received by the appellant from Shri Prem Parkash Bhutani returned by him under the orders of the District Judge, Delhi. But the fact still remains that whatever amount has been realised, the whole of it has been spent by the appellant on litigation, general charges, establishment and entertainment Mr. Sawhney has also taken me through the various orders made by the successive District Judges in which the charges of misconduct and misappropriation leveled against the appellant have been held to be either un-proved or baseless. He has also taken me through the reports of the auditors on the statements of accounts filed by the appellant and has strenuously argued that the various objections raised therein were objections of a routine nature which were to be found in the audit reports of almost every company. He has also endeavored to show that the appellant could nto be held responsible for some of the shortcomings to which attention has been drawn by the auditors in their reports.

16. Mr. Sawhney has also vigorously argued that the order under appeal suffered from a grave infirmity inasmuch as one of the grounds on which the learned Judge has based his conclusion is factually incorrect, while the other three, even if they were correct, did nto justify the order of removal. As this was the main ground of attack against the order, I should like to deal with it at some length before I come to deal with the cases to which reference has been made by the learned counsel on both sides. The learned District Judge has observed that out of the numerous allegations made against the appellant there can be no doubt regarding the following facts:

'(a) Majority of the creditors of the Company in a meeting held on 30/3/1963 made very serious allegations against the liquidator which amounted to their having no faith in him.

(b) The winding up proceedings have been dragged on for over 12 years without the creditors and contributories being paid anything.

(c) One of the alleged creditors of the Company was appointed as his clerk by the liquidator which appointment was to say the least, undesirable.

(d) The assets so far realized have been spent on Litigation, Office, traveling and conveyance expenses.'

17. Mr. Sawhney has challenged the factual basis of the statement that the majority of the creditors of the company In a meeting held on 30-3-1963 had made serious allegations against the liquidator which amounted to their having no faith in him. In this connection he invited my attention to the minutes of the proceedings of the meeting of the creditors held on 30-3-1963 under the Chairmanship of the Official Liquidator, as recorded at pages 63 to 79 of the Liquidator's Minutes Book. According to these minutes the meeting was attended by 9 creditors of the company including the appellant himself. The names of the creditors mentioned therein are as follows:

1. Shri Amar Singh Bhalla,

2. Shri Kajori Lal.

3. Shri K. P. Aggarwal,

4. Shri Gopal Dass Dhingra,

5. Shri Sahib Dayal Kapur,

6. Shri Inder Sain Jain,

7. Shri Sher Singh Yadav (Clerk of Liq.)

8. Shri Nand Lal Bajaj,

9. Shri Hardit Singh Giani, Liquidator.

17A. The first objection was raised at the meeting by Shri K. P. Aggarwal who objected to the presence of Shri Amar Singh Bhalla and Shri Sher Singh Yadav and alleged that both these persons were nto creditors of the company. His allegation against Shri Amar Singh Bhalla was that he was in collusion with the Liquidator and had gto his name falsely entered in the Schedule of Creditors with the object of inflating the liabilities of the company. As regards Shri Sher Singh Yadav his allegation was that he was merely a clerk of the Liquidator and was nto a creditor of the company. He alleged that the Liquidator Dr. Hardit Singh Giani was himself also nto a creditor of the company. He, thereforee, objected to the participation of these three persons in the proceedings of the meeting. The contention of Shri K. P. Aggarwal was supported by the remaining five creditors, namely Sarvshri Kajori Lal, Gopal Dass Dhingra, Sahib Dayal Kapur. Inder Sain Jain and Nand Lal Bajaj. The appellant's reply to the objection raised by Shri K. P. Aggarwal was that the names of Shri Amar Singh Bhalla and Shri Sher Singh Yadav and his own appeared in the list of creditors. Their claims having been admitted by him as Liquidator, they had a right to participate in the meeting and that Shri Jagat Dhish Bhargava. Official Liquidator, who was Chairman of the meeting had no authority to question as to whether certain person was or was nto a creditor.

18. The appellant's reply to Shri K. P. Aggarwal's objections was followed by an objection raised by Shri Amar Singh Bhalla who maintained that he was a creditor of the company and had a right to participate in the meeting. He, however, stated that at the meeting of the creditors held on 2-3-1963 it had been decided that a notice of the meeting should be given to all the creditors for 30-3-1963 but no such notice having been sent at the expense of the creditors, the meeting could nto be held. The objection raised by Shri Amar Singh Bhalla was supported by the appellant and Shri Sher Singh and Shri Inder Sain Jain.

19. The Chairman, however, ruled that the question whether a particular person was or was nto a creditor could nto be gone into by him as the list of creditors was final and binding so far as he was concerned and if according to the objecting creditors the name of any person had been wrongly entered in the list their remedy was to take appropriate proceedings in a court of law. The Chairman also overruled the objections raised by Shri Bhalla.

20. As regards the accounts placed before the meeting of the creditors the same were supported by Shri A. S. Bhaila, Shri Sher Singh, Shri Inder Sain Jain and the appellant himself, and the only persons who opposed the accounts and alleged that the same had been fabricated and falsified in order to diminish the assets of the company and that large sums of money had been taken away by the Liquidator and misappropriated by him under the cloak of expenses, were Shri K. P. Aggarwal, Shri G. D. Dhingra, Shri Kajori Lal and Shri Nand Lal.

21. According to the Schedule of Creditors Shri K. P. Aggarwal and Shri G. D, Dhingra were creditors to the extent of Rs. 800/- and Rs. 750/- respectively, while Shri Amar Singh, Shri Sher Singh and Shri Inder Sain were creditors to the extent of Rs. 3048/9/-, Rupees. 3942/15/9 and Rs. 5260/- respectively. Even if the appellant's name is nto to be included in the list of creditors, the contention urged by Mr. Sawhney is that it was incumbent upon the learned District Judge to have gone into the question as to whether Shri Amar Singh Bhalla and Shri Sher Singh and the appellant were in fact the creditors of the company before coming to the conclusion that the majority of the creditors had made serious allegations against the appellant which amounted to their having no faith in him. The Schedule of Creditors had been prepared as far back as 1955 and had been produced from time to time during the course of the various applications filed against the appellant before successive District Judges without any objections having been raised as to its correctness. Mr. Sawhney contended that it was only a small (number of?) creditors in value who had made allegations against the appellant and expressed lack of faith in him.

22. Mr. Sawhney further contended that it was true that the winding up proceedings had remained pending for over 12 years without the creditors having been paid anything. He however submitted that there was scarcely any justification for fastening responsibility for the delay on the appellant who, according to the learned counsel, had done everything in his power to make recoveries and to bring the persons responsible for mismanagement of the affairs of the company to book. He had also striven hard to take under his control the property of the company and had taken steps to sell at a profitable price whatever land he was able to secure. He was however faced with stubborn opposition at the hands of Shri Roshan Lal and his brother, Mr. Sawhney further contended that whatever suits and proceedings had been filed by the appellant, and there were scores of them, the same were filed with the permission of the District Judge and were prompted by a desire to advance the interest of the company. Legal proceedings necessarily entailed expense, inconvenience and a great deal of traveling and moving about. If the learned District Judge was inclined to hold that any of those expenses were unjustified he should have gone into the matter and allowed the appellant to lead evidence in support of the claim made by him.

23. As regards the appointment of Shri Sher Singh Yadav as a clerk by the appellant, Mr. Sawhney contended that Shri Sher Singh had been Manager of the company from 1-4-1948 to 25-4-1952. He was thereforee aware of the misdeeds of the Managing Director and his confederates and had helped the appellant in their prosecution. He was previously getting Rs. 100/- per mensem as his salary but after the company went into liquidation his salary was reduced to Rs. 50/- per mensem only plus one per cent commission on realisation of assets. Mr. Sawhney submitted that the total commission earned by this employee during a long term of 12 years came to a modest sum of Rs. 1000/- only. Mr. Sawhney strongly urged that the very foundation on which the learned District Judge had based his order was shaky and thereforee the order for the removal of the appellant did grave injustice to his client who had honestly and sincerely devoted 14 years of his life to the job of winding up of this company and now when the opposition of his enemies to his efforts to complete the proceedings, was on its last legs (Shri Roshan Lal having died and his brother Kundan Lal having been involved in misfeasance proceedings), it was iniquitous to remove the appellant and thereby subject him to the stigma and ignominy of removal from office, besides depriving him of the remuneration to which he would be justly entitled under the law.

24. Mr. Deepak Chaudhry, learned counsel for the Registrar of Companies argued on the other hand that according to law the District Judge had absolute discretion to appoint or remove a liquidator and unless it was shown that discretion had been exercised unreasonably or in circumstances which amounted to an abuse of power, it could nto be interfered with in appeal. He also urged that according to the Minutes of the meeting of creditors held on 30-3-1963, the appellant could claim majority in his favor only if Shri Amar Singh Bhalla and Shri Sher Singh were held to be genuine creditors. He submitted that apart from Shri K. P. Aggarwal, five other creditors of the company, namely, Shri Kajori Lal, Shri Gopal Das Dhingra, Shri Sahib Dayal Kapur, Shri Inder Sain Jain and Shri Nand Lal Bajaj had also supported the objection that these two persons as well as the appellant were nto genuine creditors of the company. The status of these persons being under challenge, Mr. Chaudhry argued that the learned District Judge was perfectly justified in holding that the majority of creditors had lost faith in him. Mr, Chaudhry further urged that whatever be the reasons which prevented the appellant from completing the winding up proceedings, the fact remained that for over 12 years the appellant had nto shown any substantial progress nor had the creditors and contributories been paid anything,

Regarding the employment of Shri Sher Singh Yadav, Mr. Chaudhry argued that it was highly undesirable that a person who was closely associated with the previous management and had been a willing tool in their hands as long as they were in office, should have been retained in service by the appellant when the affairs of the company during that very period, were under investigation by him. Moreover, Shri Sher Singh's name had also been included in the Schedule of Creditors settled by the appellant. The employment of such a person who had personal interest in the company's assets was to say the least, highly undesirable and improper, Mr. Chaudhry also argued that it had nto been denied by the appellant, as indeed it could nto be denied, that whatever assets had been realised during all these years, the same were wholly spent on litigation, maintenance of office, entertainment, traveling and conveyance charges. According to Mr. Chaudhry, it looked as if the only object of continuing the winding up proceedings was to enable the appellant to earn for himself the office, traveling and conveyance allowance out of the moneys belonging to the company and to provide himself with an opportunity to pay large sums of money as professional fees to the lawyers engaged by him.

25. Mr. Chaudhry also argued that Mr. Sawhney was nto right in his criticism regarding qualifications and reservations which the auditors had mentioned in their reports on the statements of accounts prepared by the appellant. He strongly repudiated Mr. Sawhney's suggestion that the auditor's comments on accounts were of a routine nature and invited my attention to several items of objections and comments and strenuously argued that the reports threw a lurid light on the conduct of liquidation proceedings by the appellant. Mr. Chaudhry submitted that the learned District Judge had taken a sympathetic view of the whole matter and had without pronouncing finally on the question of the appellant's unfitness as a liquidator, come to the conclusion that it was nto desirable and in the interest of the creditors and the contributories of the company that the appellant should be allowed to continue as its liquidator. Mr. Chaudhry drew pointed attention to the fact that the learned District Judge had made it clear that the removal of the appellant did nto at all imply that any allegation of misconduct, misappropriation, or unfitness had been established against him. In fact the learned District Judge was careful enough to say that that question was being left to be determined in other appropriate proceedings. Mr. Chaudhry strongly refuted Mr. Sawhney's contention that it was obligatory on the part of the learned District Judge to have examined evidence in this case, because according to Mr. Chaudhry, the necessity for examining evidence would have arisen only if the order of the appellant's removal had been based on allegations of misconduct, misappropriation or unfitness against him.

26. These being the broad contentions of the parties, I now pass on to the examination of the cases which have a bearing on the question before me.

27. The winding up of the company admittedly commenced before the commencement of the Companies Act 1956 (hereafter to be referred to as 'the Act'). Section 647 of the Act as amended by the Companies. (Amendment) Act 1960, provides that where the proceedings in any such winding up are pending at the commencement of the said Act, Sections 463, 502, 515 and 524 shall, as far as may be, also apply in relation to such proceedings. The company having been ordered to be wound up subject to supervision of the Court, the provisions of section 524 of the Act are attracted. The said section as amended by the Amendment Act 1960 reads:

'(1) Where an order is made for winding up subject to supervision, the Court may, by that or any subsequent order, appoint an additional liquidator or liquidators.

'(2) The Court may remove any liquidator so appointed or any liquidator continued under the supervision order, and fill any vacancy occasioned by the removal or by death or resignation.

'(3) The Court may appoint the Official Liquidator as a liquidator under sub-section (1) or to fill any vacancy occasioned under sub-section (2).

'(4) The Court may also appoint or remove a liquidator on an application made by the Registrar in this behalf.'

28. Unlike section 515 of the Act under which the Court can remove the liquidator in voluntary winding up on cause being shown, section 524 confers plenary power of appointment and removal of liquidator on the Court in the case of winding up subject to its supervision.

29. Although the extent of Court's power is nto delimited by the section it seems to me to be implicit in the section that an order of removal of liquidator can only be passed or at any rate should be passed only for good cause shown and nto in an arbitrary manner. I thereforee find it difficult to accept the extreme position taken by Mr. Chaudhry that section 524 confers absolute discretion on the Court and as such the learned District Judge was nto bound to give any reasons in support of the order made by him and that in any case the correctness of those reasons cannto be canvassed before this Court.

30. I hold that an order for the removal of the appellant can only be passed 'on cause shown' and nto without justifiable reasons.

31. In (1867) 4 Eq 692, the judgment relied upon by the learned District Judge, Sir R. Malins V. C. while dealing with section 141 of the Companies Act 1862, in a case of voluntary winding up under the supervision of the Court, posed the question what is the meaning of the words 'on due cause shown' and gave the following answer:

'On one side it is contended that 'due cause' must be something amounting to misconduct or personal unfitness; on the other side it is contended, and I think that the contention is borne out by the case of Ex parte Pullbrook that the Court may take all the circumstances into consideration, and if it finds that it is, upon the whole, desirable that a liquidator should be removed, it may remove him. I do nto feel much doubt that the latter is the true construction, and that I have the power to remove these gentlemen. I think that in these cases of winding up, the Court is in the same position as regards the company and the liquidator as the Commissioner in Bankruptcy as regards the estate of a bankrupt and his assignees, and it would be most inconvenient if the Court had nto the power to remove any officer employed in the winding up.'

32. In re, British Nation Life Assurance Association (1872) 14 Eq. 492 the learned Vice Chancellor reiterated his earlier view and observed:

'My opinion is still that I have the power, and that it is a due cause shown if it appears to the court upon the whole desirable that the removal should take place; or, in other words, that the winding up is likely to go on more advantageously upon the removal of the liquidators appointed than it would by their retention. I am thereforee of the opinion that I have the power.'

33. The correctness of the view taken by Malins V. C. in the two cases mentioned above was however challenged before the Court of Appeal in England In re, Sir John Moore Gold Mining Co. (1879) 12 Ch. D. 325, where Sir Jessel M. R. observed:

Now, what is the meaning of the words 'on due cause shown' in the Companies Act, 1862, S. 141? I am nto prepared altogether to adopt the view of Vice-Chancellor Malins in the case of (1872) 14 Eq 492. The words must have some meaning, but it is difficult to define the extent to which they distinguish a case from one in which the ordinary words 'if the Court shall think fit' are used. I should say that, as a general rule, they point to some unfitness of the person--it may be from personal character, or from his connection with other parties, or from circumstances in which he is mixed up--some unfitness in a wide sense of the term.'

34. In Ex Parte, Sheard; In re Pooley (1880) 16. Ch. D. 107 the Court of Appeal had occasion to consider the question of removal of a trustee in bankruptcy which office had been likened by Malins V. C. to the office of liquidator in voluntary winding up. Jessel M. R. dealing with the question observed:

'Questions of this kind are all matters of discretion, though it is a discretion which is to be exercised according to law. The Court of Appeal will nto interfere with the exercise of the discretion by the Registrar, if it has been exercised according to law, merely because there may be more or less proved against the man who has been removed. I agree that the removal must nto be at mere discretion of the Registrar, but that it must be for good cause shown.'

35. The observations of Jessel M. R. in (1879) 12 Ch D 325 came up for consideration before the Court of Appeal once again in re. Adam Eyton Ltd. Ex parte Charlesworth (1887) 36 Ch. D. 299 where a very strong Bench consisting of Cotton, L. J., Bowen, L. J. and Fry L. J. made a special mention of what Sir George Jessel, the late Master of the Rolls had said. The following observations of Bowen, LJ. which represent the considered view of the Court on this question are apposite:

'The case, thereforee, is nto important for that reason, but I do think it is an important case to the profession because a contention was raised by Mr. Cozens-Hardy, and based upon the language of Sir George Jessel, the late Master of the Rolls, in (1879) 12 Ch D 325 to the effect that unfitness in the liquidator ought to be shown before he is removed. If anybody understands Sir George Jessel's language in that case to mean that, I think that this Court ought now to lay down that such an apprehension of his meaning is incorrect and that it is nto the sole ground under the statute for which a liquidator can be removed. In many cases, no doubt, and very likely, for anything I know hi most cases, unfitness of the liquidator will be the general form which the cause will take upon which the Court in this class of cases acts, but that is nto the definition of due cause shown. In order to define 'due cause shown' you must look wider afield, and see what is the purpose for which the liquidator is appointed. To my mind the Lord Justice has correctly intimated that the due cause is to be measured by reference to the real, substantial, honest interests of the liquidation, and to the purpose for which the liquidator is appointed. Of course, fairplay to the liquidator himself is nto to be left out of sight, but the measure of due cause is the substantial and real interest of the liquidation. That should be thoroughly understood, I think, as of great importance; and in that sense it seems to me this case is of interest because it clears, once and for all, away the misconception upon which the argument of the Appellant's counsel was based.'

36. Both these cases: In re Adam Eyton (1887) 36 Ch D 299 and (1879) 12 Ch D 325 were followed by Me Nair, J. of the Calcutta High Court in In re, Pabna Dhanabhandar Co. Ltd. 1936 Com. Cas 422 when dealing with the case of removal of official liquidator under S. 176 of the Indian Companies Act 1913. The same view had earlier been taken by a Division Bench of Bombay High Court in Kaikhushru Nusservanji Chandabhoy v. Tata Industrial Bank Ltd. Air 1924 Bom 339 where it was held:

'In the voluntary winding up of a company the Court can remove a liquidator on cause shown. Apart from personal unfitness also Court can remove a liquidator. The cause shown for the removal of the liquidator is to be measured by a reference to the real, substantial, honest purpose which necessitated the appointment of the liquidator.' It is in the light of these principles that the question relating to the appellant's removal has to be approached.

37. Taking an over-all view of the matter and balancing the consideration of fairplay to the liquidator himself and the real, substantial and honest interest of liquidation, which is the purpose for which the liquidator was appointed, can it be said that the learned District Judge while ordering the removal of the appellant had kept these considerations clearly in view?

38. After giving my anxious consideration to both these aspects and weighing carefully the points made for and against the appellant, I am of the view that the learned District Judge has nto shown towards the appellant that amount of fairplay to which he was legitimately entitled. The appellant, in spite of severe handicaps has been carrying on an extremely arduous job. He has had to face tremendous opposition, animosity and stubborn resistance at the hands of those whom he considered to be responsible for mismanaging the affairs of the company. If in the pursuit of his object of bringing the offenders to book and at the same tune Realizing the assets of the company, he was compelled to embark on a career of litigation, the responsibility for that cannto be laid on him alone and may equally be apportioned to the circumstances under which he was working. In the discharge of his duties he may have made some mistakes; in fact, he did make some mistakes; but it cannto be held that he was actuated by malice or self-interest alone and had sacrificed the real, substantial and honest interest of liquidation. On the other hand it is equally true to say that he has allowed the winding-up proceedings to drag on for all these years without making any substantial progress. Neither the creditors nor the contributories have so far been paid anything. Whatever money has been realised has been spent by him on litigation, office, entertainment and conveyance. This cannto by any means be considered to be a wholly satisfactory state of affairs. He has certainly made some mistakes. It is also apparent that the accounts maintained by him are nto up to the standard required of him, but in spite of this it is too much to say that he is either unfit or that the interest of liquidation is likely to suffer if he is allowed to continue in office. At the same time he cannto be allowed to go on in his own way and to convert the business of winding up into a life long occupation for himself.

39. I thereforee accept the appeal to the extent that the order of removal of the appellant passed by the learned District Judge is set aside, as in my opinion the discretion exercised by the learned District Judge does call for interference of this Court But at the same time I am of the view that it is in the interest of liquidation that one other person should also be associated with the appellant as liquidator.

40. I thereforee direct in exercise of my powers under sub-section (1) of section 524 of the Act that Mr. V. S. Juneja official liquidator of this Court to be appointed Additional Liquidator with the appellant and the two of them between themselves should endeavor to conclude the winding up proceedings without any avoidable delay.

41. Order accordingly.

GGM/D.V.C.

42. Appeal allowed.


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