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Manhorlal Manilal Shah Vs. Official Liquidator and anr. - Court Judgment

LegalCrystal Citation
SubjectCompany
CourtGujarat High Court
Decided On
Case NumberAppeal No. 2 of 1968 in Company Petition No. 22 of 1966 with Civil Application No. 11 of 1968
Judge
Reported in(1969)10GLR180
ActsCompanies Act, 1956 - Sections 457, 457(1), 457(3) and 483
AppellantManhorlal Manilal Shah
RespondentOfficial Liquidator and anr.
Cases ReferredMunicipal Corporation of Greater Bombay v. Lala Pancham
Excerpt:
.....proceeding, failed to do so and did not raise any of these three grounds even in the informal letters addressed by him to the official liquidator and the company judge......this appeal raises a short question as to whether a creditor, who has not appeared before the company judge in the proceeding for sanction of sale of the assets of a company in liquidation by the official liquidator, is entitled to maintain an appeal against the order sanctioning the sale. the company with which we are concerned in this appeal is the rajratna naranbhai mills company limited. by an order dated 26th july, 1967, the company was ordered to be compulsorily wound up and the official liquidator was appointed liquidator of the company. the company owned a textile mill and it therefore became necessary in the winding-up for realising the assets of the company to sell the land, buildings, plant, machinery, stores and other assets comprised in the textile mill. the official.....
Judgment:

Bhagwati, C.J.

1. This appeal raises a short question as to whether a creditor, who has not appeared before the company judge in the proceeding for sanction of sale of the assets of a company in liquidation by the official liquidator, is entitled to maintain an appeal against the order sanctioning the sale. The company with which we are concerned in this appeal is the Rajratna Naranbhai Mills Company Limited. By an order dated 26th July, 1967, the company was ordered to be compulsorily wound up and the official liquidator was appointed liquidator of the company. The company owned a textile mill and it therefore became necessary in the winding-up for realising the assets of the company to sell the land, buildings, plant, machinery, stores and other assets comprised in the textile mill. The official liquidator after obtaining the directions of the company judge advertised the sale of the assets of the company in four newspapers, namely, the Times of India (Bombay edition), the Times of India (Ahmedabad edition), Gujarat Samachar and Sandesh, the last two being newspapers in the Gujarati language. The advertisement appeared in the Times of India, both Bombay and Ahmedabad editions, on 21st March, 1968, in Gujarat Samachar on 18th March 1968, and in Sandesh on 20th March 1968, and it was stated in the advertisement, that offers were invited 'for the purchase of the Rajratna Naranbhai Mills Ltd. (in liquidation) at Petlad for running the mill'. The offers were expected to reach the official liquidator before 5-30 p.m. on 22nd April, 1968. In response to the advertisement, six offers in sealed envelopes were opened by the company judge on 23rd April, 1968. The official liquidator thereafter made a report to the company judge and on the report the company judge made an order dated 25th April, 1968, which is impugned in the present appeal. The company judge directed that the official liquidator need not obtain a valuation report nor hold a public auction for sale of the assets of the company and proceeded to consider the offers and since the offer of the second respondent was the highest amongst the offers which were validly made in accordance with the conditions set out in the advertisement, the company judge ordered that the offer of the second respondent be accepted 'subject to his depositing ten per cent. of the purchase price being Rs. 12,50,001 with the official liquidator within one week from the date of receipt of the intimation letter of the official liquidator by him'. The official liquidator accordingly addressed a letter dated 25th March, 1968, to the second respondent intimating that he would accept the offer of the second respondent if the second respondent paid ten per cent. of the price within a week from the receipt of the said letter by the second respondent. The second respondent sent a demand draft for Rs. 1,25,000 representing ten per cent. of the price to the official liquidator along with his letter dated 30th April, 1968, and on receipt of the same, the official liquidator by his letter dated 3rd May, 1968, intimated to the second respondent that his offer for the purchase of the assets of the company was accepted by the official liquidator. On the same day, namely, 3rd May, 1968, the appellant, who is a creditor of the company and who had appeared as a supporting creditor at the hearing of the winding-up petition, filed the present appeal challenging the order passed by the company judge sanctioning the sale in favour of the second respondent.

2. At the commencement of the hearing of the appeal, Mr. Kaji, learned advocate appearing on behalf of the second respondent, raised preliminary objection against the maintainability of the appeal. Though he did suggest in the course of the arguments that the impugned order was an administrative order and not a judicial order and no appeal therefore lay against it, he did not seriously press the suggestion in view of the decision of the Supreme Court in Shankarlal Aggarwala v. Shankarlal Poddar ([1965] 35 Comp. Cas. 1(S.C.)) and confined his preliminary objection to a very limited contention, namely, that the appellant not being a party to the proceeding for sanction of the sale was not entitled to maintain the appeal. Mr. L. T. Shah, learned advocate appearing on behalf of the appellant, sought to give a three-fold answer to this contention. In the first place, he urged that the appellant being a creditor of the company was aggrieved by the order sanctioning the sale at such an inadequate price and as an aggrieved person he was entitled to challenge the order in appeal, even if it were held that he was not a party to the preceding in which the order was made. He then contended, in the alternative, that the appellant was a party to the proceeding inasmuch as he appeared at the hearing of the winding-up petition as a supporting creditor and was a party to the winding-up petition and his right to prefer an appeal accordingly could not be disputed. Lastly, he said that, in any event, even if the appellant be not regarded as a party to the proceeding, the appellant was still entitled to prefer an appeal with leave of the court and he accordingly prayed for leave to file the appeal by an application made this morning. On these contentions the question which arises for consideration is whether the appellant is entitled to maintain the appeal as of right and if he is not so entitled, can be maintain the appeal with leave of the court and if so, must the court grant such leave on the facts and circumstances, of the case.

3. Now, it is well settled that the right of appeal is a creature of statute. Nobody has any inherent or natural right of appeal. Even a party to the proceeding in which the impugned order is made has no right of appeal from it unless such right is specifically given by the statute. Now, section 483 of the Companies Act, 1956, gives a right of appeal against any order made or decision given in the matter of the winding-up of a company by the court and it would therefore appear - and indeed, as pointed out by us above, this was not seriously disputed - that an appeal would lie against an order made by the company judge sanctioning the sale of the property of the company in liquidation. Such an order would be an order made in the matter of winding-up of the company and would therefore be appealable under section 483. But the question is who can prefer the appeal. The section does not say explicitly to whom the right of appeal is given and the question would therefore have to be resolved on a proper interpretation of the section. The right of appeal is, by the section, to be exercised in the same manner and subject to the same conditions as a right of appeal from any order or decision of the court in its ordinary jurisdiction is exercised. The reference to the 'manner' and the 'conditions' clearly imports the principles and practice governing appeals from orders made by the court in the exercise of its ordinary jurisdiction. The question as to who can appeal against an order made in the matter of the winding up of a company must therefore depend on the answer to the inquiry as to who is entitled to prefer an appeal against an order made by the court in the exercise of its ordinary jurisdiction. Now, appeals against orders made by a single judge of this court in its ordinary jurisdiction are governed by clause 15 of the Letters Patent and it is well settled that an appeal under clause 15 lies only at the instance of a party to the proceeding who is adversely affected by an order made in the proceeding or his representative-in-interest and a stranger to the proceeding even if bound by the order or aggrieved by it or prejudicially affected by it, cannot appeal except with leave of the court. It is a general principle of civil law recognized since long that ordinarily where an appeal is provided without specifying who shall be entitled to prefer the appeal, the right of appeal is exercisable only by a party to the proceeding and no person who is not a party to the proceeding can exercise the right of appeal unless leave to appeal is granted by the court. Lindley L.J. pointed out in In re Securities Insurance Company ([1894] 2 Ch. 410, 413) :

'I understand the practice to be perfectly well settled that a person who is a party can appeal (of course within the proper time) without any leave, and that a person who without being a party is either bound by the order or is aggrieved by it, or is prejudicially, affected by it, cannot appeal without leave.'

4. This principle was affirmed by a Division Bench of the Bombay High Court in Bombay Province v. Western India Automobile Association (A.I.R. 1949 Bom. 141, 143) where Chagla C.J. observed :

'But it is clear, and this fact arises from the very basis of appeals, that only a party against whom a decision is given has a right to prefer an appeal .... But it is recognised that a person who is not a party to the suit may prefer an appeal if he is affected by the order of the trial court, provided he obtains leave from the court of appeal.' The validity of this principle as a principle of general application was also recognised and asserted by the Supreme Court in Municipal Corporation of Greater Bombay v. Lala Pancham (A.I.R. 1965 Bom. 1008, 1016). It would therefore appear to be incontrovertible that the appellant can maintain the appeal as of right only if he can show that he was a party to the proceeding in which the impugned order or prejudicial affected by it. Let us, therefore, proceeded to consider whether the appellant was party to the proceeding which resulted in the impugned order.

Now, the argument of Mr. L. T. Shah on behalf of the appellant on this aspect of the case was that, since the appellant was a party to the winding-up petition and the proceeding for sanction of sale is a process in winding up, the appellant must be regarded as a party to the proceeding for sanction of sale and hence entitled to prefer the appeal as of right. But this argument is fallacious in that it regards the winding-up petition as an all-embracing proceeding covering not only determination of the question whether the company should be wound up or not but also extending beyond it so as to take in all questions arising in or out of administration of the assets of the company in winding up. It is undoubtedly true that the appellant was a supporting creditor who appeared at the hearing of the winding-up petition and was accordingly a party to the winding up petition but the winding-up petition was disposed of and came to an end when the order for compulsory winding up of the company was made by the company judge. If any other proceeding is subsequently taken by a creditor or a contributory or the official liquidator in the course of the winding up, the appellant would not ipso facto become a party to such proceeding by reason of his having appeared as a party in the winding-up petition. Each proceeding which is taken in the winding up, whether by a creditor or by a contributory or by the official liquidator, is an independent proceeding and the question as to who are parties to such proceeding must be judged not by reference to the record of the winding up petition but by reference to the record such proceeding. This is abundantly clear on a priori reasoning and no authority is necessary in support of it but if any authority were needed, it is to be found in In re Securities Insurance Company ([1894] 2 Ch. 410). There the company judge having made an order sanctioning an arrangement under the Joint Stock Companies Act, 1870, the appellants whose interests as creditors were affected by the scheme presented an appeal and the question was whether the appeal was maintainable by them. They had not opposed the scheme at the meeting of creditors nor did they appear before the judge when the sanction was applied for. Leave to appeal was applied for ex parte at the time of the filing of the appeal but it was refused. The appellants in these circumstances maintained that they were entitled to appeal as of right as they were aggrieved by the order sanctioning the scheme. The Court of Appeal held that the appellants were not parties to the proceeding in which the impugned order was made and they were therefore not entitled as of right to maintain the appeal and since leave was already refused to them, the appeal was liable to fail. Kay L.J. observed : 'They had the power of being present when the judge sanctioned the scheme, and of opposing the application for his sanction. They were not present and did not oppose it. In fact, they have not in any way whatever made themselves parties to this proceeding in the winding-up; ....'

5. What was emphasized by the learned Lord Justice was the fact that the appellants had not made themselves parties 'to this proceeding' in the winding up, the proceeding referred to being the proceeding for sanction of the scheme and not the proceeding for winding up. It is therefore immaterial whether or not the appellant in the present case was party the to winding up proceeding. What is relevant is whether he was a party to the proceeding for sanction of the sale in which the impugned order was made as far as that is concerned, it is clear that he was not a party to that proceeding.

6. The appellant did not appear at the hearing of the report on which the impugned order was made sanctioning the sale in favour of the second respondent. There can be no doubt that he could have appeared before the company judge and made his submission if he was so minded but he did not choose to do so. There are two provisions - one in the Companies Act, 1956, and the other in the Companies (Court) Rules, 1959, which could have been availed of by the appellant for the purpose of appearing and making his submissions before the company judge. Section 457, sub-section (1), confers power on the liquidator in a winding up by the court to sell the movable and immovable parties of the company with the sanction of court and section 457, sub-section (3), provides that the exercise by the liquidator in a winding up by the court of the powders conferred inter alia by section 457, subsection (1), shall be subject to the control of the court and any creditor or contributory may apply to the court with respect to the exercise or proposed exercise of any of the powers conferred by that sub-section. The appellant could have therefore made an application to the company judge in regard to the sale of the assets of the company as soon as he read the advertisement that offers for purchase of the assets of the company were invited on the terms and conditions set out in the advertisement. By making such an application he could have made himself a party to the proceeding for sanction of the sale of the assets of the company and, in that event, he would have had an opportunity of appearing before the company judge and opposing, if he so wished, the acceptance of the offer of the second respondent. But he did not choose to avail himself of the opportunity provided by section 457, sub-section (3). So also, he did not avail of the provision made in rule 230 of the Companies (Court) Rules, 1959. That rule provides in so many terms that, save as otherwise provided by the rules or by an order of the court, every creditor whose debt has been admitted by the official liquidator wholly or in part shall be at liberty at his own expense to attend the proceedings before the court or the official liquidator and shall be entitled upon payment of the costs occasioned thereby to have notice of all such proceedings as he shall, by request in writing addressed to the official liquidator, desire to have notice of. The appellant could have made request in writing to the official liquidator stating that he wished to have notice of the proceeding for sanction of sale of the assets of the company. Even apart from this statutory right conferred upon him, the appellant could have requested the official liquidator to give notice him of the date fixed for the hearing of the report when the offers received pursuant to the advertisement would be considered by the company judge, but he did nothing of the sort. He contented himself merely by addressing two letters, one to the official liquidator and the other personally to the company judge, seeking certain clarifications and raising certain objections. Mere writing of such letters cannot make him a party to the proceeding. He did not appear at the hearing of the report or at any other stage of the proceeding and he was clearly not a party to the proceeding. We must, therefore, hold that he was not entitled to the prefer the present appeal as of right.

7. Now it is true, as pointed out above, that the appellant, though a stranger to the proceeding, can maintain the present appeal if we grant him leave to do so but the question is whether we should grant such leave to the appellant. We do not think any ground is made out by the appellant for granting leave to appeal against the impugned order. There are in fact several reasons why, in our view, the appellant has clearly disentitled himself to such leave. In the first place, though the objection as regards the title of the appellant to maintain the appeal was taken in the affidavit which was filed by the second respondent in reply to the application for stay made by the appellant in appeal, the appellant did not apply for leave to appeal until at a very late stage of the proceeding. The hearing of the appeal commenced yesterday and it was only after the argument of the appellant was concluded and the second respondent has started his reply that the appellant, realising that the objection was likely to prevail, made the application for leave to a appeal. Secondly, there is no cause shown by the appellant as to why he could not appear at the hearing of the report before the company judge. It is clear from the affidavits of the appellant and the letters addressed by him both to the official liquidator and the company judge that he was aware of the proceeding in regard to sanction of the sale right from the date when the advertisement appeared in the newspapers. He could have easily availed of the opportunity provided by section 457, sub-section (3), or rule 230 and appeared before the company judge and objected to the adequacy or sufficiency of the advertisement, the introduction of any deprecatory conditions in the advertisement and the acceptance of what the appellant considered to be inadequate price offered by the second respondent. He could have without any difficulty made himself a party to the proceeding but he failed to do so and there is no reason given in the application explaining this failure. All that is stated in the application is that the appellant thought that he was a party to the proceeding since he had appeared as a supporting creditor at the winding-up petition. We will grant for the purpose of argument that the appellant entertained this belief by that does not explain why he did not take any steps to appear at the hearing of the report when the offers were considered by the company judge. It is not the case of the appellant that he was under the impression that notice of the hearing would issue to him and it was by reason of absence of such notice that he could not remain present. The appellant just did not care to take any steps to appear before the company judge at the hearing of the report and to grant leave to appeal to the appellant in these circumstance would be to encourage inaction and want of diligence on the part of the appellant. It is true that the appellant addressed a letter to the official liquidator but that cannot held the appellant. What the appellant has to explain is why he could not make himself a party to the proceeding and appear before the company judge. The appellant also addressed a letter to the company judge but it is difficult to see how the company judge could possibly take note of the contents of a letter described by the appellant himself as 'a personal letter'. Moreover, it is significant to note that none of the three grounds on which the present appeal is based was taken in either of the two letters. The impugned order is challenged in the present appeal on three grounds, namely, (1) the condition that the sale was 'for running the mill' was a depreciatory condition which affected the price of the assets, (2) the offer of the second respondent was accepted without obtaining a valuation report, and (3) the advertisement given once only in four newspapers was inadequate and insufficient. None of these three grounds is to be found in the letters addressed by the appellant to the official liquidator and the company judge. It is for the first time that these three grounds are taken in the memorandum of appeal. We do not, therefore, see any reason why we should grant leave to the appellant to challenge the impugned order on these three grounds when the appellant, though having sufficient opportunity to make himself a party to the proceeding, failed to do so and did not raise any of these three grounds even in the informal letters addressed by him to the official liquidator and the company judge. If we grant leave we would in effect be converting an appeal into a review of the impugned order on fresh grounds not taken before the company judge. We would be examining the validity of the discretion exercised by the company judge on contentions which were not raised for the first time before us. This we cannot do. The application of the appellant for leave to appeal must therefore be rejected.

8. We are, therefore, of the view that the appellant is not entitled to maintain the appeal and in this view of the matter, it is unnecessary to consider the merits of the grounds raised by the appellant in support of the appeal. The appeal therefore fails and is dismissed with costs. The ad-interim relief granted on 3rd May, 1968, will stand vacated and the notice issued on the application for stay will stand discharged. The costs of the application for stay will be costs in the cause.


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