1. This is an appeal by one Ramesh Chandra against the orders of the learned Company Judge dated 12-2-1962 and 19-2-1962.
2. The facts giving rise to this appeal are that on the 7th of October, 1960, Shri Basti Ram, respondent No. ?., filed an application for winding up the Company known as 'Chopasni Ice, Aerated Water and 'Oil Mills Ltd., jodhpur.' That application came up for hearing on 1st February, 1961, but it could not be disposed of on that date and the hearing was adjourned to 13th March 1961. On that date, an adjournment was again sought by one of the opposite parties.
Learned counsel for the Company submitted before the Court that he had no objection to the adjournment being given, provided the Company was permitted to lease out the factory. Counsel for the petitioner and the learned Deputy Government Advocate, who appeared for the Rajas-than Electricity Board, Jaipur, (one of the creditors) also expressed no objection to the adjournment and the factory being leased out, provided the terms of the lease were approved by the Court. On these representations, the learned Judge passed the following order -
'Permission be granted to lease the factory on the above condition.'
3. Thereafter, the Managing Director of the Company Shri Amar Datt Vyas submitted terms and conditions of the lease. On the 9th May, 1961, the learned Judge passed an order that since no objection was made regarding the application presented by the Managing Director, the terms of the proposed lease were approved.
4. On the 12th of February, 1962, learned counsel for the petitioner Shri Basti Kara presented an application before the learned Judge saying that although lease was initially granted for one year it was provided in Clause 10 of the proposed terms of lease, that the lessee would have the option to continue the lease for a further period extending up to the maximum period of five years, on the same terms and concessions, that this term was perhaps approved by the Court without considering its effect, that if the winding up petition is allowed this term would have the effect of delaying the winding up of the Company for a period of live years and, therefore, it was prayed that the said term should be made subject to the winding up order, if any, which may be passed by the Court. On the same day, the learned Judge passed an order to the effect that since the winding up petition was pending, there should be no clause giving the lessee an option to continue the lease beyond 31-12-1962. The lease should be only for one season expiring on 31-12-1962. He also directed that the lease should be re-drafted accordingly and a copy be filed in Court for approval before it is executed.
5. On 17-2-1962 the present appellant filed an application before the learned Judge to the effect that he had already obtained the lease from the Company, that this fact was not brought to the notice of the Court, that he had taken the lease on the specific condition that he would have a right of renewal for five years, that he had spent a substantial heavy amount in effecting necessary repairs and running the factory, that by the change approved by the Court he would be put to heavy loss and so, it was prayed that the order for deletion of Clause 10 of the terms may be withdrawn. This application came up for hearing on 19-2-1962 and it was ordered by the learned Judge that since a winding up petition was pending, lease could not be granted for more than one season at a time and with this observation, the application was rejected. It is against this order and the earlier order dated 12-2-1962 that the present appeal is directed.
6. It is contended by learned counsel for the appellant that his client had obtained lease from the Company on the specific condition that he would have a right of renewal for five years, that this condition of the lease was approved by the learned Judge, that it being one of the terms of the contract, it could not be rescinded by the Court arid that the learned Judge had thus exceeded the jurisdiction vested in him. It is also contended that the learned Judge was under the impression that according to law, he could not allow the lease to extend beyond one year but there is no provision in the Companies Act, 1956 (No. 1 of 1956 which will hereinafter be referred as 'the Act') preventing the Court from granting lease for more than a year, and that the orders of the learned Judge dated 12-2-1962 and 19-2-1962 were thus erroneous and, therefore, they should be set aside.
7. Learned counsel for the petitioner Shri Basti Ram contests the appeal on the ground that the first order of the Court dated 9-5-61 was itself passed without jurisdiction since no winding up order was given by that time and hence the subsequent orders dated 12-2-1962 and 19-2-1962 revoking that order were correct and this-Court need not interfere with them.
8. Learned counsel for the Company contests the appeal on a different ground. According to him, the learned Judge had jurisdiction to-pass the order dated 9-5-1961 under Section 443(1)(c) of the Act, that he had inherent powers to modify that order and the appeal should, therefore, be dismissed.
9. It may be observed that after a winding up petition in respect of a Company is presented in the Court, it is not proper for the Company to enter into long term contracts or make disposition of its property in such a manner as to cause delay in winding up proceedings, in case the wind-ing-up application is allowed and the Company is ordered to be wound up by the Court. From that view point, the learned Judge was not wrong in observing that the lease should not extend beyond one year. If the learned Judge had , simply advised the Company not to lease out the factory for more than one year at the time when he was approached in the beginning for his approval, no trouble would have arisen. But the difficulty was created by his order dated 9-5-1961 approving the terms, of the lease. After that order the Company entered into a contract with the appellant and later that contract was altered by the orders dated 12-2-1962 and 19-2-1962. The question therefore, arises whether the Court's orders are valid in law. In our opinion, once a contract is made by a Company, it cannot commit a breach thereof with impunity. Similarly even if a Court is a party to the contract, it is in no better position than any ordinary person unless the authority for revoking the contract in certain circumstances is given by law. Learned counsel for the Company has not been able to point out any provision of law authorising the Court to revoke or alter the contort even before a winding-up order is passed on the ground that lease for more than one year was prohibited by law. Learned Judge also has not referred to any provision of law to support his orders dated 12-2-1962 and 19-2-1962.
10. The question which next arises is whether the Court was justified in passing the original order dated 9-5-1961, because if this point is not considered then the effect would be that if the orders dated 12-2-1962 and 19-2-1962 are set aside that order would stand. Learned counsel for the Company has no doubt tried to support the corretness of that order by referring to Section 443(1)(c) of the Act but we find ourselves unable to agree with him. The relevant portion of Section 443 of the Act runs as follows -
'443. Powers of Court on hearing petition --(1) on hearing a winding up petition, the Court may -
(a) dismiss it, with or without costs; or
(b) -adjourn the hearing conditionally or unconditionally; or
(c)' make any interim, order that it thinks fit;
(d) make an order for winding up the company with or without costs or any other order that it thinks fit.'
11. The perusal of the said section would show that when a winding up petition comes for hearing before the Court, it may either dismiss it with or without costs under clause (a); or if for any reason the hearing cannot be completed and an adjournment is necessary, then it may under Clause (b) adjourn the hearing conditionally or; unconditionally; or if any interim order is necessary prior to the disposal of the winding up petition, it may make such order under Clause (c); or if the winding up petition is heard and the Court thinks it proper to allow it, then under Clause (d) it may make an order for winding up the Company with or without costs. It is apparent that the order passed by the learned Judge on 9-5-1961 cannot possibly be covered by Clause (a) or Clause (d). Learned counsel for the Company has no doubt placed his reliance on Clause (c) but, in our opinion, it permits the Court to make interim orders which might be considered fit, only with regard to the hearing of the winding up petition and it has nothing to do with passing any order about the property of the Company even before the winding up application is allowed.
12. It is contended by learned counsel for the company that if Clause (c) is interpreted in this narrow sense then the Court would be debarred from meeting unforeseen situations which may arise with regard to the property of the Company.
13. We have given our anxious consideration to this argument and we think that it is not tenable. It may be pointed out that if a situation arises on account of which the Court feels an imperative necessity of passing some order with regard to the property of the Company, then the proper course is to resort to Section 450 of the Act and appoint a provisional liquidator. That section empowers the Court that it may, at any time, after the presentation of a winding up petition, and before the making of a winding up order, appoint the Official Liquidator to be liquidator provisionally. Thus, if a provisional liquidator is appointed after giving notice to the Company as required by Sub-section (2), he would deal with the property according to law. In our opinion, the Act does not empower the Court to make any order with regard to the property of the Company before the winding up order is passed except by the appointment of a provisional liquidator.
14. It has been urged by learned counsel for the appellant that the Court could pass the order which it did on 9-5-1961 under Section 536(2) of the Act which runs as follows -
'536 (2) In the case of a winding up by or subject to the supervision of the Court, any disposition of the property (including actionable claims) of the Company, and any transfer of shares in the Company or alteration in the status of its members, made after the commencement of the winding up, shall, unless the Court otherwise orders, be void.'
It is urged by learned counsel that the use of the words 'unless the Court otherwise orders' appearing in the said sub-section shows that the Court had an authority to pass the order dated 9-5-1961 under this sub-section. In our opinion, this argument is not tenable. A plain reading of the sub-section would show that if a Company is ordered to be wound up by or subject to the permission of the Court; all dispositions of the property of the Company including actionable claims and all transfers of shares of the Company or alteration in the status of its members made after the commencement of the winding up would be void.
This section leaves a discretion to the Court to say that certain dispositions of the property or transfer of the shares or alterations in the status of its members would not be void, if for certain reasons it thinks that they should not be considered to be void. It may be pointed out that the situation visualised by this section does not arise before winding up order is passed by the Court. It may be added that this provision lends support to the view which we have expressed above instead of giving any support to the argument of the learned counsel for the Company. In our opinion, the scheme of the Act is, that so long as a Company is not ordered to be wound up by the Court, it should not, in the ordinary course pass any order with regard to the property of the Company. If it comes to the conclusion that the appointment of a provisional liquidator is necessary, then it may do so but this step would mean that the Court would be dealing with the entire property with full responsibility. If the appointment of a provisional liquidator is not considered to be necessary, then it should not meddle with the management or disposal of the property of the Company. I the winding up application is dismissed, the Court's interim interference would be unjustified. If the winding up order is passed, then also it would find itself in a difficult situation if its earlier order is found to be erroneous in any way. The result of the passing of winding up order according to Section 536(2) is that all dispositions made subsequent to the presentation of the winding-up application become automatically void, unless the Court orders otherwise. This section, therefore, does not contemplate any previous order of- the Court about disposition of the property of the Company.
Learned counsel for the Company has not been able to refer to any authority in support of the view that his client could obtain approval of the Court about the terms of the lease even before the winding up order was passed. It would, therefore, be proper to set aside the order of the Court dated 9th May, 1961. The position emerging after the setting aside of the above order would be that the contract between the Company and the appellant would stand as if it was made by the parties without the approval of the Court.
15. The appeal is, therefore, allowed and all the orders of the Court dated 9th May, 1961, 12th February, 1962 and 19th February, 1962, are hereby set aside. In the circumstances of the case, we leave the parties to bear their own costs.