Skip to content


E. Rangarajulu Naidu and ors. Vs. Madura Srinivasa Mills Ltd. and ors. - Court Judgment

LegalCrystal Citation
SubjectCompany
CourtChennai High Court
Decided On
Case NumberA.A.O. No. 161 of 1962
Judge
Reported inAIR1963Mad409; [1963]33CompCas453(Mad); (1963)1MLJ276
ActsCompanies Act, 1913 - Sections 27 and 179; Companies Act, 1956 - Sections 36 and 457
AppellantE. Rangarajulu Naidu and ors.
RespondentMadura Srinivasa Mills Ltd. and ors.
Appellant AdvocateV.V. Raghavan and ;U. Sriniwasan, Advs.
Respondent AdvocateR. Rajagopala Iyer, The Adv.-General and ;K. Parasurama Iyer, Adv.
DispositionAppeal dismissed
Cases ReferredOfficial Receiver High Court Madras v. Ramanatha Chettiar
Excerpt:
.....passed by district judge rejecting application for review of an order confirming sale held by official liquidator - offer to sell to highest bidder at auction made by official liquidator - sale was subjected to sanction of court - no illegality or irregularity in sale - appeal liable to be dismissed. - - and may, with the like sanction, vest any part of the assets of the company in trustees upon such trusts for the benefit of the contributories, as the liquidator, with like sanction, shall think fit. he gave notices of the sale to every share-holder and indeed requested them to assist him in securing the best price for the properties. throughout the proceedings which resuited in the sale, the petitioning creditor as well as some of the share-holders of the company had been very..........at madurai, rejecting an application for review of an earlier order confirming a sale held by the official liquidator and for certain other reliefs. the properties sold consisted of 24-20 acres of land belonging in absolute right to the company of another 2-30 acres of land together with certain buildings thereon over which it had only a mortgage right, and a leasehold right in a small extent of lands. the company was directed to be wound up by an order of this court dated 26th september 1955. by the same order, further proceedings in winding up ot the company were transferred to the district court at madurai. the official receiver, madurai, who was later appointed official liquidator, was given a direction by the district court to sell the properties. the sale was originally held on.....
Judgment:

S. Ramachandra Iyer, C.J.

1. This appeal which is filed under Section 483 of the Indian Companies Act, 1956, by certain share-holders of the Madura Srinivasa Mills Ltd., now under liquidation, concerns the correctness of the order passed by the District Judge at Madurai, rejecting an application for review of an earlier order confirming a sale held by the Official Liquidator and for certain other reliefs. The properties Sold consisted of 24-20 acres of land belonging in absolute right to the company of another 2-30 acres of land together with certain buildings thereon over which it had only a mortgage right, and a leasehold right in a small extent of lands. The company was directed to be wound up by an order of this Court dated 26th September 1955. By the same order, further proceedings in winding up ot the company were transferred to the District Court at Madurai. The Official Receiver, Madurai, who was later appointed Official Liquidator, was given a direction by the District Court to sell the properties. The sale was originally held on 1-8-1956. The highest bid recorded was Rs. 1,21,000. On being moved by the petitioning creditor the District Judge directed the continuance of the sale till 13-8-1956 and for accepting the highest bid after obtaining the orders of Court. The highest bid then received was a sum of Rs. 1,26,000, from the third respondent, the Madurai District Wholesale Co-operative- Stores Ltd. This offer was however not accepted by the Court. In the fresh sale that was held on 10-12-1956 which admittedly was conducted after due publicity, individual notices having been given to all the share-holders, the third respondent again became the highest bidder for a sum of Rs. 1,30,000. There was an attempt to have that sale set aside by a share-holder, who was also a director of company in C. M. P. No. 29 of 1957. The learned District Judge found that the price obtained at the sale was a proper one. There being no challenge of the sale on any ground of irregularity in regard to its publication etc., he rejected the application and confirmed the sale. This was on 16-4-1957. The property was then delivered over on 25-4-1957 to the purchaser who had since plotted it out and allotted them to its members for the purpose of building houses. Conformably to the order of the Court, a sale deed was executed on 20-11-1959 by the Official Liquidator in favour of the third respondent and the same had also been duly registered. More than three years after the confirmation of the sale by the District Judge, the appellants, a few shareholders of the company, filed the application out of which this appeal arises on 27-3-1960 to the lower Court to review its order confirming the Rule, alleging in the application inadequacy of price and certain other irregularities in the conduct of the sale. The application also prayed for distribution of the property in specie amongst the shares-holders. The latter part of the prayer was sought to be sustained on the basis of Clauses 165 and 166 of the Articles of Association of the company. These provisions dealt with the procedure in case the Company were to be wound up.

2. The former clause stated, that

'the surplus assets in the winding up after paying off debts and the paid up capital shall he distributed amongst its members.'

The latter clause said:

'The liquidator on any winding-up (whether voluntary, under supervision or compulsory) may, with the sanction of an extraordinary resolution, divide among the contributories in specie any part of the assets of the company; and may, with the like sanction, vest any part of the assets of the company in trustees upon such trusts for the benefit of the contributories, as the liquidator, with like sanction, shall think fit.'

The learned District Judge rejected the application on the technical ground that an application for review could not lie under the circumstances and also on its merits, there being no proof of any illegality or irregularity in the sale. Hence this appeal.

3. There has been a preliminary objection to this appeal. It was contended that no appeal would lie from an order refusing to grant an application for review (vide Order 47 Rule 7, C. P. C.), and Section 202 of the Companies Act, 1913, which permitted a rehearing of orders (thereby empowering a review of the order) being merely a rule of procedure would not apply to the present case as that enactment has now been superseded by the Act of 1956 and as the corresponding Section 483 in the latter Act did not confer any such power. Thus it is argued the power to review a judicial order would therefore be confined to Order 47, Rule 1, C. P. C. and as the application has been rejected, there will be no right to appeal therefrom. We consider that it is unnecessary to deal with the preliminary objection as we are of opinion that the judgment of the learned District Judge can be sustained on the merits of the case itself.

4. There are certain matters which are beyond dispute. The Official Liquidator before putting up the properties for sale did obtain the sanction of the Court for so doing. He gave notices of the sale to every share-holder and indeed requested them to assist him in securing the best price for the properties. Every formality of a public auction was scrupulously observed. No irregularity in the conduct of the sale has been proved. Throughout the proceedings which resuited in the sale, the petitioning creditor as well as some of the share-holders of the company had been very vigilant in protecting the interests of the company. They brought up the matter before the Court at every stage of the sale. Every conceivable objection to the sale was put forward at that time and the sale was confirmed after a due investigation of the same. No appeal was filed from the order confirming the sale.

5. Mr. V. V. Raghavan who appears for the appellants has advanced a somewhat novel contention. He argues that neither the Official Liquidator nor the Court had any authority to sell the properties in the circumstances of the case, and that having regard, to Clause 166 of the Articles of Association, the liquidator should have only distributed the properties between the shareholders, after paying the liabilities by calling upon the unpaid share capital and selling also the moveables. In substance the argument is that there was no necessity to direct the sale of the properties at all. It is said that the winding up of the company was necessitated on account of disagreement between its members and not because the company was unable to pay its debts and that therefore there was no necessity to deal with its assets as if it were an insolvent company. In this connection learned counsel pointed that the total labilities of the company as on 26th March 1956 was Rs. 1,06,907-1-3. To meet this claim there-were available, moveable properties worth nearly Rs. 50,000 rash to the extent of about Rs. 15,000 and unpaid call money for an equal extent. Learned counsel therefore contends that in the circumstances the Official Liquidator should have) realised the debts due to the company from others and paid off the liabilities without selling the properties which under the Articles of Association he should have distributed in specie amongst the members.

6. We are unable to see any justification for such argument on the terms of Clauses 165 and 166 of the Articles of Association. They only give a direction to the liquidator to distribute to specie the properties after discharging the liabilities of the company and also after paying the shareholders. In the present case the properties had of necessity to be sold for the purpose of clearing off the liabilities to third parties although such liabilities might have formed only a fraction of the total value of the assets as entered in the books of the company. The Official Liquidator proceeded upon the footing that he was entitled to sell the properties. There was no objection on the part of the share-holders at any time to his so doing. But even apart from that, we are of opinion that the power of the Official liquidator to sell the properties of the company cannot in any way be limited or circumscribed by anything found in the Articles of Association. The main purpose of a Winding up a company is to collect the assets' of the company, pay the general body of creditors either in full or pari passu as available assets would justify and distribute the surplus amongst the members of the company. The liquidator's principal duty will therefore be to take possession of and protect the assets, to make the requisite lists of contributories and creditors, to have disputed cases adjudicated upon, to realise the assets subject to such control by the Court or other authority that may be prescribed in that behalf, and to apply the proceeds in the payment of the company's liabilities and then divide the surplus amongst the contributories and adjust their rights. The duty to collect the assets of the company and to apply them in discharge of its liabilities has been laid down in Section 184(1) of the Indian Companies Act 1913. Section 192 empowers the Court to adjust the rights of the contributories amongst themselves and distribute the surplus amongst those entitled thereto. For the purpose of effectually discharging the debts it will generally be necessary for the Official liquidator to sell the properties of the company. Section 179 which defines the powers of the official liquidator provides that

'he shall have the power with the sanction of the Court to sell the moveable and immoveable properties of the company by private auction or private contract.'

Unlike the case of an Official Receiver, or Assignee, in insolvency, the property of the company does not vest in the Official liquidator. He is merely an official appointed under the Act by the Court to administer the affairs of the company. Consequently he will have to do the things specified in that section after obtaining the orders of Court. But at the same time it must be noticed that it is not the Court nor the company's directors that administer the affairs. Section 179 makes it plain that is the Official liquidator that has power to do the various acts specified therein, in the course of his administration. The power of sale conferred under Clause (c) to that section is a statutory power; not one derived by virtue of any right as an agent of either the Court or the directors. It will therefore follow that once the Court sanctions the sale, the Official liquidator will not be bound by the limitations imposed by the Articles of Association. Generally speaking, the Article? of Association regulate only the rights of the share-holders inter se. To some extent they may also extend to evidence an enforceable contract between the company and its members. Beyond these, the Articles of Association will not have the effect of limiting the statutory powers conferred by the various sections of the Act on the liquidator. He will therefore be entitled to sell any property of the company if he considers it necessary for administration, the sale however being subject to sanction by Court. But, this is different from a case where the nature of the extent of the title of the company in the property is such that it cannot be sold. But where there is no such impediment the matter is one for the exercise of a discretion by the liquidator on obtaining sanction from the Court. The fact that under the provisions of the section referred to above, a sale can be effected only after sanction by Court does not mean that it is anything but the act of the Official Liquidator. For, there is a vital distinction between a case where the Court itself orders a sale and one where the Official Liquidator sells the property on sanction by Court. In Pear-son's case, (In re East of England Banking Co.), 1872 7 Ch. App. 309 a question arose as to whether Court would have any jurisdiction to order the Liquidator' in a winding up to consent to compromise with a contributory. Section 160 of the English Act which was similar to Section 179 of the Act referred to above empowered the liquidator with the sanction of the Court to compromise claims. James, L. J. said :

'But the Court has no power to compel a liquidator to accept a compromise than to compel an ordinary suitor to take less than is due to him. I am of opinion that the only power is in the liquidator with the sanction of the Court and that there is no power in the Court to order a compromise whether the liquidator recommends it or not.'

That decision was applied to a case under the Indian Companies Act in Chiraghdin v. Official Liquidator, ILR (1939) Lah 324 : AIR 1939 Lah 497. It would follow that once the Court sanctions the proposed sale by the Official liquidator and that person has acted upon such sanction, it would thereafter be only a case of exercise of the statutory power by the Liquidator which could not be limited by the terms of the Articles of Association. This principle has been accepted in Rowthmall Neopani v. Nagarmall Madangopal, : AIR1940Mad179 . Mr. V. V. Raghavan then referred us in this connection to a recent decision of this Court in Official Receiver High Court Madras v. Ramanatha Chettiar, : AIR1962Mad192 . But we are unable to see how that decision can at all support the appellants. It was held in that case that before the Court accepted the Official liquidator's application to make calls upon the share-holders the Court should first ascertain the amount accessary to satisfy the claims of the creditors, costs, charges and expenses for winding up etc., and to direct a call only for that portion of the unpaid call money as might be necessary for the purpose of winding up. That is to say, no call can properly be made until the Court is able to realise the exact position as to the total amount payable by the company after Having a due regard to the available assets of the company. This will show that the duty of the liquidator will be first to realise the assets of the company and make calls only to the extent of the deficiency. Bull the argument before us runs the other way, namely, that the unpaid call money should first be called up and the claims of the creditors paid off and thereby the properties preserved with a view to their distribution amongst the share-holders. We cannot accept such a contention. Mr. V. V. Raghavan conceded that if the third respondent were to file a suit for specific performance now the Official liquidator would have no answer to it. As we said earlier, the offer to sell to the highest bidder at the auction was one made by the Official Liquidator. It was no doubt subject to the sanction of the Court. That sanction was secured. There was therefore nothing in the transaction which would invalidate the sale. This appeal therefore fails and is dismissed with costs.


Save Judgments// Add Notes // Store Search Result sets // Organizer Client Files //