1. In the course of the winding up of the South Indian Film Corporation, Limited, the Official Liquidator took out an application under Section 185 of the Indian Companies Act, for a direction to the managing agent Mr. P.S. Venkatarama Aiyar that he should pay up immediately a sum of Rs. 5,400 odd representing the amount overdrawn by him from the company while he was in charge as managing agent. The managing agent by his counter-affidavit claimed (1) that he was entitled to retain a sum of Rs. 2,800 towards arrears of salary due to himself; (2) that he was also entitled to two sums of Rs. 976-0-9 and Rs. 1,083 which were according to him improperly debited against him on the 15th November, 1935; and (3) that he was entitled to retain moneys which might be required to enable him to meet the expenses of certain suits filed against him as managing agent. The learned Judge has disallowed these claims and given a direction for payment as asked for by the liquidator. Hence this appeal by the managing agent.
2. An Objection was taken before us on behalf of the appellant that the case is not one that can be dealt with under Section 185 of the Companies Act, as it is not the intention of the Legislature that matters in respect of which there is a contest should be dealt with under that section. Stress was laid upon the use of the words 'prima facie' in the section and reference was made to certain observations in In re Palace Restaurants, Limited (1914) 1 Ch. 492 , and to a concession said to have been made by counsel in Billimoria v. Mrs. DeSousa I.L.R.(1926) 8 Lah. 549 . A point was also made of the fact that the appellant has ceased to be the agent of the company from November, 1935, i.e., even before the date of the commencement of the liquidation proceedings. We are not satisfied that these considerations exclude the application of Section 185 to the case cf. Haribans Prasad v. National Sugar Mills, Ltd I.L.R.(1932)14 Lah. 68 (In Liquidation). It is true, the section does not contemplate an elaborate enquiry but the discretion must be left to the Court to decide whether any particular claim can or cannot be conveniently dealt under that section. The observation in In re Palace Restaurants, Limited (1914) 1 Ch. 492 , itself lends some support to this conclusion, because the learned Judge in that case actually held that as the counter claimant had submitted to the jurisdiction of the Court it was not open to him to take exception to the proceedings at a later stage. In the same way, we may point out in this case also, the appellant did not take exception to the maintainability of the application under Section 185 in the lower Court, but was only anxious, and we dare say rightly anxious, that his claims to credit under various heads should be considered. We do not also think that the mere fact of his having ceased to be an agent before the commencement of the liquidation proceedings excludes action under Section 185. It seems to us the test is whether the money now claimed came into his hands in his character as agent or not. It is not denied in the present case that the money did so come into his hands.
3. Proceeding now to the items of credit claimed by the appellant, the claim for Rs. 2,800 under the head of arrears of salary has in our opinion been rightly disallowed by the learned Judge and the same has not been seriously pressed before us. The second head of claim, viz., that relating to the two sums of Rs. 976-0-9 and Rs. 1,083 seems to us to be equally untenable. It has not been disputed that at a meeting of the Directors held on 9-4-1935, these items were disallowed after discussion and the resolutions recorded on that date give the reasons for the disallowance. The argument advanced by the appellant's counsel in this connection is that a sum inclusive of these two items had been shown in the report presented to the statutory meeting on that day and that therefore under Section 77 (Clause 8) of the Companies Act it acquires a finality which cannot be affected except by proceeding in accordance with the formalities prescribed in the section. We do not see any force in this contention. The question of items to be allowed or disallowed as between the company and its agent is certainly within the powers of the Directors. What appears from the representation made before us is that in the report printed but that in due course when the matter came up before the Directors these two items were disallowed. We do not see that the mere accident of the original figures appearing in the report placed before the meeting of the shareholders prevented the Directors from considering the propriety or otherwise of the various items of credit claimed by the Managing agent. So far as one can gather from the resolutions themselves, it is clear that the appellant also was present at that meeting of the Directors and there is nothing on record to show that he took exception to the disallowance. The mere fact that these items of disallowance were actually brought into the account only later on in November, i.e., after the appellant's resignation, does not warrant the suggestion that they have been fraudulently debited against the appellant. Once the disallowance was authorised by a formal resolution of the Directors, it was merely a question of account keeping as to when the items are actually carried into the accounts. We are therefore of opinion that the learned Judge's decision disallowing these items is also correct.
4. The third head however has to be considered in some detail. From the learned Judge's judgment, it would appear as if the claim was pressed before him en bloc without splitting it up into the various sub-heads comprised in it. If all that the learned Judge meant was that the agent was not entitled to retain moneys in his hands merely to meet prospective claims against him he was of course perfectly right, if we may say so; but both under Section 217 of the Contract Act and under Clause 10 of the agreement between the Managing Agent and the Company, the agent has got a right of retainer in respect of various charges and expenses and under Clause 191 of the Articles of Association he is given a lien over the property of the company for certain claims. Of the suits referred to in the 4th paragraph of the appellant's counter-affidavit, it is stated that two are suits filed against the Directors for alleged fraud in the matter of the issue of the prospectus. If this is so, it would be very doubtful if any of the items of expenditure incurred by any of the directors or by the appellant as one of them in connection with such a suit will come within the right of indemnity or retainer which the appellant will be entitled to as against the company either under the law or any of the terms of his agreement. More than that we do not wish to say at this stage. The third suit is said to be one filed by the Kodak's Limited against the appellant in respect of goods purchased by him for the company on his own personal guarantee. As the facts relating to this suit are not before us we do not wish to say more in respect of the appellant's claim even under this head except to say that if a claim like that made by the liquidator against the appellant can be dealt with under Section 185 of the Companies Act, it is only fair that the claims which the appellant may have against the company must also be considered at the same time and it will not be proper to drive the appellant to a separate suit in respect of claims that he may have against the company.
5. It is represented that the decree in the suit brought by the Kodak's Limited was passed only subsequent to the date of the application to the lower Court. We do not think we will be justified in dealing with an application of this kind as if it were an ejectment suit and seek to ascertain the rights of the parties only as on the date of the initiation of the proceedings. It will probably be in the best interests of all concerned to direct that accounts be taken up to 1st November, 1936, in respect of such of the items as the appellant will be entitled to retain either under the terms of Section 217 of the Contract Act or the terms of Clause 10 of the Agreement and Article 191 of the Articles of Association and the balance alone out of the amount claimed by the liquidator be directed to be paid to him as the amount 'prima facie' payable by the appellant to the liquidator in these proceedings.
6. As the appellant has failed in part and has succeeded in part so far as this appeal is concerned, we do not make any other order as to costs in this appeal except that the Official Liquidator will be entitled to take his costs of this appeal out of the estate.