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Rowthmall Neopani Through their Representative Ladhuram Purohit Vs. Nagarmall Madan Gopal Represented by Prahalada Rai Kadia and ors. - Court Judgment

LegalCrystal Citation
SubjectCompany
CourtChennai
Decided On
Reported inAIR1940Mad179; (1940)1MLJ107
AppellantRowthmall Neopani Through their Representative Ladhuram Purohit
RespondentNagarmall Madan Gopal Represented by Prahalada Rai Kadia and ors.
Cases ReferredChuni Lal Dakuwala v. Kanthimathinatha Pillai
Excerpt:
.....he only revoked his sanction because he thought that it was technically bad for want of notice to 'the persons interested. all parties were well aware of this permission. the official liquidator had good grounds for this view. madan gopal was well aware of the official liquidator's power to sell; i am therefore clearly of opinion that the learned judge's orders were unjustified on the facts as well as being beyond his jurisdiction. i f the liquidator's proceedings are merely provisional and subject to the subsequent confirmation of the court he will not be able to dispose of the property to the best advantage. 14. the order of the court moreover which is now under i appeal was not in the best interests of the company......think, to state again in detail all the facts which have been fully set forth in the order of the learned district judge. put quite briefly the position is as follows. on the 15th february, 1938, the district judge gave permission to the official liquidator to sell the entire property belonging to the guntur cotton, jute and paper mills company ltd. the permission was coupled with a condition that the sale should be for not less than rs. 80,000. on the 19th january, 1939, the official liquidator entered into a contract of sale of the properties to one rowthmall neopani for rs. 95,000 (ex. ix). on the 23rd january, 1939, the district judge approved of this contract of sale and permitted the official liquidator to compromise two suits (o.s. no. 15 of 1923 and o.s. no. 21 of 1924 on the.....
Judgment:

Burn, J.

1. These are appeals preferred from the orders passed by the learned District Judge of Guntur on I.A. No. 73 and I.A. No. 85 of 1939 in O.P. No. 266 of 1936 on the file of the High Court, Madras. The original petition was for the winding up of the Guntur Cotton, Jute and Paper Mills Co., Ltd., and it was filed in the High Court on the 2nd October, 1936, and the winding up order was passed on the 17th December, 1936. The subsequent proceedings in liquidation were transferred to the District Court, Guntur.

2. It is not necessary, I think, to state again in detail all the facts which have been fully set forth in the order of the learned District Judge. Put quite briefly the position is as follows. On the 15th February, 1938, the District Judge gave permission to the Official Liquidator to sell the entire property belonging to the Guntur Cotton, Jute and Paper Mills Company Ltd. The permission was coupled with a condition that the sale should be for not less than Rs. 80,000. On the 19th January, 1939, the Official Liquidator entered into a contract of sale of the properties to one Rowthmall Neopani for Rs. 95,000 (Ex. IX). On the 23rd January, 1939, the District Judge approved of this contract of sale and permitted the Official Liquidator to compromise two suits (O.S. No. 15 of 1923 and O.S. No. 21 of 1924 on the file of the Sub-Court, Guntur) in which the company was concerned as, plaintiff in the first and defendant in the second. In pursuance of the orders of the District Court, the Official Liquidator compromised both those suits and decrees were passed by the Subordinate Judge of Guntur in terms of the razinamas. On the 27th January, 1939, one N. Madan Gopal who had been one of the creditors on whose petition the winding up order was made, put in the application, I.A. No. 75 of 1939 in the District Court in which he prayed that the contract of sale said to have been entered into by the Official Liquidator with Rowthmal Neopani might be set aside, cancelling if necessary the order passed by the learned District Judge on the 23rd January. On the 31st January, 1939, Perripati Ven-kataratnam filed in the District Court I.A. No. 85 of 1939. He alleged that he was one of the shareholders in the Guntur Cotton, Jute and Paper Mills Company Ltd., and he prayed that the order passed by the learned District Judge on the 23rd January, 1939, which he described as an ex parte order, might be set aside and fresh orders passed. The learned District Judge disposed of both these applications together and passed identical orders in both. He decreed:

That the permission granted by this Court on 23rd January, 1939, for the compromise of the suits O.S. Nos. 21 of 1924 and IS of 1923, Sub-Court, Guntur, and for the sale of the mill properties be and hereby is revoked;

That the first respondent (that is the Official Liquidator) do hold a fresh sale of the properties by public auction as early as possible after due notice in the public press ;

That if at the public auction to be. held hereafter the property fetches only Rs. 95,000, the second respondent (Rowthmall Neopani) must be given preference over the other bidders and that if the property fetches more, it must be knocked down to the highest bidder; that the first respondent (the Official Liquidator) is hereby directed to obtain the sanction of the Sub-Court Guntur, for the sale of the property as he is also a Receiver appointed by that Court; and

That the respondents do pay the petitioner's costs.

3. Rowthmall Neopani has preferred both these appeals from the two orders of the Lower Court. The contentions of the learned Advocate-General for the appellant can be briefly stated as follows:-(1) the learned District Judge had no power to revoke the sanction which he had given on the 23rd January, 1939, for the sale of the properties, and for the compromise of the suits, and (2) that, even if the learned District Judge had power to revoke his own sanction, he ought not to have done it in the present case.

4. I am very clearly of opinion that the learned Advocate-General's contentions on both these points are well founded. It appears to me a very extraordinary suggestion that the District Court having given the Official Liquidator a general permission to sell the properties (provided that a certain price was obtained) and having expressly sanctioned the contract of sale entered into by the Official Liquidator for a sum considerably in excess of the stipulated price, and having sanctioned the compromise of two suits in another Court, should be able, by passing an order purporting to revoke its own sanction, to nullify the contract of sale and to render void the decrees passed by the Sub-Court in the two suits. Mr. Rajah Aiyar for the respondents has not been able to refer us to any section in the Companies Act which would authorise the District Court to pass such orders as those now under appeal. The application of N. Madan Gopal was filed under Sections 179 and 183 (5) of the Companies Act. Section 179 describes the powers of the Official Liquidator which he can exercise with the sanction of the Court. Section 183 (5) provides that:

If any person is aggrieved by any act or decision of the Official Liquidator, that person may apply to the Court and the Court may confirm, reverse or modify the act or decision complained of and make such orders as it thinks just in the circumstances.

5. It is clear that Section 179 has no bearing upon this question, and Section 183(5) clearly cannot apply to a case in which the act or decision of the Official Liquidator has been performed or made in pursuance of the Court's express sanction. Mr. Rajah Aiyar did not contend that Section 202 would have any application. He contended that the District Court had power to grant a review of its own previous orders either under the provisions of Order 47, Civil Procedure Code, or failing that he contended that that the District Court had inherent power to set aside its own orders in the interests of justice. Perripati Venkataratnam, the petitioner in I.A. No. 85 of 1939, based his petition on the same two sections and added also Section 153 of the Companies Act. Mr. Rajah Aiyar, did not suggest that Section 153 could have any application to this case. Section 153 gives power to compromise between a company and its creditors or any class of them or between the company and its members or any class of them. It provides that where any compromise or arrangement is, proposed a meeting of the creditors or class of creditors or members of the company or class of members as the case may be must be called, held and conducted in such manner as the Court directs. The compromises in this case were between the company and one creditor who held a mortgage on the company's immovable properties. It was not a compromise between the company and a class of creditors and therefore the provisions with regard to the obligation to call a meeting are inapplicable.

6. There is, I think, no doubt that the Court in a proper case could grant a review under the provisions of Order 47, Civil Procedure Code but the applications in this case were not applications for review, and I do not see how they could be brought within the terms of Order 47. Mr. Rajah Aiyar was not able to show any authority for holding that in a case like this the District Court has inherent power to revoke its own sanction, after the sanction has been acted upon. He referred to the case of Chuni Lal Dakuwala v. Kanthimathinatha Pillai (1920) 24 L.W. 35. But that case was decided on a totally different point. Mr. Justice Krishnan expressed the view that in that case the Court had inherent powers to set aside its own previous order but he expressly stated that:

It was not material to decide in this case the somewhat difficult question whether the District Judge himself had jurisdiction to cancel his previous sanction.

7. The learned Judge's remarks on this point were therefore avowedly obiter. The learned Advocate-General lays stress very properly on the fact that, in pursuance of the permission granted by the District Judge to the Official Liquidator, the suits (O.S. Nos. 15 of 1923 and 21 of 1924) were compromised in the Sub-Court, Guntur, and he asks how those decrees of the Sub-Court can be rendered void by the order of the District Judge purporting to revoke the permission given by him on 23rd January? I am not aware of any answer to this question. The District Judge could of course have revoked his sanction if he had done so before the Official Liquidator had acted upon it, but if once the Official Liquidator has acted upon it, has compromised the suits and has obtained decrees in terms of the compromises, I am entirely unable to see how the District Judge can have power to revoke it.

8. Secondly it seems to ma quite clear that the District Judge's order was wrong on its merits. He recognises that the compromises in the suits were beneficial to all parties and it would seem that he only revoked his sanction because he thought that it was technically bad for want of notice to 'the persons interested.' He states also that there was no prior sanction of the Sub-Court, Guntur, for the proposed sale and he says there Vas thirdly 'the suppression of an important fact a knowledge of which would have prevented the giving of sanction.' These matters can, I think, be very briefly dealt with. Mr. Rajah Ayyar has not been able to satisfy us that any notice to any body was necessary in this case. As 1 have already pointed out, the Official Liquidator had got from the District Court general authority on the 15th February, 1938, to sell the property either by public auction or by tender or by private sale, piecemeal or in one lot subject to the approval of the Court. All parties were well aware of this permission. N. Madan Gopal by his Vakil expressly stated on the 5th February, 1938, that he had no objection. The pleader for the mortgagee in O.S. No. 21 of 1924, also stated that he had no objection and the learned Judge in his order dated the 15th February, 1938 (Ex. IV (c) ) has expressly said that 'none appeared to oppose.' Technically therefore it cannot be said that any notice to anybody was necessary after the Official Liquidator had entered into the contract of sale and before the District Court approved of it. The suggestion that the Sub-Court's sanction was necessary is apparently based upon the fact that Mr. Kota Venkateswaralu the Official Liquidator of the Company had also been appointed Receiver of the Mill's properties in O.S. No. 21 of 1924, the suit filed against the Company on a mortgage for Rs. 1,23,000 and odd. Mr. Rajah Ayyar has not attempted to support the order of the learned Judge on this ground. It is clear that when an Official Liquidator is appointed, he has power to dispose of the properties of the Company under Section 179 of the Companies Act and his power in this case was not limited by the fact that he had had no sanction in his capacity as Receiver in O.S. No. 21 of 1924. As for the suggestion that the learned Judge would have refused his sanction if he had known of an important fact which was suppressed, that is based upon the fact that N. Madan Gopal on the 20th January. 1939 made a written offer to the Official Liquidator of Rs. 96,000. The Official Liquidator refused to take any notice of this offer, because N. Madan Gopal made no deposit of earnest money and the Official Liquidator said that he did not believe it to be a bona fide offer. The Official Liquidator had good grounds for this view. N. Madan Gopal was well aware of the Official Liquidator's power to sell; he had been in negotiation with the Official Liquidator himself, he had on one occasion offered Rs. 81,001 on the 28th March, 1938, and even then he made no deposit of earnest money. His complaint that the transaction between the Official Liquidator and Rowthmall Neopani was conducted behind his back was groundless. Rowthmall's offer of Rs. 95,000 was made in November, 1038. The Vakil for the, plaintiff in O.S. No. 21 of 1924 wrote to N. Madan Gopal on the 10th January, 1939 (Ex. VIII (c)) and in that letter he referred to the prospect of a compromise between the plaintiff in O.S. No. 21 of 1924 and the defendant company. N. Madan Gopal's reply to that on the 15th January, Ex. VIII (d) was that he was afraid to negotiate the purchase of the Jute Mill owing to long-standing disputes and he made no offer. On the 16th January, the same gentleman telephoned to N. Madan Gopal at Vizianagaram, and warned him that the offer of Rs. 95,000 made by Rowthmall Neopani was going to De accepted -unless he made a higher offer. In these circumstances I think that the Official Liquidator was fully justified in paying no attention to the offer of Rs. 96,000 made on the 20th January, unaccompanied by any deposit and I do not think that the District Court would have been justified in refusing sanction to the Official Liquidator for the sale and the compromises even if the fact of that offer had been brought to the notice of the learned District Judge.

9. O.S. No. 21 of 1924 was a suit on a mortgage for Rs. 1,230,00, executed on the 2nd January, 1918, in favour of a member of the pydah family of Cocanada. By 1926 the claim under this mortgage had risen to somewhere between four and five lakhs. O.S. No. 15 of 1923, was a suit filed on behalf of the company to set aside the mortgage. The Official Liquidator was in great straits for money not only to conduct these suits but even to pay such small items as municipal tax on the buildings. None of the creditors would provide funds to prosecute O.S. No. 15 of 1923, or to defend O.S. No. 21 of 1924. In these circumstances the compromise by which the mortgagee received Rs. 70,000 in full satisfaction of his mortgage leaving Rs. 20,000 to satisfy the unsecured creditors to the extent of about Rs. 7,000 and odd was beneficial to all parties as the learned District Judge himself recognises. It is in my opinion extremely undesirable that by setting aside the sale these two suits should be reopened and the parties left to bear the risks of them. It is also to be observed that if all these matters are re-opened, there will be considerable delay in the disposal of still another suit O.S. No. 27 of 1934 on the file of the Sub-Court, Cocanada, which is a suit for the administration of the estate belonging to the Pyda family of Cocanada. I am therefore clearly of opinion that the learned Judge's orders were unjustified on the facts as well as being beyond his jurisdiction.

10. These appeals should therefore in my opinion be allowed and the applications I.A. No. 73 of 1939 and 85 of 1939 dismissed with costs. The appellant will recover his costs in Appeal No. 100 of 1939 from the first respondent N. Madan Gopal and in Appeal No. 101 of 1939 from the first respondent Perripati Venkataratnam.

Stodart, J.

11. I agree. One of the principal functions of the Liquidator is to discharge the debts of the company. For that purpose he may have to sell the. company's property, and he can do this with the sanction of the Court. It follows in my opinion that any sales or contracts of sale effected by the Liquidator in pursuance of the Court's sanction previously obtained are not mere conditional agreements subject to subsequent confirmation by the Court. I say so for reasons which I think are obvious. I f the Liquidator's proceedings are merely provisional and subject to the subsequent confirmation of the Court he will not be able to dispose of the property to the best advantage. Offers for the purchase of the property will be merely tentative. A prospective purchase will not disclose to the Liquidator the final figure to which he is prepared to go, if his offer is liable to be outbid by someone else when the sale comes up before the Court for approval. It appears to me there fore that, having sanctioned the sale of the company's property and having fixed a reserve price, the matter is closed so far as the Court is concerned and the Liquidator is free to dispose of the property provided he observes the conditions previously imposed by the Court. There must be some finality in the proceedings and if bids and offers made to the liquidator are to be subject to the subsequent approval of the Court, then the Liquidator will be a mere ministerial officer of the Court and the real sale will be effected by the Court itself. But that is not the meaning of the Act. Section 179 is:

The Official Liquidator shall have power with the sanction of the Court to sell the property of the Company by public auction or private contract with power to transfer the whole thereof to any person...or to sell the same in parcels.

12. In my opinion this can only mean that the liquidator can finally dispose of the property once he has got the sanction of the Court. It does not mean that he has power merely to invite offers and to submit them to the Court for approval.

13. In the present case the offer of the respondent in A.A.O. No. 100 of 1939 whatever its bona fides was received after a contract of sale had been finally entered into with the appellant That offer was too late. If the respondent was willing to go to Rs. 96,000 he would have done so months before. He put forward his offer only when he knew that the property was going to be sold to somebody else. He was not ready to pay cash down which was one of the conditions on which the Pydah mortgagees had consented to accept Rs. 70,000 in complete discharge of their mortgage.

14. The order of the Court moreover which is now under I appeal was not in the best interests of the company. Having set aside the contract of sale in favour of Rowthmall Neopani for Rs. 95,000 cash down entered into by the Liquidator because there was a subsequent offer of Rs. 96,000 by the respondent the Court directed that the property be sold by public auction, not be it noted starting with respondent's bid of Rs. 96,000 but presumably starting with the reserve fixed in February 1938. And the Court's direction that if the bid reaches Rs. 95,000 then Rowthmall Neopani must be given preference over the other bidders is something which I cannot understand. If Rowthmall was still anxious to purchase the property and if at the public auction he bid up to Rs. 95,000 and if there were no higher bids it follows that the property would be knocked down to him without any question arising of giving him preference over the other bidders.


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