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Nathmal Lal Chand Vs. Bharat Jute Mills Ltd. and ors. - Court Judgment

LegalCrystal Citation
SubjectCompany
CourtKolkata High Court
Decided On
Case NumberCompany Application No. Nil of 1980 with Company Petition No. 168 of 1979 in Matter No. 145 of 1958
Judge
Reported in[1983]53CompCas392(Cal)
ActsCompanies Act, 1956 - Sections 391, 391(1), 391(2) and 392; West Bengal Relief Undertakings (Special Provisions) Act, 1972 - Sections 3, 4, 5, 6 and 304
AppellantNathmal Lal Chand
RespondentBharat Jute Mills Ltd. and ors.
Appellant AdvocateS.B. Mukherjee, Adv.
Respondent AdvocateB.C. Kar, Adv.
Cases ReferredNational Iron & Steel Co. v. Bank of India
Excerpt:
- .....unsecured creditors of the respondent-company, being bharat jute mills ltd., by respondent no. 4, west bengal state textile corporation ltd., to the respondent-trustees, being respondents nos. 2(a), (b) and (c), and for other consequential reliefs.2. the relevant facts which are admitted for the purpose of this application are, that the company, bharat jute mills ltd., having its registered office at no. 29, strand road, calcutta, was incorporated in or about 20th dec. 1934, as a public limited company. the said jute mill was floated by sri ala mohan das and is one of the very old jute mills in the state of west bengal. the company ran into financial difficulties and thereafter, in 1958, it proposed a scheme with the then unsecured creditors of the respondent-company and a scheme of.....
Judgment:

Salil K. Roy Chowdhury, J.

1. This is an application under Section 392(2) of the Companies Act, 1956, for further modification of the first scheme of compromise as sanctioned by the order dated 8th December, 1958, and a second scheme of compromise as sanctioned by the order dated 8th October, 1969, and for a suitable provision to be made for the payment of the dues of all the unsecured creditors of the respondent-company, being Bharat Jute Mills Ltd., by respondent No. 4, West Bengal State Textile Corporation Ltd., to the respondent-trustees, being respondents Nos. 2(a), (b) and (c), and for other consequential reliefs.

2. The relevant facts which are admitted for the purpose of this application are, that the company, Bharat Jute Mills Ltd., having its registered office at No. 29, Strand Road, Calcutta, was incorporated in or about 20th Dec. 1934, as a public limited company. The said jute mill was floated by Sri Ala Mohan Das and is one of the very old jute mills in the State of West Bengal. The company ran into financial difficulties and thereafter, in 1958, it proposed a scheme with the then unsecured creditors of the respondent-company and a scheme of compromise was sanctioned by this court on 8th December, 1958, which is hereinafter referred to as the first scheme. Under the said scheme, five persons were selected as trustees on behalf of the creditors and out of which only three being respondents Nos. 2(a), (b) and (c) are the surviving trustees, as the other two trustees resigned. As it appears, the company again suffered huge trading losses for the years 1966-67 and 1967-68, as a result of which the respondent-company proposed another scheme of arrangement between the respondent-company and its unsecured creditors and the said scheme was finally sanctioned by this court on 8th October, 1969, hereinafter referred to as the second scheme. Pursuant to the said two schemes payments were made -but there was a balance payable to the unsecured creditors under the said two schemes. Thereafter, due to further financial difficulties with other unsecured creditors the company made an application for another (third) scheme of compromise and by an order dated 12th September, 1977, under Section 391(1) of the Companies Act, 1956, separate meetings of the unsecured creditor's and the shareholders were directed. Pursuant to the said order, meetings of the unsecured creditors and the shareholders of the respondent-company were held on 15th of October, 1977, at its registered office but the said chairman of the company did not submit any report and the proposed scheme was allowed to be abandoned and not proceeded with by the company.

3. As no payment of the first or second scheme could be made in full, one of the creditors under the first scheme made an application before this court and by an order dated the 7th November, 1978, the trustees under the said scheme were directed to take possession of the jute mill and sell the same in terms of the said scheme. The said sale was fixed for 15th June, 1979. In the meantime, the respondent-company approached the Govt. of West Bengal for taking over the management of the jute mill through the West Bengal State Textile Corporation Ltd , respondent No. 4 herein, a Govt. of West Bengal undertaking. Further, to extend protection to the respondent-company, the Govt. of West Bengal in its Closed and Sick Industries Dept. hid considered it expedient in relation to the industrial undertaking that it should be permitted to run, and, further, as by way of providing relief against unemployment and in exercise of the power of the State Govt. under the provisions of the West Bengal Relief Undertakings (Special Provisions) Act, 1972, issued two notifications both dated 7th June, 1979, declaring the industrial undertaking of the respondent-company as a State Industrial Undertaking in the public interest. Further, protection has been extended to it by declaring it a 'relief undertaking'. Thereafter, on the application of the respondent-company the said sale, which was scheduled to be held on 15th June, 1979, was stayed by an order dated the 14th June, 1979.

4. Thereafter, on 29th June, 1979, the respondent-company made an application under Section 392(2) of the Companies Act, 1956, for modification of the said two schemes being the first and second schemes. The said application was opposed, inter alia, by the petitioner-firm and other creditors and after hearing the parties on 8th August, 1979, the matter was disposed of by me by a judgment and order by which the said two schemes were modified under the terms and conditions set out in the said order. It was observed in the said judgment of mine that the counsel appearing for respondent No. 4, the West Bengal State Textile Corporation Ltd., had agreed that they will pay, out of the profits, to the creditors who are not covered by the said first and second schemes including the statutory creditors. It now appears that the creditors under the said first and second schemes have been fully paid in terms of the said modification directed by the said order dated 8th August, 1979, and the claims of the creditors under the said schemes being the first and second have been satisfied by 15th January, 1980.

5. It is also an admitted fact that the said respondent-company is still a relief undertaking as per the last notification under Sections 3 and 4 of the West Bengal Relief Undertakings (Special Provisions) Act, 1972, issued by the State of West Bengal. It is also an admitted fact that the petitioners being the creditors covered by the third scheme proposed by the company, which was ultimately abandoned, its position is one of an unsecured creditor whose claim has been admitted by the company in the said application for the third scheme dated the 12th September, 1977.

6. The question involved in this application is whether the petitioner can maintain the present application for a modification of the said scheme in respect of any matter under Section 392(2) of the Companies Act, 1956, and whether the court has any jurisdiction to grant any relief as asked for and the second question is whether the present application is maintainable in view of the fact that the respondent-company is still admittedly a relief undertaking under the West Bengal Relief Undertakings (Special Provisions) Act, 1972.

7. Mr. S. B. Mukherjee, appearing for the petitioner, submitted that under Section 392(2) of the Companies Act, 1956, the court has power to make an order asked for in this application. As in the recent Supreme Court decision in S. K. Gupta v. K. P. Jain [1979] 49 Comp Cas 342, it has been laid down that ' when a scheme is being considered by the court in all its ramifications for according its sanction, it would not be possible to comprehend all situations, eventualities and exigencies that may arise while implementing the scheme. When a detailed compromise and/or arrangement is worked out, hitches and impediments may arise and if there was no provision like the one in Section 392, the only obvious alternative would be to follow the cumbersome procedure as provided in Section 391(1).a... ' (See p. 351).

8. Therefore, Mr. Mukherjee submitted that the court has ample power under Section 392(2) of the Companies Act, 1956, to pass an order as asked for. He also referred to Section 392(1)(b) of the Companies Act, 1956, which runs as follows :

' Where a High Court makes an order under Section 391 sanctioning a compromise or an arrangement in respect of a company, it--

(a) shall have power to supervise the carrying out of the compromise or arrangement; and

(b) may, at the time of making such order or at any time thereafter, give such directions in regard to any matter or make such modifications in the compromise or arrangement as it may consider necessary for the proper working of the compromise or arrangement. '

9. Mr. Mukherjee emphasised on the words 'any matter' and submitted that, even if the petitioner, who was one of the creditors, admitted by the company in respect of which a scheme application was made under Section 391(1), which was approved at the meeting of the creditors, but the company did not apply for sanction of it, being the proposed third scheme, before this court, and, as such it remained suspended, in the first and second schemes which were sanctioned by this court and on modification thereof, the said order dated the 8th August, 1979, can also include the power of the court to deal with any matter relating to any scheme.

10. Mr. Mukherjee also referred to paras. 21-23 and submitted that the power under Section 392 of the Companies Act, 1956, is very wide and by way of modification the court can make any order, if it thinks fit, which relates to a scheme sponsored by the company. Mr. Mukherjee submitted that admittedly the schemes in respect of the claims of the petitioner and other creditors were sponsored by the company and the meetings of the creditors were held pursuant to an order of this court, as hereinbefore stated by the creditors, but subsequently the company chose not to apply for sanction and the chairman did not file his report and, consequently, it is a scheme within the meaning of Section 391/392 of the Companies Act, 1956, and, therefore, the court has the power to make the order as asked for The next contention of Mr. Mukherjee was that the petitioners' claim cannot be said to be covered by the notification under the West Bengal Undertakings (Special Provisions) Act, 1972, passed under Sections 3 and 4 thereof as it is not a contract and, secondly, it cannot be said to be in force immediately before the undertaking of the respondent-company was declared a ' relief undertaking '. Mr. Mukherjee relied on the Division Bench decision of this court in National Iron & Steel Co. Ltd. v. Bank of India, : AIR1978Cal379 , where the words ' immediately before ' relating to the said ' relief undertaking ' arising out of notification under Section 4 of the West Bengal Relief Undertakings (Special Provisions) Act, 1972, was construed. But, in my view, the facts of that case are clearly distinguishable from the present one as would appear from paras, 21-23 of the said decision. There the question was of the interpretation of the words 'entered into immediately before such declaration'. Therefore, it is clearly distinguishable from the facts of this case and moreover in the said decision a question whether a contract in respect of which the claim of the petitioning creditor arises is included in the said notification or not, was not raised or did not come up for consideration before the said court. According to Mr. Mukherjee a contract which has been performed by the petitioner by supply of goods is no longer a contract within the meaning of the said notification but it is a debt due to the petitioner as a creditor. He further subinittedjthat the said Act should be very strictly construed and the rights of the creditor should not be held to be suspended under the said notification unless they have been included specifically. Therefore, Mr. Mukherjee submitted that Sections 3 to 6 of the said West Bengal Relief Undertakings (Special Provisions) Act, 1972, have no application in this case and relief should be granted as asked for.

11. Mr. R. C. Kar, appearing for the respondents, submitted that the petitioner's claim admittedly arises out of a contract which has been clearly and specifically included in the said notification and must be held to have been suspended during the period the respondent-company remains a relief undertaking. Admittedly, the respondent-company is a relief undertaking as the notification is still in force. He submitted and in my view, rightly that claims of price for goods supplied which arise out of contracts for sale, are debts in respect of a contract for sale of goods, and amount to the enforcement of a contract. Therefore, the present application is not maintainable as all proceedings are barred and the petitioner is not entitled to its claim arising out of its contract for sale of goods which remains suspended during the period the respondent-company is a relief undertaking. Secondly, Mr. Kar submitted that it is a social legislation which may cause hardship to certain sections of the public but the whole intention and object of the said Act will appear from the Statement of Objects and Reasons of the said Act which is set out in para. 16 of the said decision in National Iron & Steel Co. v. Bank of India, : AIR1978Cal379 , from which it is quite clear that there is a moratorium and all the claims arising out of the contract remained suspended for giving effect to the said object and purposes of the said Relief Undertaking Act.

12. Next Mr. Kar submitted that from the principle of law laid down in para. 13 of the judgment of the Supreme Court in S. K. Gupta's case [1979] 49 Comp Cas 342 ; AIR 1979 SC 734, 739, it will clearly appear that courts' power to modify under Section 392 of Companies Act, 1956, relates only to the implementation of and giving effect to the schemes sanctioned by the court and any matter relating to those sanctioned schemes only, it cannot include anything which is outside the sanctioned scheme. In my view, Mr. Kar is right in his reading of the Supreme Court decision, otherwise it will lead to an absurdity and then each and every matter which are beyond the scope of the scheme sanctioned by the court will come before the court making it a never ending process which was not the intention of the said Section 392 of the Companies Act, 1956, which itself, in my view, gives 'power to the High Court to enforce a scheme or arrangement, etc. ' which means that when a scheme has been sanctioned under Section 391(2) after due compliance with Section 391(1) of the Companies Act, 1956, if there is any difficulty arising in the implementation of the scheme, only for removing such difficulty, the court can modify the scheme or give any direction in any matter relating to the said scheme which has been sanctioned for implementation of the same. That seems' to be the correct reading of the judgment of the Supreme Court and I accept the submission of Mr. Kar.

13. Considering the matter very carefully it appears to me that the present application is not maintainable but in my judgment dated the 8th August, 1979, I have recorded that Mr. Som Nath Chatterjee, who was appearing for the petitioner in the said application for modification, had assured the court that all the creditors of the company including the statutory, non-statutory and secured creditors would be paid in due course if the industry was allowed to run after modification was sanctioned by the court as the West Bengal State Textile Corporation Ltd. was given the power to run the company for the implementation of the scheme by injecting large amounts of public money and also expert jute technologists in the management of the company and, therefore, I made an observation that the company in due course would pay all its creditors both past and future. But, at this stage, when it appears that both the first and second scheme creditors have been duly paid after the said modification and it has worked out and respondent No. 4, the West Bengal State Textile Corporation Ltd., has financed a large amount for the purpose of re-starting the jute mill and earned profits out of its working, it is too early to grant any relief to any creditor at this stage.

14. The next impediment on my way to give any relief to the petitioner is that the said scheme which was propounded was not sanctioned and, therefore, it cannot come under Section 392 of the Companies Act, 1956, as interpreted by the Supreme Court in the said decision in S. K. Gupta's case [1979] 49 Comp Cas 342; AIR 1979 SC 734, 739, para. 13. Further, it cannot be questioned that the petitioners' claim arises out of the contract for sale of goods in respect of which the goods had been supplied but the obligation of the company to pay for the same has not yet been discharged.

15. Therefore, it is still in the realm of contract and cannot be said to have been fully performed and converted into a debt only, de hors the contract. Undoubtedly it is a debt which is admitted by the respondent-company in the third scheme application but it still remains an executory contract enforceable by the petitioner for the payment of the said debt which is the payment due for the price of the goods sold and delivered by the petitioner to the respondent-company under the said contract for sale. Therefore, it is an enforcement of a contract for the sale of goods as delivery and payment are counterparts of the said contract for sale, as the payment of the price is the consideration for the delivery of the goods in a contract for sale. Therefore, it cannot be contended that it does not come under 'contract' within the meaning of the notification under Section 4 of the West Bengal Undertakings (Special Provisions) Act, 1972. If Mr. Mukherjee's interpretation is accepted, then the whole object and purpose of the said Relief Undertakings Act will be frustrated. The said interpretation that a contract or any proceeding thereunder is suspended is also made clear by the provisions of Sections 5 and 6 of the West Bengal Relief Undertakings (Special Provisions) Act, 1972, which are overriding provisions suspending the operation of any other law, agreement or instrument or any decree or any order of the court, tribunal, officer or other authority. That is the non obstante clause in Section 5 of the said Act. Section 6 suspends all remedies under the contract during the period when the said notification under Section 4 is in force and the claim will remain suspended and all proceedings will be stayed. Therefore, in my view, the present application is not maintainable during the period the company is declared a relief undertaking and the said notification under Section 4 remains in operation which I understand, is due to expire in June, 1980. Therefore, I hope that after the expiry of the said period the respondent-company will be in a position to pay all its creditors including the petitioner whose claims are admitted by the company and remain suspended.

16. In that view of the matter I hold that the application is not maintainable and as such, make no order, on this application. In view of the peculiar circumstances of this case each party to bear and pay their own costs.


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