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In Re: Pabna Dhonabhander Co., Ltd. - Court Judgment

LegalCrystal Citation
Decided On
Reported in165Ind.Cas.108
AppellantIn Re: Pabna Dhonabhander Co., Ltd.
companies act (vii of 1913), section 176 - liquidator, removal of--'due cause', how to be measured--removal of liquidator, held, was not in the real, substantial, honest interest of the liquidation. - .....days after the receipt thereof, and it was further ordered that all the cheques upon the said banking account drawn by the official liquidators should be countersigned by the registrar before being passed for payment by the bank.8. that provision is in conformity with rules 76 to 91 of the rules under the indian companies act in chap. xxxi of the rules and orders of the original side of this court.9. the order of april 8, 1930, again ordered that the liquidator should keep a banking account and all books of account and records as they are required to do by the rules of this court, namely, rules 76 to 91 of the rules under the indian companies act.10. the liquidators admit that they have collected something like rs. 1,40,000. they do not deny that no banking account has ever been.....

McNair, J.

1. This is an application by the Pabna Co-operative Urban Co., Ltd., one of the creditors of the Pabna Dhonobhander Co., Ltd., in liquidation for an order that the Official Liquidators of the Company in liquidation be removed and competent persons be appointed in their place to complete the winding up of the Company. An enquiry is also asked into the affairs of the winding-up and for the winding-up proceedings to be transferred from this Court to the District Court of Pabna.

2. The order for the winding up of the Company now in liquidation was made on November 18, 1929. On December 16, 1929, the present liquidators Magmata Nath Banner and Agenda Aryan Maunder, were appointed Official Liquidators of the Company.

3. On April 8, 1930, the liquidators obtained an order for an increase of staff and for permission to spend Rs. 1,000 a month to meet the costs of management. Further leave was granted to them to raise a loan not exceeding Rs. 5,000 to meet the expenses of liquidation and the costs of suits in which the Company was concerned.

4. On March 16, 1931, the liquidators obtained a further order entitling them to raise a loan of Rs. 13,000 and sanctioning a loan of Rs. 4,596 which they had already incurred.

5. The petition sets out in Para. 11 the charges on which the petitioning creditor relies for saying that the liquidators should be removed from their office.

6. The first charge is that the liquidators have never opened any account with a bank.

7. The order of December 16, 1929, under which the liquidators were appointed expressly ordered that all monies to be received by the said Official Liquidators be paid by them into the Imperial Bank of India to the credit of the account of the said Official Liquidators within seven days after the receipt thereof, and it was further ordered that all the cheques upon the said banking account drawn by the Official Liquidators should be countersigned by the Registrar before being passed for payment by the bank.

8. That provision is in conformity with Rules 76 to 91 of the Rules under the Indian Companies Act in Chap. XXXI of the Rules and Orders of the Original Side of this Court.

9. The order of April 8, 1930, again ordered that the liquidator should keep a banking account and all books of account and records as they are required to do by the Rules of this Court, namely, Rules 76 to 91 of the Rules under the Indian Companies Act.

10. The liquidators admit that they have collected something like Rs. 1,40,000. They do not deny that no banking account has ever been opened. On behalf of the liquidators Mr. Roy has pointed out that the rules which provide for the opening of an account in the Imperial Bank, though in draft, were not operative at the time of the appointment of the Liquidators, but he states quite frankly that he is unable to rely on that fact because of the order which was drawn up as though those rules were in operation and which ordered that an account should be, kept as directed by the new rules. On behalf of his clients, he says, however, that this was not deliberate breach of duty but that no banking account was opened because the money which was received by the liquidators was immediately paid out in meeting the numerous dues which were payable on behalf of the Company. He also relies on the fact that the accounts have been passed by this Court every six months without any opposition and those accounts, he says show the absence of any money in the bank. The accounts are more or less in the Form No. 33 which is provided in the Rules and Orders but the form requires an account to be made in rather more detail than has been done by the liquidators. They have stated that the total payments into the bank including balance at the date of the commencement of the winding-up 'as per book' are 'nil', what book they are referring to is not apparent. The form requires them to show the total payments into the bank 'as per bank book'. Presumably as no payments had ever been made there was no bank book, and it would appear that a mere form of words was used without considering if it made sense. There should be also items showing the total withdrawal from the bank and the balance in the bank. This is a matter which should have been noticed by the Court Officer who checked the accounts and it, should have been brought to the notice of the Judge before the accounts were passed. There Was no doubt that the keeping of a banking account is an important and essential part of the carrying on of a liquidation.

11. Mr. Palmer in the 14th Edition of Company precedents in page 322 refers to the banking account as follows:

An important part of the machinery of winding-up under the present system is the Company's Liquidation Account. Irregularities by the liquidators and trustees in bankruptcy when they occur are generally due to the temptations incident to the uncontrolled possession of large sums of money. To avoid this danger, and also to facilitate administration of the assets, the winding-up Act of 1890 imported into winding-up from bankruptcy the scheme of the Bankruptcy assets Account under the title of the Company's Liquidation Account.

12. That is the scheme in England and that is the scheme which it has been sought to follow in this country.

13. The next matter which is relied upon by the petitioner is the failure on the part of the liquidators to use monies borrowed for the purposes for which the loan was sanctioned.

14. By the order of March 16, 1931, the liquidators were empowered to borrow-up to Rs. 15,000 and sanction was given to a sum of Rs. 5,000 which had already been borrowed by the liquidators. The petition on which that order was made set out the various purposes for which the loan was required. It is contended on behalf of the petitioners that the main purpose for which that money was required was to institute suits on mortgages. For these suits the estimated costs and court-fees were about Rs. 4,000.

15. The liquidators state that they were unable to borrow the amount and they contend that the purposes for which the loan was required was not merely the institution of suits, but for payment of Government revenue and legal charges and expenses which were set out in detail in a schedule to the petition, and among them being establishment charges which had already been incurred of Rs. 3,500 and legal expenses considerably over Rs. 3,000. Arrears of rent and Government revenue accounted for over Rs. 10,000. Mr. Roy contends that in fact they only borrowed about Rs. 6,500 but in their affidavit the liquidators have set out in Para. 9 an abstract of the accounts which they filed every six months. In sub-Para, (c) they deal with the accounts from January 1, 1931, to June 3, of that year the period within which this order entitled them to borrow was passed. They state that the accounts during that period show realisations of about Rs. 25,000 and monies borrowed Rs. 14,000.

16. Reference has been made to the actual account for that period and it is suggested that this abstract is incorrect. The matter is net quite clear but it does appear on those accounts that there were loans of about Rs. 14,000, but Mr. Roy on behalf of the liquidators states that some of these loans were taken at some period anterior to the period of account. This may be so but the liquidators have made a definite statement in their affidavit that the amount that they borrowed 'during that period' was Rs. 14,000. As regards the purpose for which that money was borrowed, as I have already pointed out the institution of the mortgage suits was only a small part of the expenses 'for which money was required and it may be that the amount which was sanctioned was used for purposes other than the institution of suits. It is noteworthy that in their petition on which the order of March 16, 1931, was passed the petitioners asked for liberty to raise a loan of not exceeding Rs. 24,000 but sanction was only given to raise a loan of Rs. 15,000.

17. With regard to the Bhadna mortgages the liquidators have been charged with dereliction of duty in not filing suits. The state that they have been in communication with the second mortgagee to sell their first mortgage to him. They point out that much of the mortgaged properly is scattered and that the properties are patni properties which it is doubtful whether it would be worthwhile to acquire.

18. With regard to a mortgage suit which the liquidators got leave to institute against Kafrunnessa, their neglect to institute such suit they attribute to the fact that they took legal advice and allowed the property to be sold for default of payment of the superior landlord's dues and purchased it at a patni, sale for a comparatively small amount accepting four jotes of which they state the value is negligible.

19. Objection is then taken by the petitioner to the Suspense Account which has been kept by the liquidators, and it is shown that throughout 1932 up to the present time large sums varying Rs. 11,000 to Rs. 14,000 have been maintained in this account. The liquidators contend that they are bound to keep large sums in this account pending adjustment and they give various instances where large sums have been claimed and have been partially adjusted by payments which have been entered in the Suspense Account.

20. Objection is also taken to the fact that one of the liquidators has executed a power-of-attorney in favor of the other liquidator and that he spends the greater part of his time in Calcutta without attending to the affairs of the Company.

21. Monmotha Nath Banerjee the liqaidator against whom those charges have been levied has sworn an affidavit in which he says that he generally resides in Calcutta and that he has been ill for some considerable time and does not consider it necessary to incur the cost of going to Pabna. He somewhat naively remarks in his final paragraph in his affidavit. 'That the affairs of this Company are better managed than the affairs of various other loan companies which are in liquidation. His appointment was supported by the largest creditors and it is urged that the presence of one liquidator in Calcutta is desirable as much as the litigation is now in this Court.

22. Finally, it is charged that the liquidators have charged traveling allowance and halting charges although such charges have not been sanctioned under any order of this Court. The liquidators rely on a judgment of this Court where traveling expenses so they say, were allowed in the matter of the Pabna Model Co., Ltd. No copy of that judgment has been produced before me and it is contended by the petitioner that that order was only made some two years ago, and that it only decided the scale, on which such expenses should be charged and that these liquidators have been charging these expenses from a time previous to that order.

23. I am informed by the Court's Officer that these charges are always allowed unless they are called in question, but so far as I am aware they are not justified by any rule and they should not be charged unless sanction has first been obtained.

24. Those are the charges which have been levelled against the liquidators and I have been referred to the case In re Adam Eyton Ld. Ex parte Charlesworth (1887) 36 Ch. D 299 : 57 L.J. Ch. 127 : 57 L.T 899 : 36 W.R. 275 for the principles by which the Court should be guided in deciding whether or not the liquidators should be removed from their office. Cotton, L.J. in his judgment reported at page 304 Page of (1887) 36 Ch.D.--[Ed.] sets oat the matter thus:

If the Court is satisfied on the evidence before them that it is against the interest of the liquidation by which I mean all those who are interested in the Company being liquidated, that a particular person should be made liquidator then the Court has power to remove the present-liquidator and of course then to appoint some other person in his place.

25. Bowen, L.J., referring to the language of Sir George Jessel In re Sir John Moore Gold Minning Co. says:

To my mind the Lord Justice has correctly intimated that the due cause is to be measured by reference to the real, substantial, honest interest of the liquidation, and to the purpose for which the liquidator is appointed. Of course fair play to the liquidator himself is not to be left out of sight, but the measure of due cause is the substantial and real interest of the liquidation.

26. The words 'due cause' to which the learned Lord Justice was referring are the same words which are used in Section 176 of the Indian Companies Act which provides that any Official Liquidator may be removed by the Court on due cause shown.

27. In resisting this application Mr. Roy has urged that these liquidators have been in charge of this Company's affairs for the past six years, they have managed during a very difficult time to get in a large quantity of assets. Almost all the assets are zamindari properties which at the present moment and for some years past have been very difficult of realisation. Intricate questions of title are involved and during this time during which the liquidators have been in charge, they must have acquired a vast experience and knowledge of the Company's assets of this peculiar nature which it would be difficult for any other liquidator to acquire for some time.

28. Taking all those matters into consideration it seems to me that it is not 'the real, substantial honest interest of the liquidation' that these persons should be removed from their posts. It is quite clear, however, that they have been negligent in carrying out the specific orders of the Court and the specific rules which have been laid down in the Company's rules. The present petitioners were abundantly right in bringing this application and the various charges which they have established must be pub right. There must be a banking account opened immediately with the Imperial Bank of India as ordered by the Court.

29. It is suggested that that will be inconvenient, and if so, the liquidators may apply to the Court for some other method of dealing with funds which come into their hands but the Court will no doubt, on such application, see that every safeguard is provided that the funds are properly, dealt with.

30. The application also asks for the transfer of the winding-up to Pabna. In my opinion no good purpose will be served by making any such order.

31. Hitherto no notice has been given of the filing and passing of the liquidators' account. I direct that hereafter the liquidators shall, on every occasion, on which accounts are filed by them give notice to the petitioners of the tiling of such accounts so that they may have an opportunity of scrutinising the accounts and of bringing to the notice of the Court any irregularity which they may find.

32. The petitioners are entitled to their costs of this application from the assets of the Company for, in my opinion, it is in the interests of the Company that this application has been brought. The liquidators will pay their own costs. The costs of the supporting creditor will be borne by himself.

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