Skip to content


Indian Companies Act and the Company Vs. the Maharaja Bahadur Sir Rameswar Singh, G.G.i.E., of Darbhanga - Court Judgment

LegalCrystal Citation
SubjectCompany
CourtKolkata
Decided On
Judge
Reported in58Ind.Cas.561
AppellantIndian Companies Act and the Company
RespondentThe Maharaja Bahadur Sir Rameswar Singh, G.G.i.E., of Darbhanga
Excerpt:
companies act (vii of 1913), sections 162, 163(i) - winding-up petition by creditor--application by company to remove winding-up petition from file of court, dismissal of--appeal, whether lies--abuse of process of court--bona fide dispute as to indebtedness of company, effect of--'neglected to pay', meaning of. - .....and this sum comprised the alleged debt upon which the winding-up petition was based. in this suit the company set up certain defences, amongst them being allegations:(1) that the respondent, being a director of the company, was not entitled to contract with the company and to charge any interest on the deposits made by him or to make any profits out of any transaction with the appellant company, and that he was liable to account in respect of any profits made by him.in this connection the company relied upon a statement in the affidavit of r. mukerjee, upon which the application to greaves, j., was based, that the respondent while he was a director was paid a much larger rate of interest on deposits made by him than was paid under the rates of the appellant company to the outside.....
Judgment:

Lancelot Sanderson, C.J.

1. This is an appeal by the company against the judgment of Greaves, J., delivered on the 21st December 1917.

2. On the 13th December 1917 a winding up petition against the company was presented; on the presentation of the petition a day was fixed for the hearing and directions were given as to the issue of advertisements. On the same day the company made an application to stay the issue of the advertisements in order that an application might be made by the company for the stay of the petition and all proceedings in connection therewith, on the ground that the petition was an abuse of the process of the Court.

3. The learned Judge stayed the issue of the advertisements and on the 14th December a notice was served by the company on the petitioning creditor of an application for an order that the petition for the liquidation of the company should be removed from the file, that the applicant should be restrained from issuing advertisement of the petition and that all proceedings thereunder should be stayed.

4. The learned Judge heard the company's application and dismissed it and it is from his judgment in respect thereof that this appeal is brought.

5. The respondent took a preliminary objection which was much present, that no appeal lay from the judgment of Greaves, J.

6. We held that having regard to the terms of the order giving effect to the judgment, there was an appeal.*

7. The order, as already pointed out in our previous judgment, dealt with two main matters. In the first, place, it dismissed the appellant company's application to remove the respondent's petition for liquidation from the file and to restrain the issue of advertisement and to stay all proceedings thereunder. Secondly, it ordered that the appellant company be at liberty to appeal against this order of dismissal upon their undertaking to expedite the hearing of the appeal; and upon their paying to the Maharaja the respondent two lakhs and nine thousand rupees without prejudice to their contentions, it was ordered that the petition for winding-up be stayed pending the disposal of the appeal, and it then directed that if the appeal was decreed the Maharaja should return the two lakhs and nine thousand rupees to the company; but if it was dismissed, the Maharaja was to withdraw the petition for winding up; on which, of course, he would retain the sum so paid.

8. After we had given judgment, basing our decision on the Second part of the directions in this order, without deciding what would have been the case had those directions not been contained in the order, Mr. Sircar for the respondent said that he would consent to the Second part of the order being reserved. This was done with the view to a contention that if this part of the order was removed, there would be no appeal as regards the remaining part of the order dismissing the appellant's application for stay of winding-up proceedings. This proposal was not assented to by Counsel for the appellant company, who contended that the order and the appeal there from must be dealt with as a whole. This contention was right. The respondent could not, after our judgment had been given, holding that there was an appeal from the whole order, by any such offer as to part of the order, affect the judgment go as to make it necessary to give a Second judgment on the question whether there would or would not be an appeal, had the order been made without the Second class of directions to which I have referred.

9. We accordingly held that the appeal should be heard on the merits which has now been done.

10. Sections 162 and 163 of the Indian Companies Act, 1913, are applicable to this case.

12. By Section 162 it is provided that a company may be wound up by the Court if the company is unable to pay its debts. Section 163 sets out three sets of conditions under which the company shall be deemed to be unable to pay its debts. Sub-section (iii) does not apply, as the learned Judge found that the company was solvent, and the arguments of the learned Counsel for the respondent have not satisfied us that the learned Judge's conclusion on this point was wrong. Sub-section (ii) was not alleged to apply, and it was Sub Section (i) which was relied on by the petitioner. Sub-section (i) runs as follows: 'If a creditor, by assignment or otherwise, to whom the company is indebted in a sum exceeding five hundred rupees then due, has served on the company, by leaving the same at its registered office, a demand under his hand requiring the company to pay the sum so due and the company has for three weeks thereafter neglected to pay the sum, or to secure or compound for it to the reasonable satisfaction of the creditor....'

13. The demand prescribed by the sub-section was served by the respondent upon the appellant company on the 2nd October 1917 by which a sum of Rs. 2,41,335 was demanded. That sum not having been paid within the specified time, the petition was presented, as already stated, on the 13th December 1917.

14. The two main grounds on which the appellant company relied were, 1st, that there was a bona fide dispute as to the indebtedness of the company, and (2) that the petition was presented with an ulterior object,, viz., to bring pressure on the company to accept terms of settlement in litigation which was proceeding between the company and the ex-directors of the company, of whom the respondent was me, and to bring such litigation to an end.

15. It appears that in August 1915 the company filed a suit against the ex directors of the company, including the respondent in this appeal, claiming a sum over six lakhs as damages for fraud and negligence. It was stated in the course of the argument that when this suit came on for trials in August 1917, the charge of fraud against the respondent was withdrawn.

16. In December 1915 one R. Makerjee instituted a suit against the appellant company and the respondent for the recovery of certain deeds and securities which the plaintiff alleged he had pledged to the appellant company as security for advances made, and which he alleged were wrongfully retained by the respondent, after the plaintiff had paid off the amount due from him to the appellant company.

17. In April 1916 the respondent instituted a suit against the appellant company for the recovery of Rs. 2,83,747 alleged to be due to him in respect of principal and interest on account of advances made by him to the company, and this sum comprised the alleged debt upon which the winding-up petition was based. In this suit the company set up certain defences, amongst them being allegations:

(1) That the respondent, being a director of the company, was not entitled to contract with the company and to charge any interest on the deposits made by him or to make any profits out of any transaction with the appellant company, and that he was liable to account in respect of any profits made by him.

In this connection the company relied upon a statement in the affidavit of R. Mukerjee, upon which the application to Greaves, J., was based, that the respondent while he was a director was paid a much larger rate of interest on deposits made by him than was paid under the rates of the appellant company to the outside public for deposits of a similar nature.

(2) The appellant company further alleged that certain securities, pledged with the company, had been improperly deposited with the respondent without the authority of the re-constituted Board of Directors, which had come into existence in May 1914, and. that such securities were wrongfully and improperly withheld by the respondent, by reason whereof the company had suffered loss, and they claimed damages in respect thereof to the extent of Rs. 50,000. In this respect, it was alleged that the respondent insisted upon the market value of the securities being paid to him in reduction of his debt, before ha would give up such securities.

18. By reason of the aforementioned matters it was alleged that the company had a set off against the respondent's claim, and they also counter claimed in respect thereof, and alleged that upon an account being taken hardly any money would be found due to the respondent.

19. The trial of the respondent's suit against the company, although the suit stood in the cause list, dated 9th June 1917, which was shown to us,' before the company 's suit against the ex-directors, was postponed until after the determination of the company's suit.

20. There is a dispute as to how this came to be done and as to whether it was with the consent of the respondent or against his wishes; but the fact remains that the respondent's suit has not yet been heard, whereas the trial of the company 's suit was began in August 1917 and now stands adjourned part-heard, and we were informed that a day in the present month has been fixed for the further hearing.

21. As regards R. Mukerjee's suit, the position is that a decree has been obtained by the plaintiff in that suit against the company and the respondent, and the question of liability for costs between the two co-defendants stands over until after the trial of the company 's suit.

22. It is alleged on behalf of the company that under these circumstances there was a bona fide dispute as to the indebtedness of the company to the respondent, and that the presentation of the winding up petition was an abuse of the process of the Court.

23. There is no doubt that the Court has inherent jurisdiction to stay proceedings where they amount to an abuse of its process: this is a well recognised principle.

24. And it was argued that in this case the company had not 'neglected' to pay the sum demanded within the meaning of Section 163(1) of the Indian Companies Act. Reliance was placed upon the judgment of Sir G. Jessel, M.R., in London and Paris Banking Corporation In re (1874) 19 Eq. 444 at p.446 : 23 W.R. 643, in which case he was dealing with the English Statute which is in similar terms to the Indian Act and in which he said: 'Negligence is a term which is well known to the law. Negligence in paying a debt on demand, as I understand it, is omitting to pay without reasonable excuse. Mere omission by itself does not amount to negligence. Therefore, I should hold, upon the words of the Statute, that where a debt is bona fide disputed by the debtor, and the debtor alleges, for example, that the demand for goods sold and delivered is excessive and says that he, the debtor, is willing to pay such sum as he is either advised by competent valuers to pay, or as he himself considers a fair sum for the goods, then in that case he has not neglected to pay, and is not within the wording o the Statute.'

25. In this case the company alleged there was a bona fide dispute and they were willing to pay what was found due on the taking of an account.

26. Now in this case we do not think it is necessary for us to decide finally whether there is a 'disputed claim' in fact; it is sufficient for us to say that it appears to the Court (1) that on the materials before it there is ground for supposing that there is a bona fide dispute as to a substantial part of the debt on which the winding up petition was based, and (2) that the company is solvent.

27. Under such circumstances the proper course is a suit: that course the respondent did adopt; and the suit which he instituted to recover the amount due to him has in fact been postponed until after the hearing of the suit by the company against him and his co-directors; under these circumstances we do not think that an order for winding up the company ought to have been made on the petition until the litigation involved in the two above-mentioned suits had been disposed of.

28. It follows that in our judgment the learned Judge was not right in dismissing the company's application in toto.

29. The application was to remove the petition from the file, to restrain the issue of advertisement and to stay all proceedings in respect of the petition, and in our judgment the proper order to be made, under the circumstances of this case, will be that the winding up proceedings be stayed until the determination of the two above-mentioned suits viz., the Company's Suit (No. 961/15) and the respondent's Suit (No. 454/16), the question of the costs of the winding up proceedings will be determined by the Judge taking such winding up proceedings; this will include the costs of the application beard by Greaves, J., which is now the subject of appeal.

30. We have said nothing with regard to the second ground above mentioned, viz., that the petition was presented with an ulterior motive: having regard to the conclusion at which we have arrived in respect of the first ground, a decision upon the second is rendered unnecessary, and, inasmuch as there is litigation pending between the parties, it seems to us that it is not desirable to express an opinion upon any matters involved in this application unless it is necessary and material for our judgment.

31. The result will be that the appeal will be allowed, the order of the learned Judge will be set aside and that the respondent will return to the company the sum of two lakhs nine thousand rupees, and the order above-mentioned will be substituted for the order of the learned Judge. The respondent must pay the appellant's costs of this appeal.

Woodroffe, J.

32. I agree.

_____________________________________________________________________________________________

*The following is the judgment in appeal:

Sanderson, C.J.

1. This is an appeal from a decision of my learned brother Mr. Justice Greaves, which was given upon an application made by the company to take the petition for the liquidation of the company which had been presented by the petitioner from the file and the application also asked that the petitioner should be restrained from issuing an advertisement of the petition and that all proceedings thereunder should be stayed. The learned Judge dismissed the application, and it is from that decision that this appeal has been preferred.

2. On behalf of the respondent a preliminary point was taken that no appeal lies.

3. Sir Benode Mitter yesterday drew our attention to Section 202 of the Indian Companies Act of 1913, which is one of the sections dealing with the winding-up of companies, and which provides as follows: 'Re-hearings of, and appeals from, any order or decision made or given in the matter of the winding up of a company by the Court may be had in the same manner and subject to the same conditions in and subject to which appeals may be had from any order or decision of the same Court in cases within its ordinary jurisdiction.' It was argued that that was the only section dealing with the matter of appeals from decisions made in the winding-up of companies, and that consequently the right of appeal depended upon clause in of the Letters Patent which applied to this Court further, that the decision of the learned Judge in this matter was not a 'judgment' within the meaning of Clause 5 of the Letters Patent, and that is the point which we have to decide in the first instance.

4. Now, the application to remove the petition from the file was based upon certain grounds which are referred to in the learned judge's judgment After considering those points he came to the conclusion that at all events at that stage of the proceedings he ought not to accede to the petitioner's request; and he said at the end of his judgment, 'For these reasons I do not think, I ought to accede to the application that is made to me at this stage, and I think that the Court ought only to interfere in a case of this kind in limine, if there is an absolutely overwhelming case.'

5. The matter, however, does not rest there, because upon that judgment being given an order of the Court was drawn up: and that order after providing that the application is thereby dismissed with costs goes on as follows: 'And it is further ordered that the said company be at liberty to prefer an appeal against this order and upon their undertaking to apply for expedition of the hearing of such appeal if preferred, and upon their paying to the said Maharaja the sum of rupees two lacs and nine thousand without prejudice to their contentions it is further ordered that all proceedings on the petition for winding-up the company presented by the said Maharaja on the 13th day of December instant be stayed pending the disposal of the said appeal: and it is further ordered that the said Maharaja do return the said sum of rupees two lacs and nine thousand to the said company should the said appeal be decreed, but if the said appeal be dismissed, the said Maharaja do withdraw his petition for winding-up and that the said company in that event do pay the Maharaja costs of and incidental to the said petition and the proceedings thereon.'

6. Now, it is clear from what has been stated by the learned Counsel that the order was not a consent order. I think that if it had been a cement order, the learned Counsel, Mr. Sarkar, agreed that it would not have been open to the respondent to take this preliminary point that there is no right of appeal, because it would have been clear that the order had been drawn up upon the basis that there was a right of appeal and that these terms had been arrived at upon the assumption that the Court of Appeal would hear the appeal and would decide the points which were at issue between the parties But as I have said it was not a consent order it is true that the learned Counsel for the purpose of assisting the Court drew up what they considered were some of the terms of the order but there is no doubt that the learned Judge after considering those draft minutes himself settled the order, and it is an order of the Court.

7. Now, what is the effect of that order? It is this: Under that order the sum of rupees two lacs and nine thousand has been paid to the petitioner. If this appeal is not heard on account of this preliminary point, and the appeal is dismissed, the order of Mr. Justice Greaves will stand and the Maharaja will retain the two lacs and nine thousand rupees, and there can be no further question with respect to his right thereto: the decision will be final the result, in my opinion, is that the terms of the order read with the judgment make the decision of Mr. Justice Greaves a 'judgment' within the meaning of Clause 6 of the Letters Patent.

8. The learned Counsel, Sir Benode, Yesterday argued that the four points which had been raised before Mr. Justice Greaves could be raised at the hearing of the petition and would then be finally gone into and decided Having regard to what I have said, it is clear that if this appeal is dismissed, those points could not be gone into at the ring of the petition because the judgment of Mr. Justice Greaves will stand and the order which is based upon that judgment will also stand, and by reason of the terms of the order if this appeal is dismissed the Maharaja will retain the money and the petition, is to be withdrawn and there will be no further hearing of the petition Consequently I think this is a 'judgment' within the meaning of Clause 15 of the Letters Patent and that there is a right of appeal.

9. I desire to add that the circumstances of this case are peculiar and quite out of the ordinary having regard to the facts I have mentioned and are not likely to create any precedent for any further cases and further, to say that having decided that there is a right of appeal, when we come to hear the appeal it may be necessary for us to deal with the point which has been raised by Mr. Sirkar at the end of his address this morning, namely, that his client, having regard to the form of the application, did not place before the Court all the evidence which he had at his disposal upon the points which, were at issue; When we come to hear the appeal, in my judgment it may be necessary for us to hear the learned Counsel upon that question and come to a conclusion upon it. It is not necessary for ma at the present moment to say anything more upon that matter The only point which I now decide is that there is a right of appeal.

Woodroffe, J.

10. I also think that an appeal lies. This application was one to quash the winding up proceedings so far as they had gone, on the ground that they constituted an abuse of process of Court.

11. It was argued on behalf of the respondent that no appeal lay, because it was said that the findings of Mr. Justice Greaves were not final but merely given for the purposes of the particular application, before him and that all the questions dealt with in the judgment would be open on the further proceedings taken upon the petition. But this matter cannot be determined solely with reference to the judgment to which the argument made reference, in consequence of the judgment of Mr. Justice Greaves an order which is not a consent order; was on the same date made That order assumes that there is a right of appeal and proceeds to determine what will happen when the appeal is heard, according as that appeal is determined one way or the other. The order, after stating that the application of the Bank was dismissed, provided that the company be at liberty to prefer an appeal against that order and it concludes as follows: 'And it is further Ordered that the said Maharaja do return the said sum of rupees two lacs and nine thousand to the said company should the said appeal be decreed, but if the said appeal be dismissed, the said Maharaja do withdraw his petition for winding-up and that the said company in that event do pay the Maharaja the costs of and incidental to the said petition and the proceedings thereon.' Can it have been intended that objection was going to be taken that no appeal lay or did the learned judge, who passed the order, think that no appeal lay? The answer must, I think, be in the negative. To hold now that no appeal does in fact lie would have this effect, that the Maharaja would retain without possibility of return the Rs. 2,09,000 upon the judgment of Mr. Justice Greaves which would be final without possibility of further proceedings or appeal.

12. Sir Benode Mitter argued that all the questions dealt with in the judgment would be open on the further hearing. But this is not the fact. They can never be argued again if this appeal be dismissed, because, according to the order if the appeal be dismissed, then the Maharaja retains the money paid to him and withdraws his petition, bringing those proceedings to an end, so far as the petitioner Maharaja is concerned. The effect of the order passed is thus to make the judgment which preceded it final I think there is, under the circumstances of this case which are peculiar, an appeal. It is not necessary, having regard to these peculiar features of the case, to enter into a discussion of the more general argument on the question of appeal which was addressed to us. Whether, as Mr. Sarkar argues, the issues should be tried on further evidence is a matter, as pointed out by the Chief Justice, to be determined, on the appeal when admitted.


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