AI Structured Summary
Not yet generated for this judgment
Judgment
Seshachalapathi, J.—These are connected appeals directed against the judgment and decree of the learned District Judge East Godavari in Original Suits Nos. 41, 48 and 49 of 1956 and I. A. No. 30 of 1957 in O. P. Nos. 105 of 1955. The three suits and the interlocutory applications were filed by Mr. R. G. N. Price, the Official Liquidator of the Andhra Paper Mills Co. Ltd., Rajahmundry (which will hereafter be called the Company). O. S. No. 51 of 1956 which is the main and comprehensive suit, has been brought for the rendition of accounts and other reliefs against the managing agents of the company, the debenture trustees and their agents, Who functioned as such at various times between 23-3-1940 to 17-10-1945. Originally seven defendants were impleaded. Defendants 1 and 2, Dayaram Poddar and Prabhu Dayal Himmatsinghka, were partners of the firm Dayaram and Sons, which was appointed as managing agents of the Company by a resolution of the Company dated 25-8-1935, and who are alleged to have continued as such till 1-8-1942. They were also the trustees under the first mortgage debenture trust deed from 20-9-1935 till 28-12-1942. After the suit was filed, Dayaram Poddar, the 1st defendant, died and his legal representatives were impleaded as defendants 8 to 10 by an order of Court dated 5-10-1957 in I. A. No. 450 of 1957. Defendants 3, 4, Nandula Mehta and Kantilal Nahalchand functioned as debenture trustees for some time during the period in question. A firm known as Khaitan Apte and Co. was appointed as the agents of the debenture trustees with effect from 1-8-1942 and on 1-6-1945 it was also appointed as managing agents. The said firm consisted of two partners, V. S. Apte and T. M. Karundia. Both of them died before the institution of the suits. L. V. Apte, the son of the late V. S. Apte, has been impleaded as the 5th defendant, and the widow and the son of T. M. Karundia as defendant''s 6 and 7 respectively.
O. S. No. 51 of 1956 as stated already is a suit filed against the managing agents and the Debenture Trustees and their agents complaining of several acts of frauds, suppressions, breaches of trust and misappropriations, in illegally carrying on the business of the company and foisting on it a huge load of false and fictitious debts, and taking away a sum of nearly 9 lakhs of rupees as dividend. The plaint, therefore, prayed for the rendition of account of the moneys due and payable to the company; for rents received or ought to have been received from 22-3-1940 to 17-10-1945; for purging the said accounts of all liabilities imposed on the company as for working expenses in relation to the business carried on by the debenture trustees and their agents from 4-8-1942 to 17-10-1945 and purging other entries alien to the mortgaged securities during the period from 22-3-1940 to 17-10-1945; for a decree against the defendants severally and jointly for such sums as may be ascertained on taking of the accounts as due and payable to the company by the Debenture Trustees, or their agents; for an account of the trade debts and liabilities incurred by the agents during the period between 4-8-1942 to 17-10-1945 to outside creditors in respect of which the said creditors obtained dividends from the Official Liquidator; for a decree against defendants 1 to 7 severally and jointly in respect of that sum; for an account to be rendered of Rupees 2,46,814-12-1 and Rs. 81,307-0-0 debited to the Company by the agents under assignments from defendants 1 to 2 and other creditors and for discharge of the debts stated to be due by the company; for a decree against the estate in the hands of defendants 5 to 7 for such sums as may be found due and payable on taking accounts in respect of the said sum; and for an account of Rs. 5,35,400/- alleged to be held on trust by the partners of Khaitan Apte and Company, and misappropriated by them, and a decree for such sums as may be found due against the assets of the partners of Khaitan Apte and Company in the hands of defendants 5 to 7.
O. S. No. 48 of 1936 is a suit filed by the Official Liquidator of the Company against defendants 5, 6 and 7 in O. S. No. 51 of 1956 for a declaration that the order of the High Court of Madras in Application No. 3514 of 1948 in O. P. No. 235 of 1947 is null and void, and for the recovery of Rs. 2,69,838-12-9 from the three defendants to the suit out of the assets of V. S. Apte and T. M. Karundia in their hands.
O. S. No. 49 of 1956 is a suit instituted by the Official Liquidator against defendants 5 to 7 in O. S. No. 51 of 1956 for a decree in a sum of Rs. 98,380-0-0 due to the Andhra Paper Mills Company to he realised from and out of the assets of the partners of Khaitan Apte and Company, in the hands of their legal representatives, the defendants to the suit.
L. A. No. 30 of 1957 in O. P. No. 105 of 1955 is an application made under Sec. 229 of the Indian Companies Act, 1913 and Rule 86 of the Indian Company Rules, praying for an order that the debts stated to have been due to Khaitan Apte and Company be expunged.
The 2nd defendant filed a written statement which was adopted by defendants 8, 9 and 10. The 3rd defendant did not participate in the trial and was ex parte. Defendants 4, 5, 6 and 7 filed separate written statements. The contesting defendants strongly repudiated the various allegations made respectively against them and denied in toto their liability, either for the rendtion of accounts, or for the payment of moneys, in the manner prayed for. By consent of parties all the three suits (O. S. Nos. 51, 48 and 49 of 1956) and I. A. No. 30 of 1957 in O. P. No. 105 of 1955 were tried together, the evidence being recorded in O. S. No. 51 of 1956.
A common judgment was rendered on 25-10-1958. The learned District Judge, while negativing several contentions of the plaintiff came to the conclusion that the defendants were liable to render an account for the respective periods in which the defendants or their predecessor-in-interest were in possession of the Comply under the provisions of the trust-deed as debenture trustees, or as agents of the debenture trustees or as managing agents. He passed a preliminary decree providing for the appointment of a Commissioner for the taking account from 22-3-1940 to 17-10-1945.
As regards O. S. Nos. 48 and 49 of 1956 the learned District Judge held that Khaitan Apte and Company had rendered themselves liable to account for amounts claimed in the suits. But, inasmuch as a comprehensive direction was made in the decree in O. S. No. 51 of 1956 to take accounts and in particular the sums that may be found due to the company in respect of the claims in the two said suits, the learned District Judge directed that they (O. S. Nos. 48 and 49 of 1956) should stand dismissed. A similar order of dismissal was made in I. A. No. 30 of 1957 in O. P. No. 105 of 1955.
The Official Liquidator has filed A. S. No. 330 of 1959 against the decree in O. S. No. 51 of 1956, and C. M. A. No. 294 of 1959 against the order made in I. A. No. 30 of 1957 in O. P. 105 of 1955. A. s. No. 347 of 1958 is an appeal filed by defendants 2 and 8 to 10 against the decree in O. S. No. 51 of 1956. A. s. No. 341 of 1959 is an appeal preferred by the 4th defendant against the decree in O. S. No. 51 of 1956. A. S. No. 274 of 1959 is filed by defendants 5 to 7 against the decree in O. S. No. 51 of 1956. A. S. Nos. 275 and A. S. No. 276 of 1959 are appeals by defendants 5 to 7 (in O. S. No. 51 of 1956) against the directions in O. S. Nos. 48 and 49 of 1956 respectively.
For a proper appreciation of the various questions of law and fact debated in the Court below and before us here, it seems to us necessary to set out in brief outline the main events and features relative to the history of the company leading up to the present litigation.
In 1920 a limited liability company under the name and style of the Carnatic Paper Mills Ltd., Rajahmundry was incorporated tender the Indian Companies Act, 1913 with the object, among other things of manufacturing and selling paper. For reasons, which it is no part of this enquiry to determine, that concern did not prosper.
In the year 1929 a limited liability company known as the Andhra Paper Mills Ltd., was formed. It took over the business and assets of the Carnatic Paper Mills as a going concern. The Andhra Paper Mills Ltd., started with a authorised capital of 23 lakhs made up of 20,000 ordinary shares of the face value of Rs. 100/- each and 3,000 preference shares of Rs. 100/- each and a subscribed capital of Rs. 10,61,300/- comprising of 9,451 ordinary shares and 1,162 preference shares, a firm consisting of two influential local gentlemen called Mothe and Pyda and Company was appointed as managing agents of the Andhra Paper Mills Ltd. They functioned till 1931. Afterwards a firm known as B. C. Ltd., consisting of one M. K. Srinivasan and J. Narayananmurthy functioned as managing agents till 1932.
The company had not enough financial resources for a proper and profitable working or the mills as an economic unit; and finances, therefore, had to be procured. In 1935 the help of a group of Calcutta Financiers was sought and Dayaram and Sons, consisting among others, of the 1st and 2nd defendants were appointed as managing agents for a period of 21 years on certain terms and conditions. The company also decided to raise a loan of 6 lakhs by the issue of first mortgage debentures carrying interest at 7 per cent per annum and redeemable in 15 years on the security of the lands, buildings, godowns, plants and machinery of the Company. Accordingly debentures were issued, and a first debenture trust-deed was duly executed on 20-9-1935 by the Company in favour of defendants 1 and 2 as the trustees of the debenture-holders. The debenture-trust-deed provided, among other things, that in case the interest for two years remained unpaid or the company ceased to do its business, the debenture trustees should have the power to enter upon and take possession of the mortgaged premises, and that thereupon the debenture-holders had the right to decide, either to carry on the business of the company, or to realise the security by sale or otherwise. The debenture-trust-deed is marked as Ex. A1, and a good part of the controversy in this case turns upon the interpretation of some of its clauses to which reference will be made in due course.
On 19-9-1938, a second series of debentures were issued for Rs. 5 lakhs carrying interest at 6 per cent per annum on the same security in the first mortgage debenture trust-deed, and a second mortgage debenture trust-deed was duly executed, redeemable any time after September 1943, in favour of Baldevdas Jhunjhunwala and Chakreswar Prasad Jain. The debentures were later deposited with Bissendayal Dayaram as security for the advance of Rs. 5,22,773/-.
Towards the close of 1938 the working of the mills experienced a serious set back. In addition to its chronic financial stringency, a notice under S. 144 Cr. P. C. would appear to have been issued to the company directing them to stop the flow out of the waste water of the mills. Confronted with this new situation the managing agents had no alternative but to close down the mills with effect from 22-12-1938. The Board of Directors of the Company in their meeting held on 30-12-1938 approved of the action of the managing agents to close down the mills with effect from 22-12-1938 (Ex. A-134).
On 30-1-1940 the debenture trustees issued a notice (Ex. A-135) in purported exercise of their power under Cl. 5 of the Ex. A-1 stating, firstly that there had been a default in the payment of interest; secondly, that the company had ceased to carry on business, and thirdly that it had committed breach of other covenants of the first mortgage debenture trust deed, and that therefore the security had become enforceable. The debenture trustees called upon the Company for the immediate payment of the principal money, in default of which it was notified that they intended to take possession of the mortgaged premises. A meeting of the Board of Directors was held on 15-3-1940, and by a resolution of even date the Board of Directors resolved that in view of what had happened the Company could not resist the trustees from taking over the possession of the mortgaged premises. Accordingly the debenture-trustees entered into possession on 22-3-1940.
Having entered into possession the debenture trustees sought to arrange for the sale of the mills. Through a broker named M. K. Srinivasan they got an offer from a limited liability company called the Canara pulp and Paper Company Ltd., (hereinafter called the Canaras) for the purchase of the mills. The agreed terms of the sale were that the Canaras should pay Rs. 14 lakhs for the purpose of the premises, buildings etc. of the mills, that a sum of Rs. 2 lakhs thereof should be ear-marked for distribution among the share-holders, that the balance of 12 lakhs should be paid in instalments as agreed, that the Canaras should have a trial run of the mills for a period of five months to test the machinery and its working capacity, that if satisfied they should exercise their option to purchase the same and that in the meantime for the use and occupation of the mills and the premises they should pay a sum of Rs. 4000/- per mensem. These terms were accented and possession was delivered to the Canaras on 29-5-1940.
After the trial period in or about October, 1940, the Canaras exercised their option in favour of the purchase. The sale could not, however, go through, because in the extra-ordinary meeting of the share-holders of the Company dated 31-3-1941 the share-holders voted down the proposal to sell the mills at the price and on the conditions reported by the debenture trustees, who were also the managing agents as the proposal was opposed by a large number of share-holders, who had sent their proxies in that behalf to Mr. Pyda Venkata Narayana (Ex. A-265).
On 7-4-1941, the debenture trustees notified to the Canaras and their Solicitors M/s. Wadia Gandhi and Company, Bombay, that the sale could not take Place and that, therefore, the licence granted to them to work the mills was cancelled, and the Canaras were called upon to withdraw forthwith from the mills. The Canaras did not comply with the demand, but continued to work the mills resulting in serious disputes between the parties. The Canaras filed a Criminal Case (Crl. M. P. No. 9 of 1941) on the file of the Joint Magistrate, Rajahmundry in which a Receiver was appointed on 5-5-1941.
The debenture trustees thereupon filed a suit (O. S. No. 15 of 1941) on 25-6-1941 in the District Court, East Godavari, praying for a declaration that the debenture-trustees were in de jure and de facto possession of the properties of the Andhra Paper Mills Co. Ltd., for an account to be rendered by the Canaras for the period in question with respect of the ''B'' and ''C'' schedule properties referred to in the plaint, and for the payment of damages. The Canaras stoutly resisted the suit
Eventually the debenture trustees by a resolution dated 1-11-1941 decided that it would be advantageous to them to settle their disputes with the Canaras if possible. After negotiations it was agreed between the parties that the Canaras should he paid Rs. 88,572-8-0 by the debenture trustees in the manner and subject to certain deductions as provided for in the agreement embodied in the memorandum of compromise (Ex. A-133) which was filed into Court on 20-11-1941. On 21-11-1941 the learned District Judge East Godavari, passed a decree in terms of the compromise. The Canaras left the mills and surrendered the possession to the debenture trustees.
By a resolution (Ex. A-21) Dt. 3-12-1941 the Directors of the Company approved of the action of the debenture trustees in compromising the suit and the debiting of Rs. 18,000/- to the Company in respect of the brokerage. Likewise, by a resolution (Ex. A-137) dated 8-12-1941 the debenture holders approved of the action of the trustees and agreed to waive 2 per cent of the interest due upto date in order to enable the trustees to settle the disputes between the Company and the Canaras.
Soon, thereafter, the debenture trustees tried to negotiate with the Hindustan Investment Corporation Ltd. At that stage one Marni Subba Rao filed O. P. No. 293 of 1941, in the High Court of Madras for winding up of the mills. Though it was held by the High Court that the company was then commercially insolvent and that it had been for a long time unable to pay its debts, since there were prospects of some financiers coming and taking it up, the winding up petition was dismissed. It is represented that an appeal from that order also was not effective.
In the meantime, the Hindustan Investment Corporation ceased to take any interest and the proposal fell through. Thereupon, negotiations were carried on between the debenture trustees and Khaitan Apte and Company consisting of V. S. Apte and T. M. Karundia, with a view to appointing them as the agents of debenture trustees. Accordingly by an agreement dated 1-8-1942 (Ex. A-130) the debenture trustees appointed Khaitan Apte and Company as their agents for a period of one year on a remuneration of Rs. 300/- per month authorising the said Khaitan Apte and Company to take possession of the mortgaged premises and to work the mills and supply the necessary finances with a condition that such advances and interest were not recoverable from the trustees personally, but that the agents (Khaitan Apte and Company) should be subrogated to the rights of the trustees and be entitled to the indemnity against the mortgaged premises, which the trustees were entitled to. Similar appointments for each year were made under Ex. A-126 dated 24-7-1943 and Ex. A-127 dated 31-7-1944.
At or about the same time Dayaram and Sons assigned their claims against the company to Khaitan Apte and Company Himmatsingka the second defendant assigned his claims against the company to Khaitan Apte and Company. Khaitan Apte and Company also acquired the debentures of the Calcutta group of debenture-holders. Dayaram and sons resigned their managing agency with effect from 1-8-1942.
On 4-8-1942 Khaitan Apte and Company took possession of the mills. On 19-8-1942 by a resolution of the Board of Directors of the Andhra Paper Mills accepted the resignation of Dayaram and Sons and appointed V. S. Apte as the managing Director and recorded that Khaitan Apte and Company were appointed as agents of the debenture-trustees. By a resolution dated 2nd September 1942 the Board of Directors requested Khaitan Apte and Company to continue the loans and advances to the company in respect of its working. On 26-9-1942 the Board of Directors passed a resolution recording the assignment of claims of defendants 1 and 2 against the Company to Khaitan Apte and Company. On the same day the Board also resolved lo deposit Rs. 81,307-6-8 with B. P. Khaitan Solicitor at Calcutta, and the amounts were advanced by Khaitan Apte and Company. After the appointment of Khaitan Apte and Company as agents under Ex. A-130 and the assignment of the debts by defendants 1 and 2, the old Directors of the company resigned. A new body consisting of Dr. Bhadkamkar. Karundia, L. V. Apte, Khantilal Nahalchand and V. S. Apte himself became the Directors as the nominees respectively of the managing agents, the debenture holders and the share-holders of the company.
In November, 1942 defendants 1 and 2 resigned their office as debenture trustees. On 28-12-1942 by an appropriate resolution the debenture trustees accepted the resignation of defendants 1 and 2 and appointed Nandulal Mehta and Khantilal Nehalchand (Defendants 3 and 4) as debenture trustees. In the meantime the Company resolved to issue 8131 shares inclusive of 2576 forfeited shares. V. S. Apte undertook to arrange for the subscription of these shares privately. A sum of Rs 5,29,450/- was collected which by an appropriate resolution of the Board of Directors dated 2-3-1943 was separately deposited in the Imperial Bank, No. 2 account.
Thereupon, Mr. Pyda Venkatanarayana instituted O. S. No. 10 of 1943 purporting to be on behalf of majority of the share-holders of the Company, challenging the legality of the allotment of the shares and complaining that V. S. Apte and Dr. R. H. Bhadkamkar and other Directors of the Company grossly abused their position by allotting these shares virtually to the nominees of V. S Apte for the purpose of obtaining a statutory majority at the general meetings of the company, and also challenging the constitution of the Board of Directors. In that suit, Pyda Venkatanarayana obtained an injunction restraining the Directors from holding a general body meeting with the new allottees as was impleaded as defendant No. 11 to that suit, the share-holders. Khaitan Apte and Company V. S. Apte, impleaded as defendant No. 2 filed a written statement traversing all the allegations in Pyda''s suit, and affirming the legality of the allotment of shares and the constitution of the new Board of Directors.
Eventually, the suit ended in a compromise (Ex. A-114). In and by that compromise, it was inter alia agreed firstly, that the new Board of Directors of the Company be recognised as having been validly constituted; secondly, that all allotments and re-allotments of shares made by the Directors in and after October, 1942 be declared void and, thirdly, that the Company should refund all the moneys paid to or received by the Company in respect of such shares. It was also agreed that the Board of Directors should consist of nine persons, five Directors to be appointed by the share-holders, two Directors to be appointed as ex-officio Directors of the managing agents, and two Directors to be appointed as ex-officio Directors by the debenture trustees. It was further agreed that the Articles of Association be altered by providing that the company might appoint Khaitan Apte and Company, their successors and assigns as managing agents of the Company for such a period and on such conditions that the company might determine. This compromise was filed into Court and the Court passed a decree on 24-3-1945 dismissing the suit vacating the interim injunction and making the compromise petition a part of the decree.
After the vacating of the interim injunction an extra-ordinary general body meeting was held on 1-6-1945. In that meeting Khaitan Apte and Company were appointed as managing agents (Vide Ex. A-144) and a managing agency agreement (Ex. A-141) was duly signed on 3-6-1945. On 12-8-1945 there was a general body meeting of the shareholders, where, after a discussion and in spite of the objection raised by Mr. Pyda Venkatanarayana the accounts of the Company including the accounts of the debenture-holders were passed. The accounts of the company were from 1-10-1941 to 31-3-1945 (1-10-1941 to 4-8-1942; 4-8-19142 to 31-3-43; 1-4-43 to 31-3-44; 1-4-1944 to 31-3-1945).
In October, 1945 Khaitan Apte and Company proposed to transfer their managing agency to a company called Acharya and Acharya Ltd., upon certain terms and conditions. They were also appointed as the power of attorney holders of Khaitan Apte and Company to work the mills. On 12-10-1945 the debenture trustees agreed to hand over the mills to the Company represented by the managing agents. In pursuance of their agreement with Acharya and Acharya Ltd., the mills were actually put into possession of the Acharya and Acharya Ltd. on 17-10-1945. In the present suit account is asked upto that date. Subsequently, differences having arisen between Acharya and Acharya Ltd., on the one side and Khaitan Apte and Company on the other, the debenture holders took possession on 4-2-1947. The debenture-trustees worked the mills from 14-2-47 to 24-5-1947 at the special request of the Board of Directors when eventually on the latter date, the mills had to be closed down on account of labour troubles.
One Vadilal Laldas Patel filed O. P. No. 230 of 1947 on the file of the High Court of Madras on 28-8-1947 to wind up the company. Mr. R. G. N. Price was appointed provisional liquidator by Clark, J., on 4-9-1947. The Board of Directors by a resolution dated 17-9-1947 resolved that they had no objection to the appointment of the provisional liquidator. The provisional liquidator took possession of the mills and filed a provisional report on 22-9-1947. Eventually, the final winding up order was made by Clark, J. on 23-9-1947.
The Official Liquidator filed a statutory report u/s 177(b) of the Indian Companies Act, 1918, on 30-2-1948. The Andhra Paper Mills in liquidation were purchased by the Madras Government for Rs. 25 lakhs. Various claims were preferred on behalf of the creditors. Khaitan Apte and Company filed a claim (Ex. A-152) for Rs. 18,88,845-5-9 in respect of its advances to the company. The Official Liquidator rejected the claim on 17-9-1948 in a sum of Rs. 2,86,690-8-6. An application (Application No. 3514 of 1948) was filed by Khaitan Apte and Company and eventually Bell J. allowed the claim in his order dated 6-12-1948. Later the Khaitan Apte and Co. filed an application No. 840 of 1949 requesting that 8 annas dividend may be declared. In that application it was stated that the Bombay group of debenture-holders were prepared to waive the accrued interest in a sum of over six lakhs rupees and, therefore, from out of the funds in the hands of the Official liquidator a dividend of 8 annas might be declared to all the creditors. The Official Liquidator also supported the claim, and by an order dated 5-4-1949 the High Court of Madras directed the Official Liquidator to declare an 8 annas dividend in the rupee. Khaitan Apte and Company was paid a sum of Rs. 9,25,890-12-4 with some deductions.
The Official Liquidator had paid a sum of Rs. 11 lakhs for redeeming the debentures. Except with respect to one or two debenture-holders, he had also paid to all the unsecured creditors. Therefore, the liquidation was moving to its closing stages. The Official Liquidator filed an application (Ex. B-36) for additional remuneration in addition to the 21/2 per cent on gross collections as fixed by Clark, J. in his order dated 6-10-1948. In the affidavit filed in support of that application he said that for the last 8 years he had to fight a number of claims for and against the liquidation, attending to various commissions, going through masses of correspondence, accounts and documents and the liquidation had kept him pinned down far beyond any reasonable expectation of time. He also filed another affidavit Ex. B-33 on 31-1-1956 stating that all outstanding matters had then been completed except an appeal on a short point pending then in the High Court at Guntur.
In C. S. No. 376 of 1949 on the file of the High Court of Madras - a suit instituted by Andhra Paper Mills Company Ltd., (in liquidation) by its Official Liquidator v. Anand Brothers for the recovery of Rs. 2,74,734-15-6 from the Anand Brothers, who are alleged to be the agents of the plaintiffs for distributing the paper from 1942 onwards as their sole selling agents, it is alleged that the counsel appearing for the defendants Anand Brothers brought to the notice of Raja Gopala Ayyangar J., on 19-8-1955 a reply made by V. S. Apte in his deposition before the Commissioner at Bombay that the sum of Rs. 50,000/- paid to Srinivasan was not debited to the company, while as matter of fact the Board''s minutes book which was sent for examination definitely showed that the sum of Rs. 50,000/- was debited to the company on 31-3-1946. It is stated that the learned Judge enquired as to whether any misfeasance application was taken out against V. S. Apte. It is suggested in the plaint and in the evidence of P. W. 2 that the plaintiffs thereupon started investigation of the affairs of the Company behind the facade of balance sheets and Board resolutions and looked closely into the actual transactions for their real character and nature and "the investigation of one fraud, led to the discovery of another fraud and yet other fraud." The three suits and the I. A. have thereupon been launched.
The case of the plaintiff may be summarised thus:
In the instant case the business of the Company was not mortgaged. If the debenture trustees entered upon the mortgaged premises, they could do so for the realisation of the security and for the abetment (sic) of interest. They could in order to secure the optimum price keep the company as a going concern. But what they have no right to do is to stay and carry on the business of the Company without coming to Court for the appointment of a Receiver, or praying for a decree for the realisation of the mortgage money by the sale of the hypotheca. If they continue to stay and carry on the business, they should pay occupation rent, and they should strictly account for not only the actual receipts, but the sums which they ought and should have received. In any view, the business run by the debenture, trustees and later by their agents and Khaitan Apte and Company cannot be regarded as a business of the company. It was a business earned on by the debenture trustees and their agents for their own benefit and it is they that should bear the risk and the losses. The debts stated to have been incurred in the working of the mills are not binding on the company and the sum of Rs. 9,25,890-12-4 which Khaitan Apte and Company had received by way of dividends from the Official Liquidator should be expunged.
It is further averred that the debenture trustees had no right of private sale and their attempt to sell the mills to the Canaras is wholly void and ultra vires, and constitutes a fraud on the statute and on the powers of the debenture trustees, so much so that any liability debited to the Company in respect of such sale is not binding. In addition to these broad contentions the plaint prayed for certain reliefs with respect to certain specific items, which will be examined later.
As already stated, the different sets of defendants have filed separate written statements. In addition to traversing the special allegations made against each one of them they have all denied stoutly the charges of fraud, misappropriation, breaches of trust and illegalities in the manner pleaded in the plaint.
They contend that under Ex. A-1 the debenture trustees have the right to carry on the business, that a power of private sale without the intervention of Court had been expressly reserved that the Directors of the Company, the general body of the shareholders were not only cognizant of the debentures trustees entering upon possession and carrying on the business at the risk of the mortgagor-company, but that they had all along approved and assented to the various accounts furnished by the debenture trustees and their agents.
It is further alleged that in any view of the matter the Official Liquidator who examined all the records, including the accounts, vouchers minutes books of the Directors of the Company, of the share-holders and the minutes book of the debenture trustees and the debenture-holders with care and circumspection as in law he was bound to do - and upon that footing settled the claim with Khaitan Apte and Company by paying the dividend of 8 annas in the rupee on 28-4-1949 is not entitled to reopen the settled accounts and resurrect the present claims which are manifestly stale and untenable.
It is also pleaded that the suits are barred by limitation.
The learned District Judge Earned appropriate issues in all the suits and tried some of them together as they comprehend connected and cognate matters.
Broadly, the learned Judge held that the allegation that the debenture trustees had no right to carry on the business was palpably against the spirit of Ex. A-1, that as they were carrying on the business under the express power conferred on them under Ex. A-1, there was no question of paying any separate occupation rent, and that as the business was run in accordance with the provisions of Ex. A-1, it cannot be said that the debenture trustees or their agents should run the business at their own risk and should bear all the losses.
He negatived the contention that in this case the accounts could not be reopened. He found that there were certain fraudulent and illegal entries and that, therefore, there should be a direction for the rendition of accounts. In particular, he held that the defendants were liable to account for the sum of Rs. 34,000/- received from the Canaras, and repelled the contention that the debenture trustees had power to sell without intervention of Court. He also held that the defendants should account for the sum of Rs. 81,307-6-8 specially ear-marked for the settlement of debts through Khaitan and Dayaram Poddar, that they should account for Rs. 73,497-10-2 paid to Khaitan Apte and Company as part of the dividend, and Rs. 50,000/- paid to Srinivasan (claims in O. S. Nos. 48 and 49 of 1956). He held that the allocation of liability between the defendants must be with respect to the respective periods in which the defendants or their predecessors-in-interest functioned as debenture trustees or their agents, and that the quantification of that liability can only be made after the accounts have been gone into and objections thereto considered at the passing of the final decree. On that footing, a preliminary decree for accounts was passed.
We have had the benefit of a long and detailed argument at the bar. In addition to the original memorandum of grounds in A. S. No. 630 of 1959, an application - CMP. No. 10403 of 1959 - has been filed on behalf of the appellant, the Official Liquidator seeking the leave or this court to raise additional grounds, which we thought it right to allow.
Mr. Padmanabha Mudaliar, the learned counsel for the appellant, contended that Ex-A-1 does not confer upon the debenture trustees the right to carry on the business, that, inasmuch as in the instant case the debenture trustees carried on the business of the Company from 23-3-1940 to 17-10-1945, either by themselves or through their agents, they perpetrated a fraud on law and all the debts and charges stated to have been incurred for the said carrying on of the business were inadmissible and should be expunged.
It is also urged that the debenture trustees should have been directed to account as mortgagees in possession with respect not only to the amounts actually received, but might and ought to have been received and upon that footing should have given at least Rs. 10,000/- per month in that behalf. The contesting defendants who have also filed appeals against the direction in O. S. No. 51 of 1956 maintaining that the debenture trustees had the power to run the business and that the debenture trust-deed conferred upon the debenture trustees the power to sell without the intervention of Court, that the imputation that the debenture trustees and their agents had committed various acts of fraud was wholly unfounded, that accounts were rendered and accepted by the Company, that the Official Liquidator had examined the entire accounts and had also accepted them by paying a dividend to Khaitan Apte and Company and to the other unsecured creditors, and that, therefore he is precluded in law from filng the present suits and asking for fresh accounts.
It seems to us that upon the contentions raised before us, the following main questions emerge for consideration:
Whether under Ex. A-l the Debenture Trustees have the right to carry on the business?
If they have such a right, can they run the business at the risk of the Company and debit the losses and charges in such working?
Whether the Debenture Trustees or their agents had rendered the accounts of the trading of the Company, and whether they were accepted by the Board of Directors and the general body of the share-holders of the Company.
Whether on the facts of this case, there had been any settlement of accounts, between the official liquidator and Khaitan Apte and Company?
Whether there are facts and circumstances to reopen the settled accounts?
Whether the various items specifically pleaded in the plaint as constituting fraud and dealt with in the judgment of the trial Court are instances of fraud, justifying the direction for the rendition of fresh accounts?
Whether the suits are not barred by limitation?
We will now take up the first question. Whether under Ex. A-1 the Debenture trustees have the right to carry on the business or not must primarily depend upon the recitals in the instrument. The decisions that have been brought to our notice on this part of the case emphasize, only that it is from the recitals of the instrument that this question has to be determined.
In Whitley v. Challis (1892) 1 Ch. 64 at p. 71 the question was whether a receiver appointed at the instance of the mortgagee can be directed to manage the business. The Court of Appeal held that the security did not charge the good will or business and that, therefore, the Court could not appoint a manager. Bowen L. J. observed thus:
The security has been read by the Lord Justice, and I will not go through it again; but it appears to be clear, when you look to the document as a whole, that there is an exclusion from the security of the goodwill of the business. If, indeed, the business and goodwill of the hotel had been included in the security, either by express terms or by implication, then I do not doubt that the Court might in a fit case appoint a manager to manage that which, as being included in the security, those entitled to the benefit of the security might have a right ultimately to sell.
In Makins v. Percy Ibotson and Sons (1891) 1 Ch. 133 the question was whether the Court can appoint a receiver and manager. The debenture did not specifically mention the goodwill of the company. With great hesitation Kay, J. held that a manager could be appointed only for the purpose of an expeditious realisation of the security.
In Re Leas Hotel Co. Salter v. Leas Hotel Co., (1902) 1 Ch. 332 the debentures issued by a hotel company charged all the company''s lands, buildings, property, stock-in-trade, furniture, chattels, and effects whatsoever, both present and future. In an application for the appointment of a manager in an action for tore-closure or for sale Kekewich J. held that the terms of the security were sufficient to include the good-will or business of the company, and therefore, the Court had jurisdiction to appoint a manager.
In Re Victoria Steam Boats, Limited; Smith v. Wilkinson, (1897) 1 Ch. 158 the question was whether a manager could be appointed for the undertaking in an action by the debenture holders even though the security had not yet crystallized as the debenture had not become actually due. Kekewich J., appointed a manager as the security was in peril, but held that such an appointment should be for a very limited period only.
In County of Gloucester Bank v. Rudry Merthyr Steam and House Coal Colliery Co. (1895) 1 Ch. 629 a Company executed a mortgage to a bank by subdemising its lands, mines and seams of coal and other premises, buildings and fixed machinery. The principal and interest became due and the bank took possession of the mines and appointed a receiver of the income. Subsequently, they brought a fore-closure action against the Company and moved for a manager being appointed for the colliery. North J., before whom the motion was made dismissed it on the ground that the business and the right to work the colliery did not form a part of the security following the decision in (1892) 1 Ch. 64. The Court of Appeal reversed the decisions upon the ground that even though the business of the colliery was not expressly mentioned in the mortgage deed, it was intended to pass and did pass to the mortgagees and that they were entitled to apply in the action for a receiver and manager of the colliery and that the decision in (1892) 1 Ch. 64 was distinguishable. These decisions, as we have said already, only emphasize that it is the recitals of the document that have to be looked into for determining the scope and ambit of the powers of the debenture trustees when they enter upon possession, especially with reference to the question of their right to carry on the business. We will now take up for consideration Ex. A-1.
The share-holders of the Company passed a resolution on 25-8-1935 to raise a loan of rupees six lakhs by the issue of first mortgage debenture. In conformity with that resolution the Company issued debentures for the amount of rupees six lakhs carrying an interest of 7 percent per annum and redeemable in 15 years. The company also executed a trust-deed (Ex. A-1) in favour of Dayaram Poddar and Prahhudayal Himmetsinhgka (Defendants 1 and 2) as trustees of the debenture-holders. CI. 3 provides that the different items of property referred to in the first schedule are transferred to the trustees absolutely, subject to the right of redemption as provided for in the deed. Clause 4 preserves the right of the Company to carry on the business and pay dividends out of profits until the principal money become payable under Clause 5 subject, however to the conditions that the Company with not be at liberty to create any mortgage or charge ranking in priority to or pari passu with the moneys secured under the debenture trust-deed. Clauses 5, 6, 7 and 8 are material, and they are in these terms:
CI. 5: ''The principal moneys due to the Debenture holders under their debentures and the Trusts of this Indenture shall become immediately payable and the security enforceable in any of the following events:
a) If the Company makes default in the payment of any interest hereby secured for two years after the Company begins to manufacture paper or four years from the Twenty fifth day of August, one thousand nine hundred and thirty four whichever is later;
b) If execution is levied upon any part of the mortgaged premises or a Receiver appointed thereof by way of equitable execution and such execution is not satisfied or Receiver discharged within forty days from the date of the levy of the execution or appointment of Receiver as the case may be;
c) If the company ceases to carry on its business;
d) If an order shall be made or a special or extra-ordinary resolution be passed for the winding up of the company ''except for reconstruction or amalgamation with another company;
e) If the company commits a breach or any of the covenants or provisions herein contained and on its part to be observed and Performed;
f) If the company puts an end to the agreement made between the company of the one part and Messieurs Dayaram and Sons of No. 5 Tarachand Dutt Street, Calcutta of the other part whereby the said Messieurs Dayaram and Sons were appointed the Managing Agents of the Company provided that on the happening of any of the above events specified in such clauses (a) and (c) the permission given by Clause 5 to carry on business on the mortgaged premises shall not be determined unless and until the Trustees shall have first served on the Company a preliminary notice requiring the company to pay interest in arrear or to perform or observe the covenants or provisions the breach whereof is complained of and the Company shall have neglected for a period of one month to comply with such notice.
CI. 6: So soon as the principal moneys shall become payable and the security enforceable under the last preceding clause the Trustees shall enter upon and take possession of the mortgaged premises and shall forthwith summon a meeting of the Debenture holders for the purpose of determining whether the business on any part thereof shall be carried on by the Debenture holders or whether it shall be realised by sale or otherwise.
CI. 7: In the event of the debenture holders resolving in such meeting by an extraordinary resolution (as hereinafter defined in CI. 19) to carry on the business of the Company or any part thereof the Trustees may subject to any direction given by the debenture holders, at such meeting either themselves carry on the said business or appoint a person as Receiver to carry on and manage the same at a salary not exceeding rupees Three hundred a month to be approved by a resolution of the Debenture holders. The trustees or the Receiver so appointed may for the purpose of carrying on the said business do all or any of the following things:
a) Employ such agents, managers, clerks, Accountants, servants, workmen and others upon such terms and with, such salaries, wages, or remuneration as they or he stall think proper; (b) Repair and keep in repair the buildings, factory works, machineries, plants and other properties comprised m the mortgaged premises: (c) Provide all such machineries materials and things as they or he may consider necessary; (d) Insure all or any of the mortgaged premises of insurable nature against loss or damages by fire or other risk in such sum or sums as they or he shall think it; (e) Settle, arrange compromise submit to arbitration any accounts, claims, questions, or disputes whatsoever which may arise in connection with the said business or the mortgaged premises or in any way relating to the security and execute release or other discharges in relation thereto; (f) Fringe take, defend, compromise! submit to arbitration, and discontinue any actions, suits, or proceedings whatsoever civil or criminal in relation to the business or any portion of the mortgaged premises; (g) Allow rime for payment of any debts either with or without security; (h) Borrow any money upon such terms and conditions as to the Trustees may seem proper for carrying on the business of the Company; (i) Execute and do all such acts, deeds, and things as to the Trustees or the Receiver may appear necessary or proper for or in relation to any of the purposes aforesaid; (j) Generally do and cause to be done all such acts, deeds and things respecting the business and the mortgaged premises as they or he could do or cause to be done if they or he had the absolute ownership of the mortgaged premises and carried on the said business for their or his own benefit without being answerable for any loss or damage which may happen thereby.
CI. 8: The Trustees shall out of the moneys received by them in carrying on the said business and out of the rents and profits of the mortgaged premises and any other sources pay and discharge the costs, charges and expenses incurred in carrying on of the mortgaged premises or in the performance or exercise of their powers and duties under the trusts of this Indenture and all other outgoings which they shall think fit to pay and shall pay and apply the residue of the said receipts, rents profits and moneys in the manner hereinafter directed with respect of the net moneys to arise from any sale or sales made by the Trustees under Clause 13 of this Indenture.
Clause 9 provides that the Trustees should, as long as they carry on the business either by themselves or through a receiver, appointed by them sent to the Debenture holders and the '' Directors of the Company every six months the accounts of the trading of the Company.
Under Clause 11 it is provided that the receiver appointed by the Trustees under the power contained in Clause 7 should be deemed to be the agent of the Debenture holders and shall be solely responsible for the acts and defaults. Clause 12 states that the trustees or the receivers shall not be accountable as mortgagees in possession.
Clause 13 is also important and is in these terms:
CI. 13: If at the meeting mentioned in CI. 6 of this Indenture the debenture holders shall resolve not to carry on the business or any part thereof but to realise the same or if at any subsequent meeting after having carried on the business the debenture holders shall resolve to discontinue the business and to realise the mortgaged premises the trustees shall on notice to the company proceed forthwith to realise the mortgaged premises by sale whether by public auction or otherwise in accordance with any directions given to them by a resolution of the debenture holders and in default of any such direction as the Trustees shall deem most expedient without the concurrence of the Company and shall apply the proceeds of such sale or other mode of realisation in the following manner that is to say, the Trustees shall pay (i) firstly all costs and expense properly incurred in or about such sale or the performance or exercise of the Trusts power and duties vested in the Trustees under the Indenture or otherwise in respect of this security including the remuneration of the Receiver (if any) (ii) secondly the interest for the time being due and owing on the debentures (iii) Thirdly the principal moneys then due and owing to the debenture holders (iv) And lastly the surplus if any to the Company or its assigns provided that if the said moneys shall be insufficient to pay all such interest or principal moneys in full then the said moneys shall be apportioned rate-ably and without any preference or priority among all the Debenture holders according to the amount of their holdings so that the interest due shall be paid before any principal moneys.
Clause 14 provides that when all the principal moneys and interest had been fully paid and satisfied the Trustees should, upon the request and at the cost of the Company, redeliver the possession of the premises to the Company. Clauses 17, 18 and 19 deal with the provisions as to the powers of the Debenture trustees, their meetings etc. and are not material for the question now under consideration. From clauses 20 to 27 are the covenants which contain inter alia an undertaking to pay the trustees all reasonable costs, charges and expenses properly incurred by them in the discharge of their duties as Trustees and to indemnity against all liabilities.
The relevant clauses have been above extracted in extenso in order that the principal contention of Mr. Padmanabha Mudaliar, the learned counsel for the Official Liquidator, may be correctly appreciated.
According to the learned counsel, Ex. A-1 contains only the mortgage of fixed assets, and that the business and the undertaking have not been made part of the security, nor has a floating charge been created with respect to the stock-in-trade, book debts, uncalled capital and is not infrequently done in debenture trust deeds of this character. It is also contended that there is no charge created expressly on all the properties of the Company, present or future. That being so, it is argued that the debenture trustees can, when the security becomes enforceable for any of the reasons mentioned in Clause 5, enter upon the premises and carry on the business only with a view to sell the mortgaged properties as a going concern.
It is true that in Clause 3 of Ex. A-1 read with schedule I, the business is not a part of the security. But, as observed by Lord Bowen in (1892) 1 Ch 64 at p. 71 the question whether the good will is included in the security, either expressly or by implication, or not must be determined by a consideration of the document as a whole. In this case, it is manifest from the recitals of Ex. A-1 that when the security becomes enforceable, the Debenture trustees can take possession of the mortgaged premises and call for a meeting of the Debenture holders, who have the option either to carry on the business, or to realise the securities by sale. If the debenture holders decide to carry on the business of the Company the trustees, under the directions of the debenture holders, may either carry on and manage the business, either by themselves, or through a Receiver or an agent. The Debenture holders are also given the power even after deciding to carry on the business to cease to do so, and direct the Trustees to realise the securities by the sale of the mortgaged premises by public auction, or otherwise without the concurrence of the Company. It is also provided that the Trustees, out of the moneys received by them in carrying on the business and rents and profits of the mortgaged premises after discharging the costs and expenses, shall apply the residue of the receipts, rents and profits in paying and discharging of the principal moneys and interests secured by the Debenture Trustees.
A combined reading of the relevant provisions in Ex. A-1 seems to warrant the inference that though in express terms the business of the company is not made a part of the security, it would seem to be the intention of the indenture that on the occurrence of the default and subject to the option of the Debenture holders, the Debenture trustees can carry on the business, either by themselves or through their agents. This power is not limited as is generally done to the period pending the realisation of the security by the sale of the mortgaged premises as a going concern. The power to run the business is not, on the recitals of Ex. A-1, to be construed as a power incidental and ancillary to the right of sale. Clause 6 read with Clauses 7 and 8 indicate that the power to run the business is conferred upon the debenture holders through the debentures trustees or their agents as a substantive alternative to the right to realise the security by the sale of the hypotheca. The learned District Judge held that under Ex. A-1 the Debenture holders through the Debenture Trustees, or their agents, have the right to do the business, and we are in agreement with this conclusion.
The next question is whether the Debenture Trustees or their agents carried on the business on behalf of the Company, and if so, whether the Company is liable for all the debts contracted and the losses incurred in the carrying of that business.
The learned District Judge held that inasmuch as the provisions of Ex. A-1 clearly give a right to the Debenture Trustees to take possession of the Mills and to carry on the business in order to pay of the debenture debt, it cannot be said that the business could be run at their own risk and that they should bear all the losses incurred in carrying on such business. This conclusion of the learned District Judge has been very severely assailed by Mr. Padmanabhan Mudaliar.
According to the learned counsel the Debenture trustees on entering into possession of the premises on the occurrence of a default should have leased out the mills for rent, and if they decide to carry on the business they could do so with their own capital and moneys at their own risk without passing on the losses and liabilities to the Company. A good part of the argument on this part of the ease was devoted to the question whether Khaitan Apte and Company, who were carrying on the business with effect from 4-8-1942 in pursuance of the agreement dated 1-8-1942, were the agents of the mortgagor-company, such that the Company is liable for all the debts incurred and the losses sustained by them in the process. It cannot be disputed that under Clause 7 of Ex. A-1 the Debenture trustees have a right to appoint a person as a receiver to carry on and manage the business. It is in purported exercise of this power that Khaitan Apte and Company were appointed as agents.
In Gaskell v. Gosling (1896) 1 QB 669 a question arose before the Court of appeal whether on the facts of that case the receiver appointed by the Debenture holders was an agent of the Company. Lord Esher M. R. held that the receiver appointed by the Debenture holders must be deemed to be their agent and to have carried on the business in that capacity, so as to render their principals liable. Rigby, L. J., took a different view, and has given an analysis of the powers of the receiver appointed by the Trustees and has traced the historical evolution of the powers which have now come to be associated with the receiver. Therein he pointed out that the mortgagees when they entered upon possession took upon themselves most stringent liabilities in respect of accounting. Therefore, a device was evolved whereby the mortgagees would appoint a receiver, who would be the agent not of the mortgagees, but of the mortgagor.
The case went up to the House of Lords where the view of Rigby L. J., was affirmed. Earl Halsbury after considering the law as expounded by the House of Lords in Cox v. Hickman, (1860) 8 HLC 268 held that the receiver must be deemed to be the agent of the mortgagor and that no liability could be fastened upon the Debenture trustees as principals for the acts of the receiver.
In re Vimbos, Ltd., (1900) 1 Ch 470 it was held that the receiver was not an agent of the mortgagors. The facts in that case were as follows:-
The Debenture deed gave power to the holders to appoint a Receiver to realise the assets of the company. There was no direction to him as to what he should do with the moneys which he received or that he should keep down the interest of the mortgage or pay any arrears or surplus to the mortgagor. There was no clause that the receiver was to be the agent of the mortgagor company. The company went into liquidation. The receiver had certain moneys in his hands. The Official Liquidator took out a summons that the receiver be ordered to pay the moneys to him. Cozens Hardy, J., held that the receiver, on the facts of that case, was not the agent of the mortgagor, but that of the mortgagee.
In Robinson Printing Co. Ltd. v. Chic Ltd., (1905) 2 Ch 123 Warrington J., held that there was no clause in the trust-deed that the receiver was the agent of the mortgagor-company.
In Deyes v. Wood, (1911) 1 KB 806 on a construction of the deed it was held that the receiver was not the agent of the mortgagor, but that of the debenture holder and, therefore, he could look for his remuneration only from the latter. Therefore, the question whether the receiver is the agent of the mortgagor or the mortgagee can only be decided with special reference to the recitals in the trust deed.
In P.G. Brookes Vs. The Industrial Tribunal, Madras and Others, Subba Rao and Balakrishna Ayyar JJ. after a review of some of the cases aforementioned held that the legal position of a receiver appointed by the mortgagees in each case would turn upon the construction of the mortgage-deed.
Now, in this case there is an express provision that the receiver appointed by the Debenture Trustees is the agent of the Debenture holders. Clause 11 of Ex. A-1 is in these terms:-
A receiver appointed by the Trustees under the power contained in clause 7n of this Indenture shall be deemed to be the agent of the Debenture Holders and they shall be solely responsible for such receiver''s acts and defaults. Any Receiver so appointed may be discharged by the Trustees and if thought fit another may be appointed in his place.
In view of this express provision the debate as to whether the receiver is an agent of the mortgagor or the trustees is wholly irrelevant. It follows from the terms of clause 11 that for all acts of the receiver or agent the Debenture trustees will be responsible. In other words, the business of the company in law was carried on by the Debenture Trustees though in fact it was carried on by the agent or the receiver appointed by them.
It now remains to consider whether the Debenture Trustees and their agents were carrying on the business at the risk of the Company.
Mr. Padmanabhan Mudaliar contends that there is no express power under Ex. A-1 that the business was to be run by the Debenture Trustees on behalf of or at the risk of the mortgagor. He placed reliance upon the arrangement in February 1947 when, at the instance of the company the Debenture Trustees took possession, they insisted upon a condition that the business should he run at the risk of the mortgagor-company, and accordingly the Board of Directors passed a resolution to that effect on 20-2-1947. The circumstances under which that resolution was passed have not been fully investigated in this case, and we have, therefore, to determine whether upon the recitals of Ex. A-1 the business is to be regarded as the business of the mortgagor company.
When the Debenture Trustees step in, the Company does not cease to exist and such profits as are earned really belong to it. We may in this connection usefully extract a passage from the speech of Lord Halsbury in Gosling v. Gaskell, (1897) AC 575 at p. 583 which is to the following effect:-
The Company is still the person solely interested in the profits, save only that has mortgaged them to its creditors. It receives the benefit of the profits as they accrue, though it has precluded itself from applying them to any other purpose than the discharge of its debts. The trade is not earned on by, or on account of, the creditors, though their consent is necessary in such a case, but the trade still remains the trade of the Company. The Company is the person by, or on whose behalf, the business is carried on.
In R.G.N. Price, Official Liquidator of the Andhra Paper Mills Co., Ltd., (in liqn.) Vs. M. Chandrasekharan, President of the Andhra Paper Mills Workers Union, Rajamannar C. J. and Panchapakesa Ayyar J. had to deal with the very trust-deed (Ex. A-1). The question that arose there was whether under the Industrial Disputes Act the workers employed by the Company could still be deemed to be workers of the Company after the debenture trustees began to carry on the business of the Company. The actual decision of the case has no direct bearing upon the question arising in these appeals. But this following observation of the learned Chief Justice is well worth citation:-
The second answer is that even if the debenture Trustees, on behalf of the debenture holders, had exercised their right to carry on the business of the company, the company would not cease to exist as a legal entity and the business would continue to be the business of the Company, though it may be carried on by the debenture-holders as mortgagees.
In Ex. A-1 there is in clause 8 a specific direction that the moneys received in the carrying on of the business and the rents and profits of the mortgaged premises shall, after defraying the necessary expenses, be used and applied for the discharge of the mortgage debt. This clause demonstrates that it is the mortgagor-company that should get the benefit of the profits of the Company, if any. Further, there is in the deed itself powers given to the mortgagees, or their agents to borrow money upon such terms and conditions as the Trustees may deem necessary for the carrying on of the business of the Company. In clause 20(2) (vi) the Company covenanted to pay to the Trustees all reasonable costs, charges and expenses properly incurred by them in the discharge of their duties as trustees under the indenture.
On a conspectus of the relevant provisions of the trust-deed, we are of opinion, that on the debenture Trustees had the right to carry on business on behalf of the mortgagor-company and at its risk, so that the actual losses incurred by them and the lawful debts contracted by them are binding upon the Company. In this connection we may notice the decision of the Court of Appeal in Bompas v. King, (1886) 33 Ch. D 279. In that case certain residential blocks and apartments were mortgaged with a power given to the Debenture trustees to enter the premises in default of payment and "manage and receive the rents and profits thereof." The instrument of mortgage in that case as in the present case - contained no assignment of chattels, but there was a covenant to pay (as there is a covenant here) costs and charges incurred by the trustees in the discharge of their duties under the deed. The interest being in arrear, the mortgagees took possession of the building and continued the business. The working of the business ended in a loss. The second mortgagee brought an action and the question was whether the first mortgagees were entitled in taking the accounts to be allowed the losses sustained by them in the management not only out of the rents of the property, but out of the surplus proceeds of the sale in the property.
Kay L. J. held that the first mortgagees on entering upon possession were entitled under the deed to manage the mortgaged premises and to carry on the business as it was therefore carried on and any losses incurred in the process were debitable to the company. Cotton, Lindley and Lopes, Lord Justices agreed with the conclusions of Kay, J.
On the principle of the above decision, it seems to us that the losses sustained by the debenture trustees or their agents, in the course of the business, which they carried on on behalf of the company, are debitable to the company. The position to our mind is clearly brought out in the following passage in Palmer''s Company Precedents: (16th Ed. Part III page. 404):
Whether the power is so conferred he may do whatever is reasonably necessary for carrying on the business, including the buying and selling of goods, the employment of labour and the incurring of debts and liabilities, and even though in the result loss is sustained he will be entitled to indemnity, and the mortgagees for whom he acts will be entitled to bring the expenses of the receiver-ship into account as against the subsequent incumbrancers and the company.
We are unable to assent to the contention of Mr. Padmanabha Mudaliar very strenuously pressed upon us that in no event can the mortgagees run the business at the risk of the mortgagor, and even though the recitals in the Debenture trust-deed authorise the carrying on of the business by the Debenture Trustees, it must be understood to mean and imply only that they could carry on the business at their own risk. Having regard to the express recitals in Ex. A-1, we are of opinion, that this contention is without substance. Nor are we prepared to agree with the learned counsel that the entire business conducted by Khaitan Apte and Company as the agents of the Debenture trustees is ultra vires, and all losses incurred in that behalf should be expunged and declared non est factum.
It is next contended for the Official Liquidator that if the debts in the carrying on of the business are fastened upon the company it would amount to a clog on the equity of redemption. The right of the mortgagor to redeem after the date fixed for the payment is, in English Law, founded in equity. But under the Transfer of Property Act, it is a legal end statutory right, except where it is extinguished by acts of parties or decree of Court. Such a right is incidental to the very nature of a mortgage and subsists as long as the mortgage lasts. The right to redeem cannot be bartered away or contracted out. Any condition which impinges on that right to redeem or prevents or postpones redemption would be in the nature of a clog on that right and pro tanto invalid. But in this case there is no clause in the mortgage deed that can be construed as preventing or postponing the redemption. The terms of CI. 14 that provides for the redemption are absolute. We do not think that CI. 26, which indemnifies the trustees for all lawful expenses incurred in the execution of the powers under Ex. A-1 is in the nature of a clog on redemption.
Nor are we prepared to hold that the provisions in Ex. A-130 being an agreement executed in favour of Khaitan Apte and Company as to their being subrogated to the rights of Debenture Trustees as regards the indemnity for expenses is in the nature of a clog on the equity of redemption.
Further, the advances by Khaitan Apte and Company and other trade debts incurred by Khaitan Apte and Company on behalf of the plaintiff-company are only unsecured debts. The evidence on D. W. 2 Himmatsingka is quite clear on this point, and it has never been the case of Khaitan Apte and Company that their advances and the debts due to third parties are anything more than unsecured debts. In fact it is upon that footing that the Official Liquidator has settled the account.
Mr. Padmanabha Mudaliar suggested that by reason of these advances Khaitan Apte and Company has secured a collateral benefit to the mortgagee. We are unable to accept this contention. The strict rule laid down by the Master of Rolls in jennings v. Ward (1705) 2 Vera 520 that "A man shall not have interest for his money, and collateral advantage besides for the loan of it, or clog the redemption with any bye-agreement" has no doubt been followed in several decisions of the English Courts including the House of Lords. The stringent view which the English Courts took about the collateral benefit was due to the anxiety of the Courts that the usury laws were not circumvented. But even after those laws were repealed, there was a persistent inclination against what is called the collateral benefit.
The House of Lords had considered the question in cases like: Noakes and Co. Ltd. v. Rice :1902 AC 24; Bradley v. Carritt, (1903) AC 253 and Samuel v. Jarrah Timber and Wood Paving Corporation Ltd., 1914 AC 323. However in Kreglingar v. New Patagonia Meat and Cold Storage Co. Ltd., 1914 AC 25 this question had again come up for consideration and it was held that there was now no rule in equity that a mortgagee cannot stipulate in the mortgage-deed for a collateral advantage to endure beyond redemption, provided that such collateral advantage to endure beyond redemption, provided that such collateral advantage is not either unfair or unconscionable, or in the nature of a penalty clogging the equity of redemption, or inconsistent with or repugnant to the contractual or equitable right to redeem.
The Indian decisions have generally taken the view that a collateral advantage that extends beyond the period of redemption is pro tanto invalid. But here there is neither an agreement in Ex-A-1 preventing or postponing the redemption, nor any separate agreement contemporaneous or subsequent providing for a collateral benefit to the mortgagee, and which in effect clogs the right of redemption.
It is also contended by Mr. Padmanabha Mudaliar that the business which the debenture trustees carried on must be deemed to be a new business because when the Debenture trustees entered into possession in March, 1940, the business had come to a standstill, it having been closed and discontinued with effect from 22-12-1938 by reason of the service of notice under S. 114 Cr. P. C. We are unable to assent to this proposition. The closure was due to a temporary interdiction due to outflow of water from the mills. When later the business was resumed, it did not in fact and does not in law cease to be the old business, or acquire a new legal character. When the Debenture Trustees, through their agents started the carrying on of the business, it was the old business of the Company that they did carry on and not a fresh business which they started on their own.
It has been very strenuously argued before us that during the time the Debenture trustees were in possession of the mortgaged Premises and carried on the business through their agents, they were liable to pay the occupation rent in accordance with the provisions of S. 76 (h) of the Transfer of Property Act, and that in the instant case the trial Court should have directed a sum of Rs. 10,000/- at least as rent per mensem.
It is true that under S. 76(b) of the Transfer of Property Act, a mortgagee-in-possession is bound to pay a fair occupation rent when the mortgaged premises is personally occupied by him. The learned District Judge has held that, inasmuch as the mortgaged premises, including the buildings and machinery were used for the carrying on of the business by the debenture trustees, or their agents, under an express power conferred upon them under Ex. A-1 for the purpose of discharging the mortgage debt from out of the net profits of that business, it cannot be said that the Debenture trustees were under an obligation to pay the occupation rent. In the view we have taken that the business carried on by the trustees or their agents was the business of the company, if seems to us that the conclusion arrived at by the learned District Judge is correct.
The next question that falls for consideration is whether the debenture trustees or their agents had rendered the accounts of the trading of the company, and whether they were accepted by the Board of Directors and the general body of the share-holders of the company.
Mr. Padmanabha Mudaliar contends that the debenture trustees should have accounted as mortgagees in possession by submitting clear, full and accurate accounts of all the sums received and spent by them as provided for in Section 76(g) of the Transfer of Property Act Mr. Ananta Babu appearing for Himmatsingka (2nd defendant) and the legal representatives of Dayaram Poddar (Defendants 8 to 10) contends that Ex. A-1 consists of two distinct parts: (i) a mortgage; and (ii) a contract of agency and that such a combination of two distinct features is a single document is not forbidden by law; and as analogy he referred to zuripeshgi leases, which are the combination of both a lease and a mortgage. Upon that footing it is urged by him that the Debenture Trustees are accountable only as agents and not as mortgagees in possession, as they would be so liable to account only, if they had entered into possession qua mortgagees, which in this case they had not.
We are unable to assent to this contention. Neither the recitals in Ex. A-1, nor the course of conduct of parties warrants such a view. There is no indication in Ex. A-1 either by express language or by necessary implication that the power to carry on the business was conferred upon the Debenture trustees, in the capacity of agents of the mortgagor-company de hors the transaction of mortgage. The conduct of parties is wholly against the contention put forward by Mr. Ananttha Babu. The notice first given by the Debenture trustees on 30-1-1940 to the mortgagor company demanding the payment of arrears of interest and notifying the intention of the Debenture trustees to enter into possession on default was given in their capacity as Debenture Trustees. In the plaint in O. S. No. 15 of 1941 filed by the debenture trustees against the Canaras, it is expressly stated that the Debenture Trustees obtained possession of the mortgaged properties, though S.L. Goel their representative. Under Exs. A-130, 126 and 127 Khaitan Apte and Company were appointed as agents of the Debenture trustees, in the Directors'' report (Ex. A-32) for the period from 1-10-1941 to 4-8-1942 it is stated that the mills continued to be in possession of the Debenture Trustees. In the Directors'' report (Ex. A-33) for the period from 1-4-1943 to 31-3-1944 it is stated that the mills continued to be in possession of the Debenture Trustees, who worked the same through their agents M/s. Khaitan Apte and Company. There is a similar recital in the Directors'' report contained in Ex. A-34 for the period commencing from 1-4-44 to 31-3-1945.
The relevant resolutions of the Board of Directors and the debenture holders are only confirmatory of the view that the Debenture trustees entered into possession qua debenture trustees and carried on the business through their agents Khaitan Apte and Company in purported exercise of a specific power conferred upon them under Ex-A-1. The learned Dt. Judge in our view, rightly repelled the contention that Ex. A-1, was a special document and that the Debenture Trustees are not mortgagees. That being so, we are of opinion, that under Ex. A-1 the debenture trustees are bound to account, and they should do so only as mortgagees in possession.
It remains to consider whether the Debenture Trustees had actually rendered the accounts. Under CI. 9 of Ex. A-1, the Debenture Trustees are as long as they, either by themselves or by the receiver appointed by them, carry on the business, bound to send to the Debenture holders and the Directors of the Company respectively every six months a printed account signed by them showing the result of fading for the preceding six months. The learned District Judge observed that the requirements or CI. 9 had not been fulfilled.
It has not been shown to us that CI. 9 of Ex. A-1 has been strictly complied with in the sense that the printed statements of account of the trading of the company were sent to the Board of Directors of the Company every six months. But we find however, that the Directors of the Andhra Paper Mills in a meeting held on 23-6-1943 passed the following resolution:-
That the statement of account relating to the trading of the company as upto 31st March, 1943 submitted by the Debenture Trustees be and is hereby received and accepted.
Similarly on 17-5-1945 the Directors passed a resolution to this effect:-
Resolved that the statement of accounts relating to the trading of the Company as upto 31st March, 1945 submitted by the Debenture trustees be and is hereby received.
The Debenture holders in their meeting on 26-5-1943 passed a resolution (Ex. A-145) accepting the accounts submitted by Khaitan Apte and Company in its reports, though, it was not printed and though it was for a period of 8 months. It may be recalled that Mr. Pydah Venkatanarayana instituted a suit - O. S. No. 10 of 1943 - on the file of the District Court, Rajahmundry, challenging the issue of fresh shares and the constitution of the Board of Directors. In that suit there was an injunction issued which, it is said, prevented the summoning and holding of the general body meeting. That suit was compromised on 24-3-1945, and the interim injunction previously granted was vacated. Soon, thereafter a general body meeting of the shareholders of the Andhra Paper Mills was summoned. A meeting was held on 12-8-1945. The minutes of the meeting are marked as Ex. A-144. In that meeting the accounts for the period 1-10-1941 to 31-3-1945 were passed by the general body. Ex. A-32 contains the auditor''s report, the balance-sheet, the manufacturing accounts and the Directors'' report for the period from 1-10-1941 to 4-8-1942 and from 4-8-1942 to 31-3-1943. Ex. A-33 is auditor''s report inclusive of manufacturing and trading account together with Directors'' report thereon from 1-4-1943 to 31-3-1944. Ex. A-34 is the auditor''s report inclusive of manufacturing and trading account from 1-4-1944 to 31-3-1945 together with Directors'' report. These accounts were passed upon the accounts and statements furnished by the Debenture trustees. Resolutions that the Directors'' report and the audited accounts in respect of the period covered by Ex. A-32 to Ex. A-34 were duly moved and passed. Mr. Pyda Venkatanarayana moved an adjournment motion that in view of the pendency of O. S. No. 31 of 1945, on the file of the District Court, Rajahmundry, filed by him challenging the proceedings of the extra-ordinary general meeting held on 1-6-1945 appointing Khaitan Apte and Company as managing agents, the general meeting should be adjourned till after the disposal of the suit. After some discussion the adjournment motion was put to vote and was declared lost. Thereafter, the accounts for each of the periods referred to above were put before the general body for approval. On each year''s accounts there was a discussion. Mr. Pyda Venkatanarayana moved an amendment that the auditor''s report and balance sheet and profit and loss account statement relating to 1-10-1941 to 4-8-1942 be not received and adopted on the ground that the appointment of auditors was illegal and that the material information was not forthcoming. Eventually, the original resolution that the Directors'' report and auditors'' accounts in respect of the period from 1-4-1943 to 31-3-1944 and the audited balance-sheet should be approved was passed. Similarly, a resolution that the Director''s report and audited balance-sheet for the period 1-4-1944 to 31-3-1945 was moved. There was a discussion. Mr. Pyda Venkatanarayana raised a question as to why the mills sustained such heavy losses. An explanation was tendered by the Chairman. Mr. Pyda Venkatanarayana asked for particulars regarding the deposit of the share amount in the No. II account in the Imperial Bank of India, Rajahmundry. He also asked for certain particulars with regard to the balance-sheet and strongly objected to the appropriation of the share moneys by the Company. He moved an amendment to the effect that such improper expenditure and such losses as have been incurred by the Debenture trustees be debited to the account of the Debenture trustees. The Chairman put this amendment to vote and declared that it was lost. Thereupon the accounts for the period 1-4-1944 to 31-3-1945 were passed. Similarly, the account for the period from 1-4-1945 to 31-3-1946 were passed at a meeting of the share-holders on 10-11-1946.
The proceedings of the general body meeting held on 12-8-1945 show that the accounts were passed after a good deal of discussion. It cannot be said that the share-holders had been stampeded into passing the accounts without thought and without consideration. Mr. Pyda Venkatanarayana, who had been taking, as is clear from the history of this Company, a considerable interest in its affairs had specifically drawn the attention of the share-holders to what he regarded as irregularities in the accounts. It cannot, therefore, be said that the attention of the share-holders was not drawn to the nature and the form of accounts.
The share-holders have, subject to the memorandum and articles of association, a plenary power in the administration and governance of the affairs of the Company. The power can only be exercised in the Companies under the Indian Companies Act by the vote of majority. Those that subscribe for shares in the Company do so with the full knowledge that the majority of the members are entitled to exercise the powers and administer the affairs of the Company. If the resolutions sanctioned by the majority of the share-holders at a general body meeting are within the powers of the Company, normally, no exception could be taken to them, unless they are ultra vires of the Company qua company, or the majority had abused their powers by denying the minority of their rights - Vide the observations of Lord Davey in Burland v. Earle, (1902) A. C. 83 and of Lord Macnaghten in Dominion Cotton Mills Company v. Amyot, (1912) A. C. 546. It cannot be said in this case that the resolutions of the Company were ultra vires of the Company. It is one of the primary powers of the general body to pass accounts. In such a power is implicit the right of the general body acting, of course, within the scope of the Articles of Association, to condone any irregularity or informality in the accounts. If, therefore, the majority of the share-holders, whose attention was drawn specifically by Mr. Pyda Venkatanarayana to the defects in the accounts, chose to pass them, it means that the general body had accepted the accounts. The acceptance of the accounts means and can only mean, in the circumstances of the case, that the share-holders of the Company had approved : (i) that the debenture trustees had a right to carry On the business; (ii) that they had that right to do so through their agents Khaitan Apte and Company (iii) that the business was carried on by Khaitan Apte and Company at the risk of the company, and that the Company was liable to make good the advances made by Khaitan Apte and Company and (iv) that the debts and liabilities shown in the balance-sheet were accepted as binding upon the Company.
It is argued by counsel for respondents and in our view rightly, that in the events that have happened it is not open to the Company now to take up the position that the Debenture Trustees had no right to carry on the business at the risk of the Company, and that in advancing the moneys for the working of the mills and debiting the trade debts to the Company, Khaitan Apte and Company was imposing false liabilities on the Company.
In Vigres v. Pike, (1842) 8 CI. and Fin. 562: 8 ER 220, the House of Lords had to consider the effect of acquiescence of the Company in respect of certain transactions. The facts of that case were these: One Lord Audley had mining properties, which he demised to a trustee of a Company to be formed for substantial consideration. A joint stock company was formed. The company adopted me prospectuses, previously issued as also the reports as to the value of the mines, actual and potential. Audley died appointing an executor to administer his estate, The executor filed a bill for the balance of the consideration. The then Managing Director of the Company filed a cross-bill praying that it be declared that the lease in favour of the Company was fraudulent and void, or that the consideration be reduced on the ground that there were several concealments, frauds and misrepresentations in fixing the consideration to be paid to Lord Audley.
The House of Lords rejected the cross-bill filed on behalf of the Company, and allowed the sums due on account to Lord Audley''s estate. Lord Cottenham held that the Company was fully cognizant of the matters then raised and had adopted and acquiesced in the statement of affairs after full knowledge and as such it is precluded from asking the present reliefs. He observed as follows:
The doctrine of carrying equities by acquiescence, I consider to be one of the most important to be attended to; for otherwise there is great danger of the principles of a Court of Equity, thus improperly exercised, producing great in justice.
If the Company cannot resile from the position it had taken by virtue of passing the accounts and, therefore, cannot escape the consequences of such acceptance, it seems to us extremely doubtful if the Official Liquidator can repudiate what the Company had done and put in challenge the very issue which it had accepted, either expressly or by implication. The Official Liquidator appointed, in the winding up of a Company is not like the trustee, in bankruptcy representative of only the creditors. As pointed out by Larence J. in Stead Hazel and Co. v. Cooper, (1933)-1 KB 840. "the position of a liquidator appointed by the Court is not the same as that of a Receiver and manager appointed by the Court. A liquidator is the agent of the Company".
In Discount Bank of India Ltd., Delhi Vs. Triloki Nath and Others, Kapur J., dealing with the powers of the liquidator, held that in a winding up the liquidator acts not merely for creditors, but for the contributories and the Company also, and that the liquidator is an agent employed for the purpose of winding up of the Company.
That being so, we are of opinion that it is not open to the Official Liquidator after the lapse of so many years to repudiate what the shareholders have done in a validly summoned and constituted meeting, and contend that the Debenture Trustees had no right to carry on the business at the risk of the Company, and that Khaitan Apte and Company had no right to make large advances to the Company and foist large liabilities on the Company, that all the transactions of the Debenture Trustees and their agents are ultra vires and that the Debenture Trustees are bound strictly to account for all the receipts that they not only had received but what they might and ought to have received.
Mr. Padmanabha Mudaliar has raised three contentions as to the proceedings of the general body meeting held on 12-8-1945 passing the accounts of the Company. In the first place, he argued that no accounts were passed, as the balance-sheets cannot be called accounts in the strict sense. They contain only lump sum figures and both by reason of their peculiar character and the paucity of information as to details of specific items, it is argued that the balance-sheets should not be regarded as accounts.
He placed reliance upon a decision of the Court of Appeal in John Shaw and Sons (Salford) Ltd. v. Peter Shaw and John Shaw, (1935) 2 KB 113. The question that arose there was whether a balance-sheet signed by the Directors can be regarded as accounts stated involving a fresh promise by them to pay the amounts debited to them therein so as to afford a fresh cause of action against them. It was held by the Court of appeal that it could not be so, inasmuch as the balance-sheets were signed by the defendants not animo contrahendi but in performance of their duties as Directors.
In our opinion, the principle of that decision has no bearing on the facts of this case. There is no question here as to whether there is any cause of action against the Directors by reason of their signing the balance-sheet, as in the case cited. It is quite true that the balance-sheets may not contain individual items or particulars. But there was nothing to preclude the share-holders from asking for and obtaining further information, or directing institution of a fresh and fuller probe into the accounts. In the absence of any such step taken by them we can only think that they were satisfied with the balance-sheets and the reports of the Directors and auditors.
It is next contended that the acceptance of the accounts by the Directors and their eventual passing by the general body has no legal effect for the reason that on the entry into possession of the mortgaged premises by the Debenture trustees, the Company and its authorities stand in abeyance. In support of that contention reliance was placed upon certain passages in the speech of Lord Shaw in Moss Steamship Co. Ltd. v. Whinney, 1912 AC 254 at p. 263.
It is unnecessary to pursue the facts of that case. We may, however, point that Lord Shaw had clearly expressed his assent with the view of Fletcher Moulton L. J. to the effect that after the appointment of a Receiver and manager at the instance of the Debenture Holders, the Company will not be a different entity, that even though the beneficial interest in its assets may have passed to the Debenture Holders and others and that may fundamentally change the position of those who seek to enforce legal rights against it, the Company''s identity is unchanged. The position is clearly brought out in the speech of Lord Atkinson, who observed thus :
''''This appointment of a receiver and manager over the assets and business of a Company does not dissolve or annihilate the Company, any more than the taking possession by the mortgagee of the fee of land let to tenants annihilates the mortgagor. Both continue to exist; but it entirely supersedes the Company in the conduct of its business, deprives it of all power to enter into contracts in relation to that business, or to sell, pledge, or otherwise dispose of the property put into the possession, or under the control of the receiver and manager. Its powers in these respects are entirely in abeyance.''''
It is unnecessary to cite other authorities for a proposition which can hardly admit of any doubt. When the Debenture Trustees entered upon the premises, the Company is precluded from dealing with third parties. It can neither make, nor perform a contract. It cannot dispose of the properties of the Company. It cannot manage the affairs of the Company. But the Company exists, and the business is carried on in the name of the Company. The profits that are earned in the business would go to the benefit of the Company in the diminution of the mortgage debt. It cannot, therefore, be said that the Board of Directors and the general body of the shareholders stand superseded in all respects and for all purposes. Further, there is an essential fallacy in the contention of Mr. Padmanabha Mudaliar, for, if the Board of Directors are completely superseded and the Company, as an entity, is in abeyance, we fall to see how the Debenture Trustees can perform their obligation of sending the accounts every six months. We are, therefore, of opinion that there is no substance in the contention that the moment the Debenture Trustees enter upon possession, the Board of Directors and the general body of the share-holders are superseded and the acceptance of accounts by such Board of Directors and the general body is an acceptance by bodies which are dead and had ceased to exist.
The third contention of the learned counsel is that the Board of Directors in this case were the henchmen of Khaitan Apte and Company, and the concurrence by such a Board for all that Khaitan Apte and Company had done, and in particular in the matter of advances to the Company and the acceptance of the accounts submitted by them, could have no significance.
Under the Debenture trust-deed the Debenture Holders are entitled to appoint two Directors. Under the managing agency agreement originally entered into between the Company and Dayaram Poddar and Sons, the managing agents are entitled to appoint three Directors. The share-holders of the Company have a right to appoint four Directors. At all material times, it is true that some of the defendants like Himmatsingka, Nandulala Mehta, Kantilal Nahalchand, the late V. S. Apte and L. V. Apte were acting either as Debenture Trustees, or Directors sometime resigning from one position and accepting the other with a frequency that might provoke some adverse comment. But so long as the Constitution of the Company lawfully permits the formation of the Board in a particular manner, it seems to us that the fact that the Debenture Trustees and the managing agents have nominated their representatives on the Board, cannot invalidate what they have done without proof of fraud which of course, will vitiate anything. Similarly, the contention that the general body was a packed body, which was dominated by Khaitan Apte and Company is also of not much substance.
It is perhaps true that by the date of the general body meeting on 12-8-1945 Khaitan Apte and Company and its friends had secured a large voting strength capable of swaying the decisions of the Company. But that by itself cannot nullify the effect of what the general body had done. As stated already, the general body can decide on the strength of the majority vote. In 1912 AC 546 the question was whether two share-holders could seek to set aside a lease approved by a resolution of the Company passed at a general meeting. Lord Macnaghten following an earlier decision of Lord Davey in 1902 AC 83 held that it was incumbent upon the plaintiffs to show that the majority of the share-holder either acted ultra vires, or so abused their powers as to deprive the minority of their rights, and that not having been shown they were not entitled to relief.
There can be no question of any ultra vires in what the Directors and the share-holders have done in accepting the accounts. There is no fraud committed against the minority, nor the deprivation of the rights of the minority to participate in the affairs of the Company. The mere fact that Khaitan Apte and Company or the other Debenture Trustees had a large voting strength will not per se invalidate the proceedings of the general body.
In North West Transportation Co. v. Beatty, (1887) 12 AC 589 a resolution of the general meeting to purchase a vessel at the Vendor''s price was held to be valid, notwithstanding that the vendor himself held the majority of the shares in the company, and the resolution was carried by his votes against the minority who complained. The decision was rested inter alia on the fact that under the Constitution of the Company there was no inhibition against a person securing a decisive voting strength. We are therefore, of opinion that there is no substance in the criticism that Khaitan Apte and Company and the Debenture Trustees had a controlling voting strength and that, therefore, the proceedings of the general body meeting are pro tanto void of significance and reality.
The next question is whether in this case there had been any settlement of accounts between the Official Liquidator and Khaitan Apte and Company.
Mr. Price was appointed as a provisional liquidator on 28-8-1947, and the Company, was, by order of Clark J., directed to be wound up on 23-9-1947. The Official Liquidator filed on 13-2-1948 a statutory report under S. 177 (B) of the Indian Companies Act, 1913, marked as Ex. B-3. The Andhra Paper Mills were sold to the Government of Madras for a sum of rupees 25 lakhs. The Official Liquidator sold the stock of paper, caustic soda and other articles found in the premises of the mill when he took charge and realised more than about five 1 khs of rupees. The Official Liquidator notified to all creditors to prefer and prove their claims.
Khaitan Apte and Company filed a claim for Rs. 18,88,845-5-9 including among other things, the actual sums advanced to the Company and interest thereon. According to P. W. 2 Sambasivan, the Official Liquidator examined the claims with reference to the accounts and books and gave a personal hearing to the representative of Khaitan Apte and Company and verified "each item through his assistant G. V." As a result of the scrutiny the Official Liquidator rejected the claim of Khaitan Apte and Company to the extent of rupees 2,86,690-8-6. Khaitan Apte and Company filed an application No. 3514 of 1948 against the order of the Official Liquidator in respect of the rejected portion of the claim. The Official Liquidator filed a counter affidavit resisting the claim of Khaitan Apte and Company. By an order dated 6-12-1948 Bell J., allowed the claim of Khaitan Apte and Company with regard to the sum of Rs. 2,86,690-8-6 disallowed by the Official Liquidator. After these proceedings Khaitan Apte and Company took out on application No. 840 of 1949 requesting that a dividend may be declared. At about that time the Official Liquidator was informed by the counsel for Khaitan Apte and Company that the holders of the first mortgage debentures, and V. S. Apte and Sons, the holders of the entirely of the second mortgage debentures, were prepared to waive their interests due to them under the said two series of debentures. Affidavits from the holders of the first debentures, and V. S. Apte and Sons, the holders of the second debentures, were filed to the effect that in all they would give up the sum of Rs. 6,65.026-0-0. However, they gave up this interest, and the Official Liquidator accepted this renunciation of interest, and filed a report into Court on 8-3-1949 stating inter alia that he had paid the principal amounts due to the Debenture Holders except for a sum of Rs. 21,000/- that he had admitted fee claims to the extent of Rs. 21,07,293/-and that he had sufficient funds in his hands to pay 8 annas dividend in the rupee to all the creditors as a first dividend.
Presumably, upon the report of the Official Liquidator the High Court of Madras passed an order on 5-4-1949 directing the Official Liquidator to declare a dividend of 8 annas in the rupee. A sum of Rs. 9,25,890-12-4 was paid after deducting a sum of Rs. 5,632-14-2 on 30-5-1949 which was acknowledged by a receipt Ex. A-156. On these facts can it be said that there was a settlement of accounts between the Official Liquidator and Khaitan Apte and Company?
The expression ''account stated'' has more than one meaning. Normally, as pointed out by Lord Cave, in Camillo Tank Steamship Co. Ltd. v. Alexandria Engineering Works, (1921) 38 TLR 134 following the principle of the decision of Blackburn J., in Layocok v. Pickles, (1863) 33 LJ QB 43 : 4 B & S 497 the expression is used for an account which contains items of both credit and debit, and where items on either side are adjusted between one another and a balance struck. It is in this sense that the expression is defined and discussed in AIR 1934 147 (Privy Council) by Lord Wright with reference to Article 64 of Schedule 1 of the Indian Limitation Act. But the expression ''account stated'' is also used to connote a ''settled account''. A ''settled account'' means and implies accounts which are agreed between parties. A mere statement by one party to the other as to how an account stands cannot make it an account settled; the other party must agree that it is right and then only an account rendered will become an account settled, which is also considered as an account stated.
In Maneklal Mansukhbhai Vs. Jwaladutt Pilani, . (as he then was) observed thus :
Now what are stated or settled accounts? If accounts are submitted and if they are accepted as correct by the other side to whom the accounts have been rendered, then in law you have stated or settled accounts. It is not necessary that the settlement of accounts need be in writing nor is it necessary that parties should sit down, compare accounts and call for vouchers, etc. All that the Court has got to ascertain is whether in fact the party to whom accounts were rendered has accepted those accounts as correct. The acceptance need not be express; it can be inferred from conduct.''''
In Philips Higgins v. Harper, (1954) 1 All ER 116 Pearson J. held that a settled and agreed account might be constituted by the parties even orally agreeing on a final figure for the account, though on the facts of that case the learned Judge held that there was no such agreement. The Court of Appeal confirmed the decision of Pearson J. in Phillips Higgins v. Harper, (1954) 2 All ER 51 n. In AIR 1944 7 (Nagpur) Stone C. J. and Bose J, obsered as follows:
An account rendered may be turned into an account stated or settled, if it is not challenged for such a time that an acceptance of it will be implied.
Now, in this case, we have the fact that Khaitan Apte and Company submitted their claim. It is gathered from the evidence of Sambasivan P. W. 2 that the claim of Khaitan Apte and Company in Ex. A-152 was checked by the Official Liquidator with the Company''s accounts, that the Official Liquidator fixed a day for hearing the representative of Khaitan Apte and Company in proof of their claim, and examined all the relevant papers, such as balance-sheets and the reports attached hereto (Exs. A-32, A-33, 33 and 35) and passed the accounts. From the evidence of Sambasivan it is seen that Mr. Price went through the debenture-deed before he paid the dividend and before the claims of Khaitan Apte and Company under Ex. A-152 were passed. In those circumstances, it seems to us that by reason of the accounts submitted by Khaitan Apte and Company and the acceptance thereof by the Official Liquidator after scrutiny, there is a settlement of accounts between him and Khaitan Apte and Company. In the above view, it is immaterial to discuss the question whether the Debenture Trustees should have rendered an account of the rents and profits not merely actually received by them, but which they might and ought to have received.
The fact that we are holding the accounts have been settled between Khaitan Apte and Company and the Official Liquidator will not prevent the accounts being reopened in case of proved fraud or mistake. In the well known case of Williamson v. Barbour, (1877) 9 Ch D 529 Sir George Jessel M. R., has pointed out that in the case of person occupying a fiduciary position, such as, a principal and agent, or trustee and cestui que trust, though accounts have been settled, even a single fraudulent entry would make them liable to be reopened and accounts ordered to be rendered afresh extending over long number of years.
The legal position is very tersely expressed in Halsbury''s Laws of England (14th Vol. Simonds'' Ed. page 488) in these words:
A settled account will in certain cases be reopened on the ground of mistake, as where accounts are drawn up and assented to by parties under a common mistake as to their rights and obligations, or where by mistake too little has been accepted or too much admitted. The Court will also order a settled account to be reopened for fraud, even in respect of a single fraudulent item, and may do so after the account has been closed a considerable time in the case of persons occupying the position of principal and agent of trustee and cestui que trust"
In this case the plaintiff does not plead a common mistake as the rights and obligations of the parties, or that by mistake he had paid too much. The suit is founded not on mistake. If such was the basis of the plaint, it might have been open to the defendants to plead equities in defence, such as, improvements etc. The gist of the action is fraud. Throughout the plaint and in the contentions advanced before us the main complaint is about the fraud committed by the defendants in wilfully suppressing the items which ought to have been given credit to and foisting on the company debts which are not binding on the Company. Therefore, it becomes necessary for us to examine in some detail whether the items relied upon by the learned District Judge as amounting to fraud really partake of that nature and whether they can justify a direction for the rendition of fresh accounts.
In paragraph 42 of the judgment, the learned District Judge held that the sum of Rs. 34,000/- received from the Canaras has not been credited to the Company and that it is also not shown in Ex. A-146 containing the audit report prepared by Batliboi, Purohit and Darbari dated 8-7-1942 and the Directors'' report thereon for the period commencing from 1-7-1940 to 80-9-1941. The learned District Judge held that this was a wilful suppression of the amount received as rent and would amount to fraud.
It would be necessary to recapitulate in brief outline the facts relevant to this question.
After the Debenture Trustees entered into possession they started negotiations through a broker by name Srinivasan for the sale of the mills. The Canara Pulp and Paper Mills Ltd., offered to buy the mills and it was settled between the Debenture Trustees and the Canaras that the latter should buy the premises and buildings etc., for a sum of Rs. 14 lakhs out of which 2 lakhs was to be ear-marked for distribution among the share-holders, and the balance of Rs. 12 lakhs to be paid in the manner agreed. One of the terms agreed to between the parties was that the Canaras as licencees be permitted to work the mills for a period of five months to test the machinery and that during the trial period they should pay Rs. 4000/- per mensem for the use of the mills and the premises. These terms were agreed to by the Debenture Trustees. On 29-5-1940 the Canaras took possession of the mills and started with their own staff of technicians the materials and chemicals and made arrangement for employing workmen to work the mills. It is not in dispute that the Canaras paid in all Rs. 34,000/- for the trial period. On 4-4-1940 a sum of Rs. 10,000/- was paid; on 12-2-1941 Rs. 12,000/- on 1-4-1941 Rs. 8,000/- and on 24-4-1941 Rs. 4,000/- were paid. In October, 1940 at the end of the trial period the Canaras exercised their option in favour of purchasing the concern.
The sale to the Canaras could not be put through because the general body of share-holders at a meeting held on 31-3-1941 vetoed the proposal of sale. The proceedings of that meeting as recorded in Ex. A-265 would show that a large majority of share-holders, who had signed proxies in favour of Pyda Venkatanarayana, were against the sale, and the proposal was therefore turned down. As a result, the Debenture Trustees informed the Canaras on 7-4-1941 that the sale cannot take place and that the license granted to them must be deemed to have been revoked. The Debenture Trustees called upon the Canaras to withdraw forthwith from the mills. The Canaras refused to leave and filed a criminal case u/s 145 Criminal Procedure Code (Crl. M. P. No. 9 of 1941). The Joint Magistrate of Rajahmundry, appointed a receiver for the properties on 5-5-1941. In order to obtain possession of the mills the Debenture Trustees instituted O. S. No. 15 of 1941 against the Canaras in the District Court Rajahmundry and they also prayed for damages. The suit was stoutly resisted by the Canaras, who filed a lengthy written statement on 20-7-1941 (Ex-A-132).
On 1-11-1941 the Debenture Trustees passed a resolution that it would be advantageous to settle, if possible, the dispute with Canaras. Eventually, a compromise was arrived at and the memorandum of compromise was filed into Court on 20-11-1941 and a decree passed in terms thereof. According to the terms of the compromise a sum of Rs. 88,572-8-0 was to be paid by the Debenture Trustees towards damages and other reliefs, less certain deductions. In all a net sum of Rs. 78,824-3-10 was paid. The payment is not in dispute. By a resolution D/- 3-12-1941 the Directors of the Company approved of the action of the Debenture Trustees in compromising O. S. No. 15 of 1941. The Board of Directors was informed that a sum of Rs. 18,000/- was paid to Srinivasan as brokerage in addition to Rs. 5,400/- already paid, which was also recorded. The Debenture Holders also approved of the compromise in their resolution dated 8-12-1941. Himmatsingka examined as O. W. 3 has stated that the amount agreed to be paid to the Canaras under the compromise was met out of Rs. 34,000/- received from the Canaras, and also from the money made available to the Trustees by the Debenture Holders in agreeing to forego interest on the debenture to the extent of 2 per cent. It is not in dispute that the sum of Rs. 78,824-3-10 is not debited to the Company. But all that is debited is the sum of Rs. 18,000/- paid to Srinivasan for his services as the broker. At the trial of the present suit some attempt had been made to show that the sum of over Rs. 70,000/- paid to the Canaras was surreptitiously smuggled into and distributed over 10 items in Ex. A-298. But the learned District Judge held that there was no evidence to substantiate the imputation. We, therefore proceed upon the footing that the amount actually paid to the Canaras had not been debited to the Company, and the only debit is Rs 18,000/-.
The two questions that arise with respect to this transaction are: (i) the failure to credit Rs. 34,000/- to the Company; and (ii) the debit of Rs. 18,000/- as brokerage. The contention that found favour with the trial Court if that the failure to credit Rs. 34,000/- is a fraudulent suppression of the rents due to the Company. It may be observed that there was no concealment with respect to the receipt of this amount. Prabhu Dayal Himatsingka was examined as P. W. 1 in O. S. No. 15 of 1941. In his evidence he stated that he received Rs. (10,000/- as earnest money from the Canaras, and that on various dates he received Rs. 24,000/-. There is, therefore, no fraudulent concealment of the receipt. If the Official Liquidator had seen the deposition of Prabhu Dayal Himmatsingka in O. S. No. 15 of 1941 - as he was under duty bound to do - he would have known that Himmat singka admitted the receipt of Rs. 34,000/-from the Canaras.
It is argued by Mr. Ananta Babu, in the first place, that there is no fraud in this case, and citing the well known case of Derry v. Peek, (1887) 14 AC 337 he contends that fraud is proven only when it is shown that a false representation had been made knowingly, or without belief, and that in this case, there was no proof of such a fraud. In the second place, it is argued that in order that fraud could become, actionable, there should be damage and that in this case the Company had not lost anything for the reason that the Debenture Trustees gave up their interest to which they were entitled and that that sum was really more than Rs. 34,000/-. We are inclined to agree with Mr. Ananta Babu that there was no fraudulent suppression or non-disclosure. If in the belief that the sum of Rs. 34,000/- could be utilised for the compromise entered into under the directions and approval of the Board of Directors, and the Debenture Holders, the amount received from Canaras was not Credited to the Company, it cannot be said that it was in the nature of fraudulent suppression, justifying the direction for the rendition of accounts.
It now falls to consider whether the debit of Rs. 18,000/- constitutes a fraudulent entry. This debit has been approved by the Board of Directors. But Mr. Padmanabha Mudaliar contends that the whole transaction of seeking to sell the mills is unauthorised and illegal, as there is no power vested in the Debenture Trustees to bring the mills to sale without the intervention of Court. It is, therefore, argued that any expenditure incurred in connection with the sale cannot be debited to the company. This brings us to the question whether under Ex. A-1 there is a right of sale reserved. Clause 13 of Ex. A-1 provides, that in case the Debenture holders decide to discontinue the business and realise the mortgage debt by the sale of the mortgaged premises, either by public auction, or otherwise they could do so.
The learned District Judge held that even though the power of sale is conferred by cl. 13 of Ex. A-1, it does not expressly say that the sale should be without the intervention of the Court and that, therefore, the purported attempt to sell the premises without the intervention of Court was in fraud of the statute, namely, section 69 (1) of the Transfer of Property Act.
The right of sale without the intervention of Court is provided for in section 69 of the Transfer of Property Act. That section is in these terms:-
Sec. 69 (1): "A mortgagee, or any person acting on his behalf, shall, subject to the provisions of this section, have power to sell or concur in selling the mortgaged property, or any part thereof, in default of payment of the mortgage-money, without the intervention of the Court, in the following cases and in no others, namely:-
a) Where the mortgage is an English mortgage, and neither the mortgagor nor the mortgagee is a Hindu, Muhammadan or Buddhist or a member of any other race, sect, tribe or class from time to time specified in this behalf by the State Government in the official gazette;
b) where a power of sale without the intervention of the Court is expressly conferred on the mortgagee by the mortgage-deed and the mortgagee is the Government;
c) where a power of sale without the intervention of the Court is expressly conferred on the mortgagee by the mortgage deed and the mortgaged property or any part thereof was, on the date of the execution of the mortgage-deed, within the towns of Calcutta, Madras, Bombay * * * or in any other towns or areas which the State Government, may by notification in the official gazette specify in this behalf.
The power of sale referred to in this section without the intervention of Court, and is certainly distinct from the power of a simple mortgagee to cause a mortgaged premises to be sold u/s 67 by a decree of Court. The power of sale thus conferred cannot be exercised except in the following three cases:-
When the mortgage is an English mortgage and the parties are not Hindus, Mohammadans or Buddhists or members of a notified class;
when the mortgagee is the Secretary of State and the deed confers (sic).
when the mortgaged property is situate in one of the towns specified and the deed contains an express power of sale.
The learned District Judge has held that u/cl. 13 of Ex. A-1 a power of sale has been conferred on the Trustees but that the provision does not in express terms say that the sale can take place without the intervention of Court. We do not think that the view of the learned District Judge is correct.
Section 67 of the Transfer of Property Act provides for suits for foreclosure and sale under circumstances mentioned therein. Section 69 gives the mortgagee a power of sale without the intervention of Court. Sub-section 1 of section 69 provides for cases when the power of sale can validly be exercised. Sub-section (2) of section 69 provides the conditions under which the right of sale without the intervention of Court can be exercised. The terms of section 69 (1) have already been extracted. It will be seen that only in cases falling under clauses (b) and (c) should there be an express provision conferring this right of sale without the intervention of Court. There is no doubt that Ex. A-1 does not fall within the scope of clauses (b) and (c) of section 69. The mortgagee is not the Secretary of State, so clause (b) has no application. Rajahmundry, where the mills are situate is not a town, which, has been notified under clause (c). So the case would fall within the ambit of cl. (a) to section 69 (1) of the Act. In such a case, the situation of the property is irrelevant. Under clause (a) there are two essential requirements. One is that the mortgage shall be an English mortgage; and second, neither the mortgagor, nor the mortgagee should be a Hindu, Muhammadan or Buddhist, or a member of the specified class.
That Ex. A-1 is an English mortgage is obvious. English mortgage is defined in section 58 (e) in these terms:-
Where the mortgagor binds himself to repay the mortgage-money on a certain date, and transfers the mortgaged property absolutely to the mortgagee, but subject to a proviso that he will re-transfer it to the mortgagor upon payment of the mortgage-money as agreed, the transaction is called an English mortgage.
In Narayana v. Venkataramana, ILR 25 Mad 220 (FB), the Madras High Court held that the three essentials of an English mortgage are (i) that the mortgagor should bind himself to repay the mortgage-money on a certain day; (ii) that the property mortgaged should be transferred absolutely to the mortgagee; and (iii) that such absolute transfer should be made subject to a proviso that the mortgagee will reconvey the property to the mortgagor, upon payment by him of the mortgage-money, on the date on which the mortgagor bound himself to repay the same it is undeniable that Ex. A-1 answers to these three conditions. The form of the Debenture contained in schedule II of Ex. A-1 has in its covenant to pay the debenture amount on a specified day. Therefore, the first condition as required by the section 58 (e) is satisfied. The second condition is that there should be transfer of the property absolutely to the mortgagee. Clause 3 of Ex. A-1 states that all lands etc., specified in the first part of the first schedule with all buildings office rooms, all machinery and lands are conveyed and transferred and assigned to the trustees absolutely. The second condition is therefore satisfied. The right of redemption and the redelivery of possession is provided in clause 14. So the third condition also is satisfied. We hold that Ex. A-1 is in the form of an English mortgage.
It is then contended by Mr. Padmanabha Mudaliar that in India, English mortgage defined in section 58 (e) must be read subject to the definition of a mortgage in sub-clause (a) and that when so read, there is absolutely no difference between an English mortgage and an ordinary mortgage. In this connection reference was made to a decision of the Privy Council in AIR 1939 14 (Privy Council) . It is unnecessary to pursue the facts of that case. Their Lordships held that the Indian mortgagor, however, retains certain rights and that they are legal and not equitable. That decision has no relevancy.
The next question raised by Mr. Padmanabha Mudaliar is that a private sale is not permissible, because the requirement that the mortgagors and the mortgagees should not be Hindus etc., as contained in Section 69 (1) (a) is not in this case satisfied. It is argued that, under Ex. A-1 the two trustees in favour of whom Ex. A-1 was executed were Hindus. It seems to us that the objection is very far fetched and in a sense meaningless. So far as the Company is concerned, it is impossible to predicate that it has any religion, as it is a body corporate. As to the debenture-trustees, it must be remembered that Ex. A-1 was executed in their favour by virtue of their office as Debenture Trustees and representing a fluctuating body of debenture-holders, whose religion it is impossible to predicate at any given time. The 1200 debenture bonds are bearer debenture bonds. They have been made expressly negotiable. It is meaningless to say that all debenture holders are bound to be Hindus.
It is unnecessary to trace the history of the provision now contained in section 69 (1) (a) of the Act. Originally the power of sale which is a feature of English mortgages was confined to Englishmen or to Indians resident in the Presidency towns, who were conversant with the forms of English mortgage and forms of English law and procedure as administered in the Presidency Towns. In the mofussil, prior to the Transfer of Property Act, there were certain regulations governing the law of mortgage between parties who were not Europeans. Those regulations did not empower the mortgagee to effect a sale of the hypotheca without the intervention of Court. When the Transfer of Property Act of 1882 was passed the transactions of Hindus, Muhammadans and Buddhists and other notified classes were excluded, not upon any religious considerations, but because those indigenous communities were unaccustomed to the English form of mortgage, and a power of sale without the intervention of Court was likely to work great Oppression upon the ignorant masses of the native population. But those considerations have, it seems to us, no relevancy in the case of a Limited Company mortgaging its assets to Debenture Trustees.
In AIR 1923 114 (Privy Council) the Privy Council pointed out as follows:-
Their Lordships do not question those authorities, but they consider they have no application to the case of a limited company issuing debentures and securing the debentures by a mortgage in favour of trustees with a power of sale. The whole reasoning which led to the judgments cited was the necessity of protecting persons who from their circumstances needed protection entering into transactions of loan, and the class of mortgages there dealt with did not include mortgages in the English form: To say that a Limited Company - a creature of statute requires protection or that the trustees for the debenture-holders are the persons who might take advantage of the scanty knowledge of the mortgaging company - the kind of argument which led to the decision in those cases and which was applicable in terms to transactions between the persons aforesaid - is really to consider the situation in a light almost absurd.
To the same effect is the observation of Lord Macnaghten in 1904 AC 323 at p. 327.
The directors of a trading company in search of financial assistance are certainly in a very different position from that of an impecunious land owner in the toils of a crafty money lender.
We are of opinion that there is no substance in the contention of Mr. Padmanabha Mudaliar that by reason of the two debenture trustees for the time being happening to be Hindus, the requirement of section 69 (1) (a) is not satisfied, and therefore, the power of sale without the intervention of Court in invalid. In the view we have taken that the document contained a power of sale without the intervention of Court, we are unable to accept the contention of Mr. Padmanabha Mudaliar. We, therefore, hold that the debit of Rs. 18000/- towards the brokerage and expenses, which has also been covered by a resolution of the Board of Directors, is a valid debit.
In any case, it should be borne in mind that the learned District Judge directed that in the account taking the Company should bear the sum of Rs. 19,500/- being the value of improvements, and a further sum of Rs. 8000/- bring the deposit made to the Government. When these amounts are also considered, it does not appear to us that there is any real loss to the Company.
The next item which the learned District Judge found to be vitiated by wilful suppression and fraud is with respect to a sum of Rs. 73,497-0-2. It would be necessary to state a few facts.
At or about the time Khaitan Apte and Company were appointed as the agents of the Debenture Trustees, certain debts due and owing to Dayaram Poddar and Himmatsingka and others were assigned to Khaitan Apte and Company. According to the balance-sheets (Ex. A-146) prepared by M/s. Batliboi Purohit and Darbari on 8-6-1942 a sum of Rs. 1,34,866-0-10 was due to the managing agents Dayaram and Sons in respect of advances. A sum of Rs. 88,707-13-0 was due by way of managing agency remuneration. A sum of Rs. 32,632-3-3 was due to Himmatsingka on account of advances made by him. A further sum of Rs. 64-940-14-9 was due to Bisshendayal as an unsecured creditor. These debts, making a total of Rs. 2,52,430-8-2 were assigned to Khaitan Apte and Company under Ex. A-171 Himmatsingka also assigned his debts due from the company under Ex. A-172. These assignments were intimated to the Directors of the Company under Exs. A-39 and A-40. The Directors of the Company accepted these assignments in their resolutions Nos. 2, 3 and 4 at a meeting held on 26-9-1942. There can, therefore, in our opinion, be no dispute either as to the truth of the debts, or as to their assignments to Khaitan Apte and Company.
The sum of Rs. 64940-14-9 due originally to Bissendayal Dayaram was purchased by Khaitan Apte and Company for Rs. 39,940-14-9. The debt of Rs. 1,87,489-9-9 due to Dayaram Poddar was assigned to Khaitan Apte and Company for a sum of Rs. 1,38,991-15-7. Thus, there was a margin of profit to Khaitan Apte and Company in a sum of Rs. 73,492-10-2. On 7-7-1943 Khaitan Apte and Company wrote a letter to the Andhra Paper Mills that they would give up the claim for the profit of Rs. 73,497-10-2. On 9-7-1943 the Board of Directors passed a resolution recording the letter of Khaitan Apte and Company. After the Company went into liquidation Khaitan Apte and Company preferred their claims under Ex. A-152. After examining the relevant accounts the Official Liquidator in his proceedings dated 7-10-1948 rejected the claim of Khaitan Apte and Company in respect of the assignment of book debts in the absence of the original assignments, and also the claim for Rs. 73,497-10-2 as having been expressly given up by Khaitan Apte and Company in their letter dated 7-7-1943.
Khaitan Apte and Company filed an application No. 3514 of 1948 for a direction to the Official Liquidator to include the sum rejected in their claims. That application came up, for disposal before Bell, J. The learned Judge passed the following Order:-
The Official Liquidator disallowed the claim mainly on the ground that the deeds of assignments had not been produced. They are now available and there is no question that they are correct and in proper form. The order of the Official Liquidator rejecting the applicant''s claim is therefore, set aside.
A sum of Rs. 73,497-10-2 was disallowed on the basis of a letter written by the applicants to the Company on the 7th July, 1943 in which they indicated their willingness to abandon part of their just claim against the Company. As, however, the letter was never acted upon and the Company never paid any money, obviously Sec. 63 of the Contract Act does not apply. The applicant''s claim therefore is allowed to the extent of Rs. 2,86,690-8-0.
The amount allowed by Bell, J. includes Rs. 73,497-10-2. In O. S. No. 48 of 1956 the specific prayers are for a declaration that the order of Bell J. in Application No. 3514 of 1948 is null and void, and for a decree against the estate of V. S. Apte and T. M. Kurandia in fee hands of their legal representatives in a sum of Rs. 2,68,838-12-9. The learned District Judge under issues 1 to 3 in O. S. No. 48 of 1956 found that Khaitan Apte and Company fraudulently suppressed the fact that the Board of Directors in their resolution No. 120 dated 9-7-1943 accepted their offer to waive the profit, that the order of Bell J. was, therefore, procured by fraud and that the Official Liquidator was entitled to recover the dividends paid on Rs. 73,497-10-2 to Khaitan Apte and Company. Appropriate directions were accordingly given in O. S. No. 48 of 1956 and O. S. No. 51 of 1958. In A. S. No. 275 of 1959 Khaitan Apte and Company challenges the correctness of this direction.
Before considering the correctness of the order of learned District Judge, we may deal with C. M. P. No. 5787 of 1961 filed on 14-6-1961 in this Court by the counsel of L. V. Apte and others to urge additional grounds. The grounds sought to be urged are for showing that the amounts claimed by Khaitan Apte and Company under Ex. A-152 did not include the sum of Rs. 73,497-10-2. This has never been the case of Khaitan Apte and Company and in the face of the order of Bell J., and the directions given in the judgment under appeal, it is meaningless to contend that the sum of Rs. 73,497-10-2 is not included in the claim put forward by Khaitan Apte and Company. We have no hesitation in rejecting this belated memorandum of additional grounds.
Mr. Padmanabha Mudaliar contended that quite apart from the fraud practised by Khaitan Apte and Company in suppressing the resolution and drawing the dividend, they are in law not entitled to receive the profit, as, such a profit is prohibited under Sec. 90 of the Indian Trusts Act. We are unable to agree with this contention. Dayaram Poddar Himmatsingka and Bisshendayal were the creditors of the Company. They could assign the debts to whomsoever they liked. Khaitan Apte and Company occupied no fiduciary relationship quoad the company when they took up the assignments. Khaitan Apte and Company were the agents of the Debenture trustees only. Further, this point was not raised before Bell J. We, therefore, reject this contention.
The two circumstances relied upon by the learned District Judge in holding that the order of Bell J. was procured by fraud are : (i) the suppression of minutes books, and (ii) the suppression of written statement in O. S. No. 10 of 1943 where Khaitan Apte and Company have stated expressly that they had given up the profit of Rs. 73,497-10-2. The learned judge held that the suppressions were deliberate and fraudulent.
As to the first reason, we find from the evidence of Sambasivan P. W. 2 that though it is doubtful whether Ex. A-141 (The relevant minutes'' book) was available in the records at the mill, Ex. A-142 which was a copy of Ex. A-141 was available, and that it was being used by G. Vaidhyanatham, who was actively assisting Mr. Price for instructing the advocates. At the time when Khaitan Apte and Company filed the application No. 3514 of 1948 the Company was wound up and all the records were with the Official Liquidator. We are of opinion that with some diligence it should have been possible for the Official Liquidator or his assistant G. Vaidyanatham to find out whether the letter dated 7-7-1943 had been accepted or not. Mr. Price has not given evidence. Vaidhyanatham who seems to have been very intimately connected with the work of Mr. Price has also not been examined. We do not know, therefore, whether Mr. Price or his assistant have looked into Ex. A-142 or not, for, if they had, they could very well have stated that Khaitan''s letter was not merely an offer, but that it was accepted by the Board of Directors.
The second reason given by the learned District Judge is that Khaitan Apte and Company had suppressed the written statement filed in O. S. No. 10 of 1943; therein they expressly stated that they have voluntarily given up. As stated already, the Official Liquidator was in possession of the records. Whatever other records were or were not available, there is no question that the records and pleadings in O. S. No. 10 of 1943 were available to the Official Liquidator. P. W. 2 in his evidence says that :
I saw apart from O. S. No. 31 of 1945 of Pydas, there was another suit filed earlier O. S. No. 10 of 1943 by Pyda. When I wrote the report Ex. B-3, I relied on Exs. A-32, A-33, A-34. I remember to have seen the records of the suit O. S. No. 10 of 1943. I saw the compromise decree later. Mr. Price was apprised of the suit and the records therein".
From the above answers only one inference is possible and that is, that Mr. Price must have seen the pleadings in O. S. No. 10 of 1943. He had, therefore, the material to resist the claim of Khaitan Apte and Company in Application No. 3514 of 1948. In paragraph 29 of the judgment the learned District Judge indicates that there was want of diligence on the part of the Official Liquidator. The result in Application No. 3514 of 1948 was brought about as much by the carelessness and want of diligence on the part of the Official Liquidator and his assistant, as by the suppression of facts by Khaitan Apte and Company.
Inasmuch as the claim of Khaitan Apte and Company was allowed by Bell J., the plaintiff must urge grounds sufficient for avoiding the decree of Court. A fraud that can vitiate a decree and render it liable to be avoided is the fraud that is collateral and extrinsic to the case. It is now well established that a decree of Court cannot be set aside on the ground of fraud on the allegations that it was obtained by perjured evidence, or that the claim was false. It must be proved that the plaintiff was prevented by some trick or contrivance of the defendant from appearing and placing his case before the Court. In Venkatappa v. Subba, ILR 29 Mad 179 following the decision in Abouloff v. Oppenheimer and Co. (1882) 10 QBD 295 and Vadala v. Lawes (L. R. 25 Q. B D 310) Boddam and Moore JJ. held that the judgment obtained by perjured evidence is a judgment obtained by fraud committed upon the Court and could be set aside in a separate suit. The learned Judges were obviously of opinion that the decision in the well known case of Flower v. Lloyd, (1879) 10 Ch. D. 327 was no longer good law in view of the two aforesaid decisions. The decision in ILR 29 Mad 179 was later considered in Kumaraswami Chetty v. Kamakshi Ammal, 23 Mad LJ 187 where Sundara Aiyar and Sadasiva Aiyar JJ., doubted the correctness of the decision. In Chinnayya v. Ramanna, ILR 88 Mad 203 : (AIR 1916 Mad 364), Bension and Siradara Aiyar JJ. did not approve of the principle of the decision in ILR 29 Mad 179. In ILR 38 Mad 203 at p. 208 : (AIR 1916 Mad 364 at p. 366) it was observed, as follows :
The test to be applied is, Is the fraud complained of not something that was included in what has already been adjudged by the Court but extraneous to it? If, for instance, a party be prevented by his opponent from conducting his case properly by tricks or misrepresentation, that would amount to fraud. There may also be fraud upon the Court if, in a proceeding in which a party is entitled to get an order without notice to the other side, he procures it by suppressing facts which the law makes it his duty to disclose to the Court. But where two parties fight at arms length, it is the duty of each to question the allegations made by the other and to adduce all available evidence regarding the truth or falsehood of it. Neither of them can neglect his duty and afterwards claim to show that the allegation of his opponent was false''''.
In Kadirvelu Nainar v. Kuppuswami Naicker, 8 Mad LW 103 at p. 108: ILR 41 Mad 743: (AIR 1919 Mad 1044 at p. 1046) (FB) a Full Bench of the Madras High Court had to resolve the conflict between ILR 29 Mad 179 and ILR 38 Mad 203 : (AIR 1916 Mad 364). Wallis C. J. affirmed the principle of the decision in ILR 38 Mad 203 : (AIR 1916 Mad 364). In Ramanathan Chettiar v. Palaniyappa Chettiar, AIR 1939 Mad 146 a Bench of the Madras High Court while following the decision of the Full Bench in 8 Mad LW p. 103 at p. 108 : ILR 41 Mad 743 : (AIR 1919 Mad 1044 at p. 1046) expressly adopted the reasoning of Sundara Ayyar J., in ILR 38 Mad 203 : (AIR 1916 Mad 364) and observed that it was the negligence of the defendants alone which was responsible in that case for the kind of decree that was passed.
On the authority of the above decisions, we hold that even if Khaitan Apte and Company must be deemed to have suppressed certain facts, it cannot be said that it amounts to a fraud that would entitle the Official Liquidator, who was a party to the decision of Bell J., to avoid it.
The next question for consideration is with respect to two items involved in O. S. No. 49 of 1956. They are (i) the debit of Rs. 50,000/- paid to Srinivasan towards the legal expenses; and (ii) a sum of Rs. 3,250/- paid to the counsel of Mr. Pyda Venkatanarayana in O. S. No. 10 of 1943.
71-77. (His Lordship reviewed and discussed the evidence and proceeded). We are not persuaded that the conclusion, which the learned District Judge has come to, is erroneous.
We have dealt with the above five items at some length for the reason that according to the case of the Official Liquidator they constitute items of fraud which render it imperative that the accounts approved by the general body of share-holders on 12-8-1945 and the accounts settled by the Official Liquidator, should be reopened and a rendition of fresh accounts ordered. We have reached the conclusion that none of the items aforesaid is in the nature of fraud to justify the direction for reopening settled accounts.
Even on the footing that the disputed items aforesaid are liable to any objection, we are of opinion that in the events that have happened in this case the Official Liquidator has precluded himself from assailing their truth or legality Mr. Padmanabha Mudaliar has contended that the real fraud committed by the Debenture Trustees and their agents was a fraud on the statute by pretending that they had a right to carry on the business for purposes other than the realisation of the mortgage money within a reasonable time, and continuing to carry on the said business for an unlimited period at the risk of the Company.
From that act of original sin, it is argued, all other frauds, illegalities and derelections had ensured, and the Debenture Trustees had covered up their frauds on the statute by producing balance-sheets and accounts and thus del ded the share-holders into thinking that the Debenture Trustees could carry on the business, and that therefore the Court should brush away the ''cobweb varnish'' and reveal the transactions in their true light. It is also stated by the learned counsel that the true nature of these transactions came to the knowledge of the Official Liquidator only after he started enquiries in August 1955 as a result of an observation by Raja Gopala Ayyangar J. during the trial of C.S No. 376 of 1949, whether any misfeasance application had been taken out against V. S. Apte.
We are unable to accept this contention. That the Official Liquidator was aware of the fact that the Debenture Trustees had entered upon possession in 1940 and that they had run the business through Khaitan Apte and Company, admits of no doubt. It is also clear that the Official Liquidator knew that under the resolutions of the Board of Directors, Khaitan Apte and Company had made large advances towards the working capital of the Company. It is further clear that the Official Liquidator knew that in the carrying on of the business Khaitan Apte and Company contracted trade debts. It is only upon that basis that the Official Liquidator settled i not only the claims of Khaitan Apte and Company and paid them a dividend but paid all the unsecured creditors of the Company, who had proved their claim in liquidation.
It is now suggested by Mr. Padmanabha Mudaliar that the Official Liquidator did not realise at the time when he settled the accounts, of Khaitan Apte and Company and paid diem the dividend on 28-4-1949, that the Debenture Trustees or their agents had no right in law to run the business at the risk of the Company. This statement is wholly opposed to the facts on record. One Tadvarthi Punnayya claiming to be the sole selling agent of paper of the Andhra Paper Mills filed O. S. No. 69 of 1947 on the file of the Sub Court, Rajahmundry for a rendition of accounts of all sales and for the payment to him of the commission that he was entitled upon those sales. The 1st defendant to that action was the Andhra Paper Mills, Rajahmundry. Some of the concerned Debenture Trustees were also impleaded, and so was Khaitan Apte and Company. The defendants pleaded that they were not liable to render an account. Mr. Price filed a written statement which was verified on 14-12-1949. Therein it is stated clearly in paragraph 5 that the working of the mills by the 4th defendant in that suit, that is, Khaitan Apte and Company, cannot be consider red as having been done for and on behalf of the Company. The suit wag decided against the Company.
The Official Liquidator applied for permission of the Court to file an appeal. In the grounds of appeal incorporated in the affidavit filed in support of the petition for permission to file the appeal, ground No. 8 is as follows:
The lower Court erred in finding that the possession of the trustees was the possession of the mortgagor-company".
The allegation in the written statement and in the memorandum of grounds would show that the Official Liquidator was aware then of the contention now raised and that such a knowledge is not the result of his investigation in and after August, 1955, Sambasivan as P. W. 2 has clearly stated in his evidence that Mr. Price has seen the debenture trust-deed before paying off the debentures and settling the claim of Khaitan Apte and Company and other unsecured creditors.
It is not possible to believe that a gentleman like Mr. Price placed in charge of the winding up of the Company did not take steps to fully acquaint himself with the full legal implications of the Trust deed, and the activities of parties. In the absence of his evidence, we are unable to say what exactly were the matters he came to know in August, 1955 - matters which he did not know in 1948 and 1949.
We are, therefore, inclined to hold that Mr. Price knew or ought to have known about the receipt of Rs. 34,000/- by the first debenture trustees from the Canaras, as the receipt had been expressly admitted by Himmitsingka in his deposition in O. S. No. 15 of 1941, the records of which the Official Liquidator, had, according to P. W. 2 perused. He also knew about the claim of Rs. 73,492-10-2 for the obvious reason that he was himself admittedly a party to application No. 3514 of 1948, and to the order of Bell J., against which, however, the Official Liquidator had filed no appeal. He also knew about the sum of Rs. 50 000/- paid to Mr. Srinivasan, because obviously the Official Liquidator had looked into the ledgers in 1948. He also knew about the entrustment of Rs. 81,317-6-8 to B. P. Khaitan and Dayaram Poddar for discharging the debts. P. W. 2 has expressly stated that Mr. Price knew about this between February and April, 1948 ''but not with the same eye as we see it now''. The Official Liquidator must have seen the resolution of the Board with respect to the issue of fresh shares, the collection of Rs. 5.29,450/-, the challenge in Pydas'' suit, the deposit of that money in No. 2 account in the Imperial Bank the subsequent payment of the money to Khaitan Apte and Company, the receipts for the sum of Rs. 2,57,600/- and the indemnity with respect to the balance of Rs. 2,71,850/-.
Therefore we are of opinion that all these, items were known to the Official Liquidator in 1948 or 1949, and certainly by the time he paid the dividend to Khaitan Apte and Company. Knowing them he settled the accounts and paid the dividend to Khaitan Apte and Company. It is not now open to him to say that the transactions are false or fraudulent.
We think the following passage from the speech of Lord Cottenham in (1842) 8 Cl. and Fin 562 at p. 652: 8 ER 220 at p. 254 is very apposite and well worth citation:
A man who with full knowledge of his case, does not complain, but deals with his opponent as if he had no case against him, build up from day to day a wall of protection for such opponent, which will probably defeat any future attack upon him''''.
We may also usefully extract the following passage in Kerr on Fraud and Mistake (Seventh Edition page 597):
But as soon as a man with full knowledge, or at least with sufficient notice or means of knowledge, of his rights and of all the material circumstances of the case, freely and advisedly does anything which amounts to the recognition of a transaction or acts in a manner inconsistent with its repudiation, or lies by for a considerable time, and knowingly and deliberately permits another to deal with the property, or incur expense, under the belief that the transaction has been recognised, or freely and advisedly abstains for a considerable lapse of time from impeaching it, there is acquiescence, and the transaction although originally impeachable, becomes unimpeachable in equity".
There is another act of affirmance on the Part of the Official Liquidator which in our opinion goes a long way to disentitle him from contending that the business run by Khaitan Apte and Company was not the business of the Company. From the report (Ex. B 3) which the Official Liquidator had to make u/s 177 (b) of the Indian Companies Act, dated 13-2-1948, it is seen that he had sold the stock of about 36 tons of caustic soda and realised a sum of Rs. 1,19,233-12-0 and that the stock of paper was sold for Rs. 3,26,172-6-10.
The Official Liquidator, therefore treated these assets as the assets of the Company and having elected to do so he cannot now turn round and say that Khaitan Apte and Company has no right to carry on the business. If is elementary that a plaintiff is not entitled to approbate and reprobate. Having elected to profit himself by certain transactions, he cannot turn round and then denounce them as being illegal.
We hold that in the events that have happened, the Official Liquidator has disentitled himself to impeach the transactions, which by his conduct and overt acts, he had affirmed very nearly 8 years prior to the institution of the present action.
It now falls to consider the question of limitation dealt with by the learned District Judge in paragraph 53 of the judgment.
In our opinion, the learned District Judge, has rightly rejected the contention that the present case fall under Arts. 115 or 116 of the first schedule to the Indian Limitation Act and has held that the appropriate Article is Article 95.
Before us some attempt has been made by Mr. Ananta Babu, the learned counsel for defendants 2, and 8 to 10 to being the case under Art. 89 or Art. 120. We are not able to accede to this contention. The only relevant Art. is Art. 95 which is in these terms:
The learned District Judge held that it was only as a result of the investigations made in or after August, 1955 that the Official Liquidator came to know about the frauds.
The second reason that the learned District Judge gave was that the rule in Soar v. Ashwell, (1893) 2 QB 390 will apply and further that under S. 10 of the Indian limitation Act, there is no bar of time. As to the first reason, we held that the various items challenged in these suits by the Company as constituting frauds were known to the Official Liquidator in 1948-49, prior to his settlement of accounts with Khaitan Apte and Company. Therefore it cannot be said that it is only in or after August 1955 that the Official Liquidator came to know about the disputed items.
As to the second reason, we are of opinion that the rule in (1893) 2 QB 390 does not support the present case. The facts of that case were briefly thus: One Joseph Soar executed a will making certain legacies and appointing trustees. One Ashwell was the solicitor of the trustees. Ashwell died leaving a will and appointing his wife as the executrix. She appointed a clerk to wind up the professional business and pay the sum due to the plaintiff''s father. The plaintiff''s father died and the plaintiff became solely entitled to that money. In the meantime the clerk appointed by Ashwell''s wife discontinued payment. The sole beneficiary under the will filed an action. The question was whether the action was barred by limitation. On the facts of that case it was held that Ashwell must be deemed to be an express trustee. It is true that Key J., pointed out that even though Ashwell was a stranger to the trust he received the moneys due to the trustees under the Soar''s will with full knowledge of the trust, and, therefore he must be treated as an express trustee. The principle of this decision has no application to the present case.
Debenture Trustees represent the mortgagees. A mortgagee is not the trustee for the mortgagor. As pointed out by Dr. Ghose in his Law of Mortgage in India (Vol. I page 211) it is inaccurate to call a mortgagee a trustee for the mortgagor and though a mortgagee is under certain obligations to the mortgagor, he has rights of his own which he may exercise adversely to the mortgagor, a thing which no trustee can do.
A mortgagee in possession even where the mortgage is in the form of a trust for sale is not an express trustee (Vide Lewin on Trusts 14th Edition page 840; Banner v. Barridge, (1881 18 Ch. D. 254; Locking v. Parker, (1872) 8 Ch. A. 30 and Re Alison, Johnson v. Mounsey (1879) 11 Ch D 284). We therefore, hold that neither the Debenture Trustees nor their agents can be regarded as express trustees. That being so Sec. 10 of the India Limitation Act has no application. The section inter alia points that there must be property which had become vested in a person in trust for a specific purpose.
It cannot be said that Dayaram Poddar, Himmatsingka (defendants 3 and 4) and V. S. Apte who were for some time debenture trustees are express trustees for the Company. Khaitan Apte and Company are the agents of the Debenture Trustees, and can stand on no different footing. It is true that for some time Dayaram Poddar (since deceased) Himmatsingka Nandulal Mehta and Kantilal Nahelchand were the Directors during the accounting period. But it is settled law that Directors of a company are not trustees in whom the property of the Company had become vested in trust for a specific purpose.
The authority of decisions of English and Indian Courts on this part of the case is decisive (vide the decision of the Court of Appeal in Re City Equitable Fire Insurance Co. Ltd., 1925 Ch 407) where Romer J., observed ''To say that Directors are trustees is wholly misleading statement.''
The Indian authorities are also of the same view. (Vide Kathiawar Trading Co. v. Virchand Dipchand, ILR 18 Bom 119 and V. Narasimha Aiyangar, Official Liquidator of the City Hygienic Milk Supply Co. Ltd. Vs. The Official Assignee of Madras and Others, ). That being the legal position, it seems to us that the suit must have been instituted within three years from the date of the knowledge of the fraud. As stated already the Official Liquidator, has not given evidence. According to P. W. 2, the Official Liquidator looked into the accounts and all the relevant papers before he settled the accounts of Khaitan Apte and Company. In those circumstances we are of opinion that the items disputed in this case were known to the Official Liquidator long prior to August, 1955 and much earlier than three years before the filing of the present suits. It follows, that the suits O. S. Nos. 48 and 49 and 51 of 1956 are barred by limitation.
87-88. The learned District Judge in his judgment has directed that after the accounts are taken against the defendants the liability of each of the defendants could be quantified with reference to the period when they held office as Debenture Trustees, or managing agents. In the view we have taken that this is not a case where rendition of accounts should have been ordered, the question of apportioning the liability between the defendants does not arise.
On behalf of the respondents it has been very strenuously contended that Khaitan Apte and Company had effected several improvement, such as, structures, plants in the premises and that in any account taking credit should be given to these improvements. In view of our decision that the present suits filed by the Official Liquidator should be dismissed, there is no necessity for any direction as to set offs.
It has been contended on behalf of Khaitan Apte and Company that the amounts advanced by them were true in fact, and that they did so only on the strength of a resolution by the Board of Directors asking them to advance the money, and as such their claims cannot be disputed now. We have held that the Official Liquidator is not entitled to reopen the settled accounts. It is, therefore, unnecessary for us to go into the question of the various advances made by Khaitan Apte and Company.
The Official Liquidator filed Application No. 30 of 1951 in O. P. No. 105 of 1955 for expunging all the debts due to Khaitan Apte and Company. The learned District Judge held that inasmuch as a decree for general accounting had been made in O. S. No. 51 of 1958, no fresh order on this application was necessary. The Official Liquidator has filed A. S. No. 294 of 1959 against that order. As we have held that the direction for the rendition of account is not called for, this appeal should fail.
In the result, A. S. Nos. 274, 275 and 276 all of 1959 are allowed. The appellants in these three appeals, will have costs only in A. S. No. 274 of 1959 and payable by the first respondent, the Official Liquidator from out of the estate.
A. S. 341 of 1959 is allowed with costs payable by the first respondent, the Official Liquidator from out of the estate.
A. S. 347 of 1959 is dismissed with costs payable by the appellant, the Official Liquidator from out of the estate to the respondents 1 and 7 to 9 (one set), respondent No. 3 (one set) and respondents 4 to 6 (one set).
C. M. A. 294 of 1959 is dismissed, but without costs.
O. S. 51 of 1956 stands dismissed without costs.
C. M. P. 5787 of 1961 dismissed, but without costs.