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Issues: Misfeasance summons under section 235 of the Indian Companies Act - Locus standi of applicants as creditors of the company.
In this judgment, the court addressed a misfeasance summons under section 235 of the Indian Companies Act, where breaches of duty were alleged against the directors and other officers of the company. The summons sought an order for them to bring about Rs. 42,000 into court. An objection was raised regarding the locus standi of the applicants as creditors of the company. The company, initially named the Madras Native Permanent Fund, Ltd., started in 1878 with specific objectives outlined in the memorandum of association. A new Deposit Branch was later established, evolving into a bank, while the original Loan Branch operated on a limited scale. Irregularities led to a compulsory liquidation order in 1927. Previous orders in the winding-up process indicated a dispute over the treatment of certain persons as contributories. The court analyzed whether the debts sought to be collected were ultra vires of the company's powers, referencing past judgments on ultra vires transactions and their implications on creditor-debtor relationships. The court considered the nature of the deposits made by customers in the Deposit Branch and whether they exceeded the company's authorized activities, rendering them ultra vires. Relying on legal precedent, the court concluded that ultra vires transactions do not establish a debtor-creditor relationship, thereby upholding the preliminary objection raised by the contributories. The judgment emphasized that while the lenders may have rights to their deposits, they cannot be treated as creditors in the legal sense due to the ultra vires nature of the transactions. The court also addressed the repayment of sums to various parties, including unadvanced shareholders and depositors, based on the available assets of the Loan and Deposit Branches. The judgment resolved multiple applications related to the distribution of funds among different stakeholders, providing clarity on the amounts to be refunded and distributed. Additionally, the court directed the liquidators to expedite the winding-up process to avoid further costs. The judgment specified the costs to be borne by the liquidators and applicants in the respective applications, ensuring transparency in the financial aspects of the proceedings. Overall, the court's decision focused on the legality of the company's actions, the rights of depositors and shareholders, and the proper distribution of funds in the winding-up process, highlighting the importance of adhering to legal boundaries in corporate transactions.
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