1942 (4) TMI 12 - DSC - Companies Law

Winding up Suits stayed on winding-up order, Debts of all descriptions to be admitted to proof and Application of insolvency rules

Issues Involved:
1. Validity of the Assignment of the Mortgage Decree.
2. Allegations of Fraudulent Preference.
3. Competence of Balak Ram to Execute the Deed of Transfer.
4. Jurisdiction of the Court under Section 171 of the Indian Companies Act.
5. Applicability of Sections 229 and 231 of the Indian Companies Act.

Issue-wise Detailed Analysis:

1. Validity of the Assignment of the Mortgage Decree:
The primary issue was whether the decree in Case No. 47/83 of 1934 was assigned by Dinshaw and Co. (Bankers) to the applicant for a consideration of Rs. 80,000. The Chief Judge found that the consideration entered in the deed was partly fictitious, holding that Rs. 60,000 was not due from the Bank to Mst. Basanti Devi. The real consideration was determined to be Rs. 57,687-11-0, which was deemed inadequate given the ample security to satisfy the Bank's decree.

2. Allegations of Fraudulent Preference:
The second issue was whether the assignment constituted a fraudulent preference under Section 231 of the Indian Companies Act read with Section 54 of the Provincial Insolvency Act. The Chief Judge found that Section 54 did not apply as the assignment was made more than three months before the petition for compulsory winding up. However, under Section 53 of the Provincial Insolvency Act read with Section 229 of the Indian Companies Act, the assignment was deemed voidable against the Official Liquidator and should be annulled.

3. Competence of Balak Ram to Execute the Deed of Transfer:
The fifth issue, considered most important by the Chief Judge, was whether Balak Ram had the authority to execute the deed of transfer. The findings were:
- Balak Ram was neither a director nor a shareholder, and thus could not execute the deed on behalf of the Bank.
- The power-of-attorney alleged to have been executed in his favor was not proved, as the original was not produced, and secondary evidence was inadmissible.
- Even if secondary evidence were admitted, it was insufficient to prove the power-of-attorney.
- There was no evidence that Balak Ram had authority under the general law of agency to execute the deed.

4. Jurisdiction of the Court under Section 171 of the Indian Companies Act:
The appellant's counsel contended that the Court had no power under Section 171 to determine a question of title not covered by Section 231. The Chief Judge's jurisdiction to adjudicate on the validity of the deed of transfer was challenged. The Court examined the implications of Sections 171, 229, and 231, referencing cases like Hansraj v. Official Liquidators and Alliance Bank of Simla Ltd. v. K.S. Mian Feroze Shah. It was concluded that the Court had jurisdiction to refuse leave absolutely and to adjudicate on questions of title under Section 229, which gives the Court the same powers as an Insolvency Court regarding the rights of creditors.

5. Applicability of Sections 229 and 231 of the Indian Companies Act:
The Court found that Section 229 should not be construed narrowly and includes rules of practice under the Provincial Insolvency Act. The Court held that it had the power to adjudicate on questions of title and that the Official Liquidator could challenge the transfer in the interest of other creditors. The Peshawar case's narrow view on Section 229 was not adopted.

Conclusion:
The appeal was dismissed with costs, upholding the Chief Judge's order. The transfer was deemed null and void due to Balak Ram's lack of authority to execute the deed, and the assignment was voidable against the Official Liquidator.

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