1955 (1) TMI 22 - HC - Companies Law

Summary

Issues Involved:
1. Applicability of Section 235 of the Indian Companies Act.
2. Nature of the claims against the respondent.
3. Procedural appropriateness of the liquidator's application under Section 235.
4. Examination of the respondent's conduct and accountability for company funds.
5. Counter-claims and set-offs by the respondent.

Issue-wise Detailed Analysis:

1. Applicability of Section 235 of the Indian Companies Act:
The primary issue is whether the liquidator is entitled to proceed under Section 235 of the Indian Companies Act for the claims set out in the affidavit. The section prescribes a summary method for the liquidator to obtain money or assets in the hands of parties indicated in the section, such as directors or managers. The court noted that Section 235 does not enlarge the rights of the liquidator nor the liabilities of the parties, except in regard to limitation. It is essentially a procedural section providing a summary method for enforcing liabilities that could be enforced by the company or its liquidator through ordinary action. The court concluded that the proceeding is properly brought under this section, thus overruling the respondent's objection regarding its inapplicability.

2. Nature of the Claims Against the Respondent:
The liquidator's affidavit stated that the respondent, as a director and manager of the company, drew certain sums for expenses incurred on behalf of the company. The liquidator claimed that the respondent took Rs. 17,350 in 1951 and paid back Rs. 6,000, leaving a balance of Rs. 10,818 for that year. By the end of 1952, the company was entitled to recover Rs. 32,943 from the respondent. The respondent disputed these items, asserting that he had not held any company money and that the claims were described as loans in the liquidator's demand letters. The court clarified that these amounts were withdrawals made by the respondent in his capacity as manager or director, not personal loans.

3. Procedural Appropriateness of the Liquidator's Application Under Section 235:
The court discussed whether the liquidator should proceed under Section 235 or be referred to a regular suit. It was argued that Section 235 is a matter of procedure, allowing the liquidator to apply to the judge dealing with company matters instead of proceeding by a regular suit. The court noted that the only advantage for the liquidator is avoiding the long cause list, which could delay liquidation. The court found no substance in the respondent's point that counter-claims and set-offs could not be established in this proceeding, as the section is intended to expeditiously collect assets of the company without protracted litigation.

4. Examination of the Respondent's Conduct and Accountability for Company Funds:
The court examined whether the liquidator's claims fell within the terms of Section 235, which applies to any person who has misapplied or retained company money or been guilty of misfeasance or breach of trust. The court emphasized that it is entitled to examine the conduct of the party and then come to a conclusion, indicating that issues may be framed and evidence recorded. The court rejected the argument that the liquidator must conclusively prove his case on the face of the affidavit, stating that the section allows for examining the conduct before reaching a conclusion.

5. Counter-claims and Set-offs by the Respondent:
The respondent argued that Section 235 does not allow for counter-claims and set-offs, which could be a disadvantage. The court dismissed this argument, stating that counter-claims are a matter of convenience and no party has the inherent right to claim a set-off against company assets wrongfully in their hands. The court found no substance in this point and proceeded to treat the affidavits as pleadings, granting liberty for further affidavits and ordering discovery and inspection.

Conclusion:
The court concluded that the proceeding is properly brought under Section 235 and overruled the respondent's objections. The matter was set for further hearing, with orders for discovery and inspection to be completed within four weeks. The summons was adjourned into court, with costs to be costs in the summons and counsel certified.