1956 (2) TMI 32 - SC - Companies Law

Whether the High Court was correct to set aside the order of the District Judge and order that the said shares should be sold in the open market and that the offer made by Pasavala should be taken as the minimum offer made for the purchase of the shares in question? Held that - Having regard, therefore, to all the circumstances of the case, we are of the opinion that the order made by the District Judge was right and the High Court was in error when it set it aside and directed that the said 1936 shares should be sold by public auction.

Summary

Issues Involved:

1. Validity of tender made by the liquidators.
2. Alleged breach of agreement by Chunilal.
3. Whether Chunilal had a right under the agreement.
4. Comparison of offers made by Chunilal and Adhyaru.
5. Discretion exercised by the District Judge.
6. Interests and rights of contributories.
7. High Court's decision to order a public auction.

Issue-wise Detailed Analysis:

1. Validity of Tender Made by the Liquidators:

The liquidators purported to tender 1936 shares to Chunilal on 17th September 1954, under clauses (5) and (6) of the agreement dated 28th September 1953. However, Chunilal contended that the tender was not valid. The Supreme Court found that the liquidators did not have the requisite letters of authority from the contributories to tender even 1236 shares, nor did they make it clear that they were tendering the remaining 700 shares in exercise of their right under clause (6). Thus, the tender was not valid, and Chunilal was within his rights to refuse it.

2. Alleged Breach of Agreement by Chunilal:

The High Court concluded that Chunilal had committed a breach of the agreement dated 3rd November 1953. However, the Supreme Court found that Chunilal's refusal to accept the tender on 17th September 1954 was justified as the tender was not valid. Therefore, the District Judge was correct in holding that Chunilal had not committed a breach of the agreement, and the High Court's conclusion was erroneous.

3. Whether Chunilal Had a Right Under the Agreement:

The High Court held that Chunilal had no right under the agreement dated 3rd November 1953. The Supreme Court agreed that Chunilal had no initial right to acquire the shares but noted that the events in July 1955, including Chunilal's letter waiving objections and offering to take delivery of the shares, created an expectation amounting to an inchoate right or a preferential claim. The District Judge's reference to Chunilal's "right" was justified based on these events.

4. Comparison of Offers Made by Chunilal and Adhyaru:

Chunilal offered Rs. 500 per share and agreed to give the liquidators the dividend sanctioned at the annual general meeting of the Himabhai Company for 1954, effectively making his offer Rs. 520 per share. Adhyaru's offer was Rs. 500 per share. The Supreme Court found that Chunilal's offer was higher and deserved to be sanctioned by the District Court.

5. Discretion Exercised by the District Judge:

The District Judge sanctioned Chunilal's offer, considering he was fulfilling his obligation under the agreement and was entitled to better consideration than Adhyaru. The Supreme Court found no erroneous exercise of discretion by the District Judge and held that the High Court was not justified in interfering with this discretion.

6. Interests and Rights of Contributories:

The High Court ordered a public auction considering higher offers for the shares. However, the Supreme Court noted that up to 4th August 1955, the market price of the shares was never beyond Rs. 450 per share, and contributories had no notion that anything more than Rs. 500 per share could be obtained. The subsequent higher offers were the result of competition between Chunilal and Adhyaru and were not foreseeable. The Supreme Court held that the District Judge was right in not giving notice to the contributories and considering only the offers before him.

7. High Court's Decision to Order a Public Auction:

The High Court set aside the District Judge's order and directed a public auction, influenced by higher offers brought into existence after the 25th August 1955. The Supreme Court found that the High Court should have considered the position as it stood on 4th August 1955 and that the District Judge's order was correct. The Supreme Court restored the District Judge's order and dismissed the High Court's direction for a public auction.

Conclusion:

The Supreme Court allowed Civil Appeal No. 2 of 1956 by Chunilal, dismissed Civil Appeal No. 3 of 1956 by Adhyaru, set aside the High Court's order, and restored the District Judge's order. Each party was ordered to bear their own costs. Chunilal was permitted to withdraw the sum of Rs. 2 lacs deposited as security, and the liquidators were directed to hand over 1936 shares of the Himabhai Company to Chunilal within a fortnight of the certified copy of the decree being served upon them.