1964 (3) TMI 35 - HC - Companies Law

Winding up Debts of all descriptions to be admitted to proof, Overriding preferential payments

Summary

Issues Involved:
1. Proof of Debt
2. Preferential Payment of Trust Money
3. Preferential Payment of Advances for Wages

Detailed Analysis:

1. Proof of Debt:
The appellant challenged the acceptance of the proof of debt by the official liquidator, arguing that the sums claimed by the respondent firm were not genuinely owed by the company. The appellant alleged gross mismanagement and undue influence by the respondent firm over the company's management, resulting in unfair financial terms and transactions. The official liquidator, however, accepted the proof of debt after scrutinizing the company's account books, which showed a balance of Rs. 1,14,892.29 nP. due to the respondent firm. The court upheld the liquidator's decision, noting that the appellant failed to provide sufficient evidence to disprove the indebtedness or to show any fraudulent or collusive behavior between the firm and the company's management. The court emphasized that the official liquidator had a duty to ensure the debt was real and just, which he fulfilled by examining relevant documents and entries in the company's books.

2. Preferential Payment of Trust Money:
The respondent firm claimed preferential payment for a sum of Rs. 50,000, described as trust money deposited with the company. The official liquidator and the court accepted this claim, finding that the deposit was made as security for the firm's obligations as an agent of the company. The court determined that the deposit was impressed with the character of a trust, meaning it did not vest in the liquidator and was not distributable among the company's creditors. This conclusion was based on the definition of a trust under the Indian Trusts Act and the nature of the deposit as security for the agency agreement. The court referred to various precedents supporting the view that such deposits, even if they earned interest or were mixed with other assets, retained their trust character.

3. Preferential Payment of Advances for Wages:
The respondent firm also claimed preferential payment for a sum of Rs. 1,06,983.82 nP., which was advanced to the company for the payment of wages and salaries. The official liquidator and the court upheld this claim, citing section 530(4) of the Companies Act, which grants priority to creditors who advance money for the payment of wages or salaries. The court found that the advances were used to pay wages for the months of September, October, and November 1958, falling within the twelve months preceding the relevant date (the appointment of the provisional liquidator). The court clarified that the right of priority was limited to the amount by which the company's liability was diminished due to the payment of wages, which in this case was fully supported by the company's account books and the liquidator's report.

Conclusion:
The court dismissed the appeal, affirming the official liquidator's acceptance of the proof of debt and the claims for preferential payment. The court found no evidence to support the appellant's allegations of fraud or mismanagement and determined that the respondent firm's claims were legitimate and supported by the company's records. The court also rejected the appellant's request to produce further evidence, finding it irrelevant to the matters at hand. Consequently, the respondent firm was entitled to preferential payment for both the trust money deposit and the advances made for wages.