1967 (9) TMI 79 - HC - Companies Law

Issues Involved:
1. Whether the contract is onerous.
2. Whether the applicant is precluded from filing the application for leave to disclaim the contract.
3. Whether the Madras Industrial Investment Corporation is a necessary party to the application.
4. Maintainability of the application under Section 535(4) of the Companies Act, 1956.
5. Merits of the applicant's case regarding the disclaimer of the contract.

Issue-wise Detailed Analysis:

1. Whether the contract is onerous:
The applicant, the official liquidator of Raka Corporation Private Ltd., sought to disclaim a contract concerning the allotment of 11,513 equity shares in Raka Chemicals and Food Products Limited, considering it an onerous contract. The applicant argued that the investment in these shares was of no benefit to the company, its creditors, or shareholders, as the shares were not quoted on the stock exchange, the financial position of the respondent was unsatisfactory, and there was no possibility of any return from the investment. The court found that the contract was indeed onerous and burdensome, and thus, leave should be granted to the applicant to disclaim the same.

2. Whether the applicant is precluded from filing the application for leave to disclaim the contract:
The respondents contended that the application for disclaimer was not maintainable because the applicant had requested an extension of time for payment of the first call, thereby adopting the contract. However, the court noted that the applicant's letters (exhibits R-1 and R-2) did not amount to a formal application under Section 535(4) requiring the liquidator to decide whether to disclaim the contract. The court held that the liquidator's request for time to pay the call money did not preclude him from applying to the court for leave to disclaim the contract under Section 535(1).

3. Whether the Madras Industrial Investment Corporation is a necessary party to the application:
The respondents argued that the Madras Industrial Investment Corporation was a necessary party because the allotment of shares was connected to their attempt to secure a loan from the Corporation. The court found no evidence that the Corporation had sanctioned a loan based on the company's representations or any acts on its part. The court concluded that the Corporation was not a necessary party or a person interested within the meaning of Section 535(3) of the Companies Act.

4. Maintainability of the application under Section 535(4) of the Companies Act, 1956:
The respondents relied on Section 535(4) to argue that the liquidator was not entitled to disclaim the contract. However, the court noted that the non-obstante clause in Section 535(1) allowed the liquidator to disclaim an unprofitable or onerous contract even if he had done anything in pursuance of the contract. The court held that Section 535(1) overrides Section 535(4), enabling the liquidator to apply for disclaimer if the contract is found to be onerous and not beneficial to the creditors.

5. Merits of the applicant's case regarding the disclaimer of the contract:
The applicant argued that the contract was not beneficial to the company, its creditors, or shareholders, and the future liability under the contract was burdensome. The respondents did not provide sufficient evidence to disprove the liquidator's statements. The court emphasized the importance of safeguarding the interests of the body of creditors and shareholders and found that the contract was indeed onerous and burdensome. Consequently, the court granted leave to the applicant to disclaim the contract by September 30, 1967.

Conclusion:
The court concluded that the contract was onerous, the application for disclaimer was maintainable, the Madras Industrial Investment Corporation was not a necessary party, and the liquidator was entitled to disclaim the contract under Section 535(1) of the Companies Act, 1956. The court granted leave to the applicant to disclaim the contract by September 30, 1967.

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