1974 (5) TMI 43 - HC - Companies Law

Summary

Issues Involved:
1. Ownership of the disputed property.
2. Validity and enforceability of the compromise agreement.
3. The role of the appellant in the compromise agreement.
4. The obligations of the company under the compromise agreement.
5. The powers of the High Court under section 392 of the Companies Act, 1956.

Issue-wise Detailed Analysis:

1. Ownership of the Disputed Property:
The primary issue was the ownership of property No. 88, Sunder Nagar, New Delhi. The appellant, Mr. R. L. Anand, claimed ownership, while Anand Finance Private Ltd. (the company) asserted it belonged to them. The property was subject to an equitable mortgage created in favor of the Bank of Baroda by depositing title deeds as additional security for the company's cash credit facilities. The learned company judge dismissed the appellant's claim, noting that the title deeds were with the bank and given voluntarily by the appellant, who was the managing director of the company at the relevant time.

2. Validity and Enforceability of the Compromise Agreement:
The compromise agreement between the company and the Bank of Baroda was sanctioned by the court under sections 391 and 392 of the Companies Act. The company admitted the bank as a secured creditor and agreed to pay Rs. 4,98,524, which was 50% of the bank's claim. The bank was authorized to sell the disputed property to recover this amount. The appellant contended he was not a party to this compromise and thus not bound by it. However, the court found that the appellant had agreed to give up his rights in the property as part of a scheme of arrangement sanctioned by the court, which was binding on him.

3. The Role of the Appellant in the Compromise Agreement:
The appellant argued that he was not a party to the compromise agreement and thus not bound by it. The court rejected this argument, stating that the appellant had given an undertaking to give up his rights in the property in his personal capacity, not as a shareholder. The court emphasized that the appellant's undertaking was a crucial part of the compromise and he could not now claim otherwise.

4. The Obligations of the Company under the Compromise Agreement:
The appellant contended that his agreement to give up the property was contingent upon the company paying him Rs. 2,05,000. The court found that the payment of Rs. 2,05,000 was not a condition precedent for the appellant to give up his rights. The company was to pay this amount in a manner deemed fit by the chairman of the board of directors or adjust it against other dues. The court noted that the appellant's and the company's obligations were reciprocal and formed the consideration for each other. Therefore, the company's readiness to perform its part of the agreement had to be ascertained before enforcing the appellant's obligations.

5. The Powers of the High Court under Section 392 of the Companies Act, 1956:
Under section 392, the High Court has the power to supervise and ensure the proper working of a sanctioned compromise or arrangement. The court can give directions to enforce the compromise and even modify it if necessary. The court noted that while it could enforce one part of the compromise, it must also ensure that the other part is considered, especially when the obligations are reciprocal. The court emphasized the need to investigate whether the company was ready and willing to perform its part of the compromise before directing the sale of the property.

Conclusion:
The court allowed the appeal and set aside the order of the learned company judge. The case was remanded for final disposal in accordance with the law, considering the observations made. The court emphasized the need to ascertain the company's readiness to perform its obligations under the compromise before enforcing the appellant's undertaking to give up the property. There were no costs awarded in this appeal.