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TMI Blog1940 (8) TMI 25X X X X Extracts X X X X X X X X Extracts X X X X ..... should supply a certain amount of cotton to the mills in order that they might spin it, that he was to pay spinning charges at a certain rate and that he would advance money to the company to pay for their staff and for the purchase of machinery and other necessary articles. I do not think it would be contested that this was the general idea underlying the agreement, although Seth Mithan Lal expressly covenanted that he would not be bound to make any advances. The matter was left to his discretion, but undoubtedly the parties contemplated that normally Seth Mithan Lal would supply the necessary funds. The arrangement was that he should deduct from funds advanced by him the spinning charges which he had to pay or in the alternative that he should deduct his advances from the spinning charges. The company continued to work under this arrangement, but eventually on 4th May 1931 another director of the company made an application that the company should be wounded up compulsorily. A provisional liquidator was immediately appointed and a winding up order was passed later on 24th June 1931, when official liquidators took charge of the affairs of the company. It appears that the books o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... en Seth Mithan Lal and the company and the question which we have to decide is what sum is due under the terms of that contract. If Seth Mithan Lal promised to pay without condition the spinning charges calculated at a certain rate, then doubtless he must make the payment and if he has any claim on account of advances, that claim will have to be considered with the claims of other creditors who rank equally with him. On the other hand, if Seth Mithan Lal promised to pay only a balance due on a calculation of the spinning charges as against sums advanced by him to the company, then the company can claim only the balance on the basis of the contract and there is no question of paying Seth Mithan Lal any sum out of the assets of the company. To decide the question, therefore, we must examine the nature of the contract itself. I have already referred to the agreement between the company and Seth Mithan Lal executed on 26th November 1928. I must now explain that this agreement was to be enforced only for a period of eighteen months and that there was another agreement between the parties on 2nd January 1930. This second agreement embodied the terms of the first agreement with certain mo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the charges due from him for the payment of the salaries of the staff for a period of fifteen days. Under para. 22 of the agreement it was stipulated that the company might, if Seth Mithan Lal agreed, take from him a reasonable amount by way of advance for the purchase of material which advance should be afterwards debited against the charges due from him. Under para. 23 of the agreement it was stipulated that the company should be liable to pay water rates, house taxes, etc., whatever they might be, and that Seth Mithan Lal would not be liable to pay in part or entirely any amount which might be due to any one from the company or persons connected with it. This agreement remained in force till the second agreement vas executed and we find from the accounts of the company that Seth Mithan Lal did in fact make certain advances not only towards the payment of the salary of the staff and the purchase of materials but also in order to enable the company to meet other charges which were necessary to enable the company to continue spinning his cotton, such as income-tax and payments for boiler inspection. The second agreement set forth in its preamble that the first contract had come ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aid as salaries or as the price of necessary materials. It seems to me however that this is too narrow an interpretation. It is clear that Seth Mithan Lal was safeguarding himself from liabilities on account of the debts of the company and that he was reserving to himself the right to exercise his discretion in making advances but, on the other hand, I have no doubt that the parties clearly intended that he was to be given the right to expend any sums which might be necessary to enable the mills to continue spinning his cotton in a satisfactory manner and that any sums which he did so expend should be set-off by him against anything due from him on account of the spinning charges. I do not think that we should overlook the express provision that balances were to be made up every month and that the parties were liable to each other to pay only the sums due on the balances. It is clear from the accounts that the parties themselves acted on that assumption. There was a running account in the books of the company which showed on the one aside the amounts due on account of spinning charges and on the other all advances and payments made by Seth Mithan Lal. Learned counsel for the debe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ders that they are not bound by anything done by the official liquidators and, of course, in a sense they are not, but it is obvious that they have no better claim than the company itself. They have a charge on the assets of the company but what those assets are depends on the rights of the company. The debenture-holders can have no greater rights than the company from which their rights are derived. I think I had better once more emphasize the fact that the question before us is whether the company can claim the full amount of spinning charges or whether it can claim only the balance between the spinning charges and the advances made by Seth Mithan Lal. The claim of the company is based on a contract and the company is entitled to recover only what Seth Mithan Lal in the contract promised to pay. In my judgment on an interpretation of the contract expressed in the two agreements, Seth Mithan Lal promised to pay only the balance due from him after his advances had been deducted from the spinning charges calculated at a certain rate. I would therefore hold that the applicant is entitled to deduct the sum Rs. 34,618-10-11 from the sum deposited by him in the bank towards the spinni ..... X X X X Extracts X X X X X X X X Extracts X X X X
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