9911796707
TMI Blog1954 (11) TMI 32X X X X Extracts X X X X X X X X Extracts X X X X ..... consisted of, amongst other shares, 2,000 seven per cent, preference shares of Rs. 100 each fully paid up, 28,000 five percent. A class preference shares of Rs. 100 each fully paid up. The total amount of the capital raised by these A class preference shares was in the neighbourhood of Rs. 27 lakhs. The company had raised its capital in view of an ambitious scheme for the expansion of its business. The scheme, however, owing to circumstances unforeseen, could not be carried through and the company found itself in serious financial difficulty which eventually resulted in its winding up. On the 24th of October, 1949, one Sohan Lal Jajodia, a director and debenture trustee of the company, filed a suit in the High Court of Calcutta against Gursharan Lal, the then managing director of the company, and others for several reliefs in respect of the management of the company. On the 1st January, 1950, an agreement was arrived at between the parties to the said suit. Under this agreement, the parties to it framed a scheme regarding future working of the business of the company for the sanction of the court and pending the sanction and subject to it agreed to take certain steps for paying of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 5 per share nett As regards Chakand and Gaya lands if the proceeds be more than 1 lakh the same will be made over to the company and if the proceeds be less than Rs. 1 lakh the deficiency will be made good by the Company. As regards the unrealised dividend due on Ryam shares and commission, if the amount be more than Rs. 65,000 the same will be made over to the company and if it be less than Rs. 65,000 the deficiency will be made good by the company. "The sale proceeds of the properties mentioned in the preceding paragraph will be paid to the preference shareholders. In addition to payment to them of cash as hereinbefore referred to the preference shareholders will get 5% taxable debentures of the face value of Rs. 10 lakhs and 5% tax free cumulative redeemable preference shares of Rs. 5 lakhs in full payment of their dues on account of capital and arrears of interest....................... "The general meeting of the shareholders called by some of the shareholders as requisitionists will be abandoned and a fresh meeting of the shareholders will be called in Calcutta as it is convenient for shareholders generally that the meeting should beheld in Calcutta. ''Steps will be taken ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... also contended that the said sum was not recoverable in a summary proceeding under section 185 of the Indian Companies Act on the ground that the word "trustee" occurring in the said section did not include a "constructive trustee." The respondents claimed to be trustees on behalf of the preference shareholders under the terms of the agreement above cited. Mr. Justice Imam who heard the application held that Gaya Sugar Mills Ltd. were entitled to the sum of Rs. 11,39,400 and that the preference trustees held the trust money for the benefit of the company. The respondents preferred an appeal under the Letters Patent against this decision while the official liquidator filed cross-objections regarding dividends and commission. The appeal Bench of the High Court held that the purpose of the agreement of the 1st January, 1950, was illegal because the company had no power' to purchase its own shares by diverting its capital nor reduce the share capital in the way sought to be done. It further held that the expression "trustee" in section 185 meant an "express trustee" and did not include within its ambit the case of a "constructive trustee", and therefore the official liquidator could ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ass an order under this section inasmuch as the expression "trustee" in section 185 does not include within its ambit the case of a "constructive trustee". A contention was raised before the appeal Bench that the two respondents could be treated as agents of the company till the scheme went through. The learned Judges negatived this contention on the ground that the two respondents were acting in their own right, and not as agents of the company in respect of this property. It was further held that the purpose for which the money was held was unlawful and therefore no relationship of principal and agent could be created in respect of an unlawful purpose. In our judgment the view taken by the appeal Bench cannot be sustained and the decision has to be reversed on the short ground that till the scheme was formally approved by the shareholders and creditors and was sanctioned by the court and the share capital was thus reduced, the preference shareholders could not acquire any rights under the scheme and become beneficiaries regarding the amount realized by sale of the shares of the Ryam Sugar Company Ltd. Till that event happened, it is obvious that the ownership of the shares remai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a particular situation arising or from the necessity of a case. In the present case this relationship was clearly brought about by the situation that arose by the scheme not being implemented. By the exigencies of this particular case that relationship has to be necessarily implied. It is also clear that the shares were sold under the resolution passed by the board of directors of the company and it is the board that fixed the price for which the shares were to be sold. The transfer deeds were also got executed by the company from the persons in whose names the shares were nominally standing. The two respondents were merely in custody of the amount till the expected event happened. As that event did not happen, the property never became vested in them as trustees for distribution amongst the preference shareholders. On the other hand, they remained as mere agents of the company and held this money for the company pending the sanction of the scheme. The money belonged to the company and was thus in the hands of the agents of the company, and the official liquidator was entitled to its return under the provisions of section 185 of the Indian Companies Act. As no obligation was annex ..... X X X X Extracts X X X X X X X X Extracts X X X X
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