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TMI Blog1956 (2) TMI 32X X X X Extracts X X X X X X X X Extracts X X X X ..... icature at Bombay setting aside the order passed by the District Judge, Ahmedabad. The National Mills Company Limited, Ahmedabad, hereinafter referred to as the National Mills, was ordered to be compulsorily wbund up by an order of the Joint Judge, Ahmedabad, dated the 14th March, 1950, and Trikamlal J. Patel, Manvantray T. Mehta (since deceased) and Krishnalal B. Dave were appointed liquidators of the National Mills. The liquidators invited sealed tenders for the purchase of the Mills, land, bungalow, warehouses, etc ., and the Himabhai Manufacturing Company Limited, Ahmedabad, hereinafter referred to as the Himabhai Company, submitted their tender on the 15th September, 1953, offering to purchase the same. The said offer was sanctioned by the court on the 22nd September, 1953, and an agreement was entered into between the liquidators and the Himabhai Company for the sale of the properties therein mentioned for a consideration of Rs. 12,68,000. Rs. 3,00,000 were to be paid in cash and the balance in 1936 shares of the Himabhai Company which were taken to be of the value of Rs. 500 per share. There were 484 shares of the National Mills held by 232 shareholders. It was then conte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... beyond their expectations and the creditors also could not be paid more than as. 8 in a rupee. It was, therefore, not possible to distribute the shares to the contributories. The market price of the shares of the Himabhai Company, which was Rs. 435 in September, 1953, was about Rs. 450 in September, 1954, and neither the liquidators nor the contributories were in a position to realise anything beyond this sum by sale of the shares in open market. Therefore, with the object of cashing the shares at Rs. 500 as provided in the agreement, the liquidators secured letters of authority from contributories holding 277 shares in the National Mills representing 908 shares of the Himabhai Company, and, armed with these letters of authority, approached Chunilal at 7-30 p.m. on the 17th September, 1954, asking him to take delivery of the 1936 shares which had been allotted to them along with blank transfer forms duly signed by them. They purported to tender these shares under clause (5) of the agreement dated the 28th September, 1953, and called upon Chunilal to fulfil his obligation under the agreement dated the 3rd November, 1953. Chunilal, however, contended that the tender was not valid an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... m. On the 27th July, 1955, Adhyaru addressed a letter to the liquidators offering to purchase the said 1936 shares at Rs. 500 per share and enclosed a cheque for Rs. 1,00,000 as and by way of earnest money promising to pay the balance forthwith on the approval and sanction by the District Judge of his said offer. It appears that Chunilal also about the same time thought of waiving the objections which he had raised to the purported tender by the liquidators on the 17th September, 1954, and approached Trikamlal J. Patel one of the two surviving liquidators, hereinafter referred to as Trikamlal, offering to take the said 1936 shares. On the morning of the 29th July, 1955, there was an interview between one Ratilal Nathalal, a co-director of the Himabhai Company on the one hand and Trikamlal on the other in the office of Vasavda, a labour leader in, Ahmedabad, in the premises of the Majoor Mahajan. Trikamlal, at that interview, drafted a letter which he handed over to Ratilal Nathalal with instructions that, if a letter in those terms was addressed by Chunilal to the liquidators accompanied by a cheque for the full amount of Rs. 9,68,000, the said 1936 shares would be delivered to h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uesday the 2nd August, 1955, on Dave returning from Bombay. He stated that he would be sending his man Shri Thakersey N. Shah, to Trikamlal's chambers at the court premises at 11-30 a.m. that day and requested that Trikamlal should deliver the said share certificates and the transfer forms duly signed by both the liquidators to, him. On the same date Trikamlal also addressed a letter to Chunilal acknowledging the receipt of the cheque for Rs. 9,68,000 and the said letter. He stated that his co-liquidator Dave had gone outside, i.e., to Bombay, and intimated that the liquidators would properly deal with the subject after Dave had been acquainted with the matter. Chunilal sent Thakersey N. Shah to Trikamlal on the 2nd August, 1955, along with his letter of the same date asking Trikamlal to deliver the said 1936 shares to him and also 20 transfer forms duly signed by the liquidators. He also asked for the stamped receipt for the amount paid by him in full settlement of the amount of the said shares. Trikamlal replied the same day stating that Dave had not returned from Bombay and, therefore, nothing could be done till he returned. He stated further that on the return of Dave, he, Tr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he said shares and already given the two letters as also the cheque for Rs. 9,68,000 to the liquidators and that the matter of sale was thus really completed and concluded between him and the liquidators and submitted that in these circumstances the liquidators had no right to sell the said shares to anybody else except himself and were bound to transfer the said shares to him. As regards Adhyaru's offer, he stated that the same did not appear to be genuine and should not be accepted. Adhyaru, in his statement, pointed out the circumstances under which he came to make his said offer and submitted that his offer being prior in time should be accepted in preference to the offer of Chunilal. The District Judge, after hearing the arguments advanced before him by the liquidators as well as Chunilal and Adhyaru, sanctioned the offer of Chunilal. He negatived the contention that Chunilal had committed a breach of the agreement dated the 3rd November, 1953, observing that the tender purporting to have been made by the liquidators on the 17th September, 1954, was not a valid tender. He took into consideration the circumstances under which Chunilal had come to write the letter dated the 29 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sell the shares by private negotiations but had asked them instead to sell the shares in the open market so that the shares might fetch a much higher value in the open market at Ahmedabad. The hearing of the appeal was then adjourned. The appeal came for further hearing before the same Bench on the 6th September, 1955. Further affidavits were filed by Madhubhai and by Matubhai the son of Chunilal pointing out the state of the market in regard to these shares. At the further hearing, the advocate for Madhubhai produced before the court a receipt passed by the liquidators showing that one Pasavala had deposited with them an amount of Rs. 11,61,600 at the rate of Rs. 600 per share. Counsel appeared also on behalf of one Gangaprasad Puria offering to purchase the said 1936 shares en bloc at the rate of Rs. 625 per share. The High Court set aside the order of the District Judge and ordered that the said shares should be sold in the open market and that the offer made by Pasavala should be taken as the minimum offer made for the purchase of the shares in question. The amount of Rs. 11,61,600 deposited by Pasavala in support of the offer was ordered to continue in deposit with the liqui ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re this court is Civil Appeal No. 2 of 1956 and the appeal filed by Adhyaru is Civil Appeal No. 3 of 1956. Both these appeals have come for hearing and final disposal before us. The learned Attorney-General appearing for Chunilal before us contended that even though on a construction of the terms of the agreement dated the 3rd November, 1953, he had no right to the purchase of these 1936 shares, he had acquired a right to his offer being accepted in the events that had happened and the District Judge was not wrong when he stated that he had thus acquired a right under the agreement. He further contended that the offer made by Chunilal was really for Rs. 520 per share he having agreed to give to the liquidators the dividend sanctioned in the annual general meeting of the Himabhai Company for the year 1954 and was, therefore, higher than the offer of Adhyaru by Rs. 20 per share. He also contended that the District Judge was right in holding that the had not committed a breach of the agreement and had exercised his discretion properly in his favour. He, therefore, contended that the discretion exercised by the District Judge, not being in any manner whatever erroneous, should not ha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f all the parties. Chunilal had charged them with having sided with Adhyaru when they made the report to the court on the 3rd August, 1955. Adhyaru had charged them and in particular Trikamlal with having obtained the offer of Chunilal, and Madhubhai had charged them with not having prominently brought to the notice of the District Judge the fact that the contributories had countermanded their authority as above and also the fact that the said 1936 shares if sold en bloc would fetch a much higher price than was offered either by Chunilal or by Adhyaru. Their conduct met with disapproval at the hands of the High Court and it was by reason of what the High Court thought of their attitude that even though the High Court refused to accept Chunilal's offer it also refused to accept Adhyaru's offer and directed that a sale by public auction of these shares should be held by the District Court as above stated. Counsel for the liquidators urged before us that they were no doubt guilty of an indiscretion in so far as they did not prominently bring to the notice of the District Judge the fact of the countermanding of their authority by the contributories and the further fact that if the sa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... with the formalities therein contained. That expectation of the liquidators was not realised. The liability of the National Mills for payment of income-tax was assessed at a very high figure which was beyond their expectation and it was, therefore, not found possible by the liquidators to pay off the debts due to the creditors and to distribute the shares to the contributories. It appears that they were not able to proceed with the work of winding up even by the exercise of their right under clause (6) and did not think it feasible for them to get Rs. 3,50,000 from Chunilal by offering 700 out of these 1936 shares which were allotted by the Himabhai Company in their names. They, therefore, set about obtaining letters of authority from the contributories and by the 14th September, 1954, succeeded in obtaining such letters of authority from the contributories to the extent of 908 out of these 1936 shares according to the version of Chunilal and 1236 out of these 1936 shares according to their own version. They appear to have considered that with the letters of authority in respect of the 1236 shares they would be entitled to tender the whole lot of 1936 shares to Chunilal and call up ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e contributories and the liquidators were not bound to offer any portion of these shares to him and if they wanted to sell these shares to other parties they would have been entitled to do so. Clauses (5) and (6) of the agreement, however, were beneficial to the contributories and the liquidators and the liquidators had obtained from Chunilal an undertaking that, if the contributories offered their shares to Chunilal within five months of the execution of the sale deed and likewise they also submitted to him 700 out of these 1936 shares at anytime thereafter, Chunilal would pay to them the price of these shares at the rate of Rs. 500 per share which price was certainly far higher than the price of the shares which obtained in the market at or about the times when the agreements were entered into between the parties. It was a distinct advantage which was stipulated for the benefit of the contributories and the liquidators and it was with a view to secure that advantage to themselves that the liquidators armed themselves with the letters of authority from the contributories such as were available to them and purported to make the tender of all the 1936 shares to Chunilal on the eveni ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... were given by these contributories to the liquidators under those letters could not have been given if Adhyaru's offer of purchase of these 1936 shares at the rate of Rs. 500 per share had already been obtained by the liquidators before those letters were addressed to them by the contributories. The whole idea at that time was to sell these shares in the open market at the risk and cost of Chunilal and to sue him in the court of law, if necessary, for recovering the loss, if any. The contributories also by these letters asked the liquidators to support Madhubhai and others in the resolution which they were going to move at the annual general meeting of the Himabhai Company which was to be held on the 6th August, 1955, with a view to safeguard the interest of the contributories but these directions also were not calculated to do anything further than try to punish Chunilal for his alleged breach of the agreement. Adhyaru made up his mind finally on the 27th July, 1955, and he wrote a letter to the liquidators offering to purchase these 1936 shares at the rate of Rs. 500 per share subject to the sanction of the District Court. He gave a cheque of Rs. 1,00,000 as and by way of earnes ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sing those two letters of the 29th July, 1955, to the liquidators, his giving the cheque of Rs. 9,68,000 drawn by him in favour of the liquidators to Trikamlal, the giving of the proxies by Trikamlal to him and the encashment of the cheque though it was hemmed in with a condition that the acceptance was subject to the sanction of the District Court, really created in Chunilal an expectation amounting to an inchoate right depending on the fulfilment of the conditions or at least a preferential claim to have these 1936 shares delivered to him together with the relevant transfer forms duly signed by the liquidators. This was what may well have been referred to by the District Judge in his judgment delivered on the 4th August, 1955, as a right. Even though both the offers of Chunilal and Adhyaru were placed before the court each offering no more than Rs. 500 per share for the purchase of the whole lot of 1936 shares, the District Judge was perfectly right in the exercise of his discretion in sanctioning the offer of Chunilal who was fulfilling his obligation under the agreement and was certainly entitled to better consideration at the hands of the court than Adhyaru. The fact that Adhy ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at was also the anxiety of the contributories in the letters which were addressed by them to the liquidators between the 19th July and the 29th July, 1955. The coritributories and the liquidators in fact wanted to hold Chunilal to his obligation and to all intents and purposes would not have taken any further proceedings against Chunilal if in fact he had fulfilled his obligation and paid to the liquidators the full amount of Rs. 9,68,000 in exchange for the share certificates for 1936 shares which had been allotted by the Himabhai Company in their names together with blank transfer forms duly signed by both the liquidators. There was thus no prospect at all on the 3rd August, 1955, when the application was made by the liquidators to the District Judge of obtaining anything beyond the said sum of Rs. 500 per share and there was also no question of giving any notice to the contributories in the matter of the said application. No contributory would have cared as the matters then stood to appear before the District Judge and we fail to understand what contention the contributories would have urged before the District Judge apart from that which was already urged by the liquidators in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Adhyaru there was any possibility of securing anything beyond Rs. 500 per share even by a sale in the open market. It was after the adjournment of the hearing of the appeal on the 25th August, 1955, that Madhubhai appears to have approached other parties and procured Pasavala to offer Rs. 600 per share and deposit the total price of 1936 share at that rate with the liquidators. It was then that Adhyaru and Madhubhai parted company and it was on the 6th September, 1955, that this offer of Pasavala was brought to the notice of the High Court in effect submitting to the court that Adhyaru's offer also should not be accepted. Counsel for one Gangaprasad Puria also offered to purchase en bloc the 1936 shares at the rate of Rs. 625 per share. The High Court, under the circumstances, thought in the interest of the contributories a sale by public auction of these 1936 shares en bloc should be held by the District Court with Rs. 600 per share as the minimum offer for the purchase of the shares in question. It is clear from the above that there could be no question of the District Court giving any notice to the contributories and the District Judge was right in the circumstances of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be considered and it was on an appreciation of the position as it then stood that the District Judge had to and did consider whether the offer of Chunilal or that of Adhyaru should be sanctioned. If, therefore, the discretion of the District Judge was not, on the facts and circumstances as they then stood, erroneously exercised as stated before and there was also no prejudice to the interests of the contributories, the High Court was not justified in interfering with the discretion exercised by the District Judge and setting aside the order of the District Judge and directing a sale of these 1936 shares by public auction as it did. There is also a further consideration why the offer of Chunilal should have been accepted in preference to that of Adhyaru. By his letter dated the 29th July, 1955, addressed to the liquidators, Chunilal had offered to give to the liquidators the dividend sanctioned at the annual general meeting of the Himabhai Company for the year 1954. The directors of the company had recommended Rs. 20 per share as and by way of dividend and that dividend was to be declared at the annual general meeting which was to be held on the 6th August, 1955. The shares stoo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dividends declared after the date of the contract for sale, unless otherwise arranged." There is nothing in the record of the case to show that there was any other arrangement in this behalf and the normal position was that, after the contract for sale was entered into between the liquidators and Chunilal, Chunilal would become entitled to the dividend on these 1936 shares. Even if the date of the sanction by the District Court, viz., 4th August, 1955, be considered as the material date for this purpose, the position would have been no different because both the offers of Chunilal and Adhyaru were before the District Court and the moment the court sanctioned either of the two offers, the contract of sale would become complete. If the contract of sale thus became complete on the 4th August, 1955, before the declaration of the dividend at the annual general meeting of the Himabhai Company on the 6th August, 1955, as between the liquidators and the purchaser the liquidators would be entitled to recover the dividends from the company but would be bound to hand over the same to the purchaser. If Adhyaru's offer had been sanctioned Adhyaru would have got these dividends from the liqu ..... X X X X Extracts X X X X X X X X Extracts X X X X
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