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TMI Blog1956 (9) TMI 26X X X X Extracts X X X X X X X X Extracts X X X X ..... ts business on receipt of a direction from the Government to do so, and on the 1st August, 1949, an application for winding up was made. The bank was wound up by an order of the 17th February, 1950, and official liquidators were appointed to take charge of the assets of the bank. Jwala Prasad lost no time in preferring a special appeal against this order and on the 24th February, 1950, the operation of the winding up order was stayed by the appellate Bench. The appeal was, however, dismissed on the 24th October, 1950. The official liquidators took charge of the assets of the bank on the 1st November, 1950. The next day Jwala Prasad filed his claim for a sum of Rs. 8 lacs 75 thousand, in respect of his ( a ) monthly salary from 1st July, 1939, to 30th June, 1946, from 1st June, 1950, to 31st October, 1950, and from 1st November, 1950, to 30th June, 1958, ( b ) compensation for free furnished house, ( c ) travelling expenses, and ( d ) the price of goodwill of his private concern transferred to the limited concern. The official liquidators allowed his claim for salary for the period between 1st June, 1950, and 31st October, 1950, and also allowed him salary for May, 1950. which he ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e, 1943, would be barred by limitation even if the period of limitation be considered as six years under article 116 of the Limitation Act. The balance sheets do not contain any acknowledgement of an existing liability and therefore cannot be treated as acknowledgements which would extend the period of limitation within the meaning of section 19 of the Limitation Act. The second item of the claim is about the future salary from the date the liquidator took charge of the assets of the bank upto the end of the period of 20 years mentioned in the agreement above referred to. The learned Company Judge was of the opinion that this salary could not be claimed by the appellant because the contract under which the salary was to be paid had become void. With respect I am unable to agree with this view. After an order of winding up of a company has been made all the property and assets belonging to the company are deemed to be in the custody of the court, and on behalf of the court in the custody of the official liquidator, vide section 178 of the Indian Companies Act. The result is that the company cannot transact any business through the board of directors. Such business as may be co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... into between the parties, and one of the conditions was that Jwala Prasad will be paid a sum of Rs. 2,000 every month for 20 years certain. It is not equitable, therefore, that if by any reason, but not by the default of Jwala Prasad himself, the company chooses to be wound up or is compulsorily wound up (not because it has become illegal to carry on the business of the company but because the company has so acted that it has got to be wound up) Jwala Prasad should be deprived of the benefit of the contract upon the faith of which he transferred all his assets to the company. The doctrine of frustration of contracts as embodied in section 56 of the Indian Contract Act is not applicable to such cases. Section 56 runs as follows: "An agreement to do an act impossible in itself is void. A contract to do an act which, after the contract is made, becomes impossible, or by reason of some event which the promisor could not prevent, unlawful, becomes void when the act becomes impossible or unlawful . . . . . . ." The section has been recently explained by the Supreme Court in Satyabrata Ghose v. Mugneeram Bangur and Co. AIR 1954 SC 44 , where their Lordships approved of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion for the fact that he is now free to do any business that he likes or to seek the employment of his choice. In my judgment, in a case like this, justice, equity and good conscience dictate that the deduction to be made on this account should be of half the amount which is found to be the present value of the appellant's claim. The present value of the appellant's claim on this account shall be determined by the learned Company Judge. The last point that remains to be decided is about the compensation for the goodwill. The appellant is clearly not entitled to anything on this account because nothing was said in the agreement which was signed between the parties as to the transfer of the goodwill to the limited company. If it was transferred no compensation was agreed to be paid for it. If it was not, the appellant can use it even now. The official liquidators have no use for it and do not claim to use it any longer. The appellant is therefore entitled to nothing on this score. In the result I would allow the appeal in part and would modify the order of the learned Company Judge and direct that in addition to the claim already granted by the official liquidators and by the lea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... order of this court dated the 17th February, 1950, and official liquidators were appointed to take charge of the assets of the bank. Sri Jwala Prasad preferred a special appeal against the order for winding up and an order staying the order of winding up was issued on the 24th February, 1950. The appeal was ultimately dismissed on the 24th of October, 1950, and the stay order was discharged. The official liquidators actually took charge on the 1st November, 1950, and the next day Sri Jwala Prasad filed his claim for Rs. 8,75,000 for his monthly salary from 1st July, 1939, to 30th June, 1946, from 1st June, 1950, to 31st October, 1950, and from 1st November, 1950, to 30th June, 1958, and for compensation for free furnished house, travelling expenses and for the price of the goodwill of his private concern transferred to the limited company. The official liquidators allowed the claim for salary for the period from 1st May, 1950, to 31st October, 1950. In doing this they allowed him salary for May, 1950, which he had by mistake omitted to claim, but which the liquidators found was due to him. They also allowed the claim for travelling expenses incurred between 1st September, 1950 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f directors of the company for the above mentioned period of twenty years and the company was under a liability to pay him at the rates agreed upon for the entire period. This liability of the company could not be set at nought by the winding up order. The learned Company Judge, however, has not accepted this contention and has taken the view that the contract entered into by the company and Sri Jwala Prasad having become ineffectual, the parties were discharged from all obligations arising under the contract and it was not open to Sri Jwala Prasad to enforce any claim that could be said to arise under the said contract. Several cases have been placed by learned counsel for the respondent in support of the liquidator's contention. In Fowler v. Broad's Patent Night Light Co. [1893] 1 Ch. 724 , Vaughan Williams J. took the view that "on the making of a winding up order the powers of the directors came to an end." In that case the question related to the power to make calls and the learned Judge held that the "original power of the directors to make calls ipso facto comes to an end" when the order for winding up is passed. The directors therefore and the chairman who was also ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... restrain the defendant from making use of any information obtained by him from such lists or the copies. It was contended that the terms of the agreement could be enforced only so long as the defendant held the office of a director and if on the winding up order being passed, the office ceased there was no breach of the agreement which could be made the subject-matter of an action. Joyce J. held as follows: "I hold that no man who is in the employment of another is en titled to use or even take a copy, for his own private purposes, of any document of his employer which comes to his hands or to which he has access in the course of his employment. Consequently I hold that the plaintiffs are entitled to relief in respect of that matter. I am of opinion that not only was a person in the position I have mentioned not entitled to make such a list or make a copy of any document, but he should be ordered to give up any such document or any copies that he has made from it . . . . ." Relating to the other relief claimed for injunction the learned Judge took the view that "when a manager is engaged by a company for a term of years, a compulsory order for winding up is a dismissal or disc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n was recently considered by the Supreme Court in Satyabrata Ghose v. Mugneeram Bangur Co. [1954] AIR 1954 SC 44 Their Lordships examined the various aspects of the doctrine of frustration as understood in English law and observed that the differences in the way of formulating legal theories "really do not concern us" so long as we have statutory provision in the Indian Contract Act. Mukherjea J. (as he then was) observed: "In deciding cases in India, the only doctrine that we have to go by is that of supervening impossibility or illegality as laid down in section 56 of the Contract Act, taking the word 'impossible' in its practical and not literal sense. It must be borne in mind, however, that section 56 lays down a rule of positive law and does not leave the matter to be determined according to the intention of the parties." The learned Judge further observed: "Although various theories have been propounded by the Judges and jurists in England regarding the judicial basis of the doctrine of frustration, yet the essential idea upon which the doctrine is based is that of impossibility of performance of the contract; in fact impossibility and frustration are often used ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ving the default lies on the party alleging it. Sri Jwala Prasad has adduced no evidence to prove that the company was guilty of any default. Had he made any such allegation the facts would have been examined by the learned Company Judge to see how far the company or Sri Jwala Prasad was responsible for bringing about the liquidation. The appellant is, in my opinion not entitled to have these matters investigated at this stage by setting up a new case. Apart from this, it is open to doubt as to whether in the circumstances of the case, the present situation, which has rendered the performance of the contract impossible, is more directly due to the court's order directing the company to be wound up or to the more remote conduct of the company and as to whether the latter would not in law be held to be too remote a clause for the frustration. It appears to be fairly clear that the performance of the contract in this case has become impossible owing to a fundamental change of circumstances beyond the control and original contemplation of the parties. In the present case the winding up order made it impossible for the company to carry on its business; it became obviously unnecess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o the date when the period of 20 years in his contract with the company will expire?" The circumstances of the case are as follows: There was a private bank named as "The Jwala Bank". It was converted into a limited concern in the year 1938. At the time of the conversion, an agreement was entered into between the Jwala Bank Limited and Sri Jwala Prasad, appellant. The terms of the agreement dated the 25th of July, 1938, with which I am concerned in this appeal, run as follows: "1. That Mr. Jwala Prasad, Banker, Agra, is appointed the chairman of the company on a term of 20 years only from the date of registration of the company until he of his own free will resigns and his appointment as chairman shall not at any time during the said period be liable to be revoked or cancelled nor he shall be removed from the said office on any ground or for any reason whatsoever save and except his being found guilty of fraud by a competent court of law in the management or discharge of his duties as such chairman or he is found guilty of gross mismanagement of his duties as chairman by a majority of three-fourth of the votes of shareholders present at an extraordinary general meeting called ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... isfeasance proceedings which are pending in this court. Mr. Justice Agarwala further ordered that if the question of the appellant's misconduct, as above, was not determined in those proceedings, then it should be determined by the learned Company Judge. The view of Mr. Justice Upadhya was that the company was under no liability to pay the salary money claimed. The first question which arises is whether the winding up order operates as a dismissal of Sri Jwala Prasad. No notice of dismissal was actually served on him to this effect by the official liquidator. The position seems to have been accepted in England that an order for the compulsory winding up of a company determines the powers of directors and effects their discharge and that it also puts an end to the employment of a managing director. See Fowler v. Broad's Patent Night Light Co. [1893] 1 Ch. 724 at 730 and Fowler v. Commercial Timber Co. [1930] 2 KB 1. So far as the Indian Companies Act is concerned, there is no express provision regarding the discharge of directors or the dismissal of a managing director upon a company going into liquidation, but it is evident from the relevant sections of the Indian C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at the defendant director was no longer bound by a covenant which restricted him from carrying on or being engaged or interested in the same business which the company was doing before winding up. In that case, the defendant had agreed with the plaintiff company of which he was a director to hold office for seven years at a fixed salary and had covenanted that so long as he continued to hold such office he would not either solely or jointly with, or as manager or agent for any other person or persons or company, directly or indirectly carry on or be engaged or interested in any business that would compete with that carried on by the company. A receiver and manager was afterwards appointed in a debenture holders' action and a compulsory winding up order was made against the company. The receiver and manager having given notice to the defendant that his services would no longer be required and ceased to pay his salary, the defendant commenced to carry on business on his own account. In an action, inter alia, to restrain him from carrying on a business in competition with the company in breach of his covenant, it was held that the winding up order operated as a wrongful dismissal of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re, made because of a default by the bank in paying up the petitioning creditor and not on account of any circumstance which was beyond the control of the bank. The bank has a separate juristic entity from that of Sri Jwala Prasad, the chairman, or the other directors of the company, though ultimately it may be that it was by virtue of the mismanagement by the chairman or the directors that the bank was not able to pay its debts. In the eye of law the default which led to the winding up order was a default by the bank (the promisor). Section 56 of the Indian Contract Act, in my view, cannot apply to cases of non-performance of contracts due to events happening because of default of the contracting party itself (See Maritime National Fish Ltd. v. Ocean Trawlers Ltd. [1935] AIR 1935 PC 128) . The other limb of the law of frustration, so far as India is concerned, is to be found in section 32 of the Indian Contract Act. The section runs as under: "Contingent contracts to do or not to do anything if an uncertain future event happens cannot be enforced by law unless and until that event has happened. If the event becomes impossible, such contracts become void." There is in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rned, the doctrine is embodied either in section 56 or section 32 of the Indian Contract Act and before a contract can be held to be void and the parties relieved thereunder, one or the other of these sections must become applicable. My conclusion, therefore, is that the contract has not become void because of the banking company going into liquidation. 1 have already indicated that Sri Jwala Prasad must be deemed to have been dismissed from the office of chairman (managing director) of the bank. In these circumstances, he could enforce the contract. If, however, he is responsible for bringing about the ultimate state of affairs which led to the stoppage of the company's business and led to the company not being able to pay its just dues which caused the winding up of the company, then he would have no right to any compensation under the contract because his dismissal in such a case would be because of his own fault. It is true that under the contract, it is only by a special procedure that the services of Sri Jwala Prasad can be terminated. The provision made in the contract is that he is to be found guilty of fraud or gross mismanagement of his duties as chairman by a majorit ..... X X X X Extracts X X X X X X X X Extracts X X X X
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