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TMI Blog1968 (12) TMI 72X X X X Extracts X X X X X X X X Extracts X X X X ..... ees one crore divided into 5,000 shares of 5 per cent, tax-free cumulative preference shares of Rs. 100 each and 9,50,000 equity shares of Rs. 10 each. The paid up capital was Rs. 28,01,010. Shyamlal Purohit is a registered holder of 47,725 ordinary shares of Rs. 10 each, 1,050 preference shares of Rs. 100 each and 12,500 deferred shares of Rs. 5 each. Kamal Kamini Devi is a registered holder of 400 equity shares of Rs. 10 each, since its incorporation. By a conveyance dated 31st October, 1950, the said company purchased the said "Lillooah property" for a consideration of Rs. 15,00,000 from the Kallas. We are concerned in this case with the "Lillooah property" On or about the 12th June, 1951, the said company mortgaged the said "Lillooah property" and the Cotton Street property to Jagannath Roy and Balaram Roy of Bhagyakul for Rs. 3,25,000. In the year 1952 the Bhagyakul Roys filed a mortgage suit being Suit No. 4606 of 1952 ( Jagannath Roy v. Kalla Properties and Industrial Corporation) for enforcement of their mortgage. Thereafter, certain leases and sub-leases were granted of the said mortgage property, but I do not think they are very relevant for our purpose. On the 11th Ju ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... application came up for hearing before Ray J. and by his order dated 25th November, 1966, the application was dismissed with costs, principally on the ground that the petitioners had no locus standi to maintain the application. It is against this order that this appeal is directed. The provisions of Order 21, rule 90, of the Code of Civil Procedure, are as follows : " Application to set aside sale on the ground of irregularity or fraud. (1) Where any immovable property has been sold in execution of a decree, the decree-holder or any person entitled to share in a rateable distribution of assets, or whose interests are affected by the sale, may apply to the court to set aside the sale on the ground of a material irregularity or fraud in publishing or conducting it: Provided that no sale shall be set aside on the ground of irregularity or fraud unless upon the facts proved the court is satisfied that the applicant has sustained substantial injury by reason of such irregularity or fraud." It has been argued before us that the petitioners, the appellants before us, are persons "whose interests are affected by the sale" and as such they have locus standi to make the appl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eto." Section 511, which relates to voluntary winding up, is in the following terms : " Distribution of properly of company. Subject to the provisions of this Act as to preferential payments, the assets of a company shall, on its winding up, be applied in satisfaction of its liabilities pari passu and, subject to such application, shall, unless the articles otherwise provide, be distributed among the members according to their rights and interests in the company." While section 511 specifically states that upon a winding up the assets shall first be applied in satisfaction of liabilities and thereafter distributed amongst the members, in the case of compulsory winding up by court, the wordings of section 457( i )( e ) as to the distribution of assets amongst the members found are not so explicit. But, read with section 475, we find that the result is not different. In the case of a compulsory winding up by court, the debts and liabilities will have to be paid first by the liquidator, and then the court shall adjust the rights of the contributories between themselves and distribute the surplus amongst the persons entitled thereto. This is, of course, subject to the terms con ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ay be the meaning of the expression 'any person whose interests are affected by the sale', such person must have an existing or present interest, which is affected by the sale of the property. The existing or the present interest must be in the property which is sold. A corporator is not the corporation, which is a distinct legal person. In the assets of a corporation, its shareholders have no legal or equitable interest............ 'There is nothing in the Indian law to warrant the assumption that a shareholder who buys shares buys any interest in the property of the company which is a juristic person entirely distinct from the shareholders. The true position of a shareholder is that on buying shares an investor becomes entitled to participate in the profits of the company in which he holds the shares if and when the company declares, subject to the articles of association, that the profits or any portion thereof should be distributed by way of dividends among the shareholders. He has undoubtedly a further right to participate in the assets of the company which would be left over after winding up but not in the assets as a whole as Lord Anderson puts it.' The legal position of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the surplus that may be left after meeting the winding up expenses and paying the creditors. This right war. further explained in the Supreme Court decision in Mrs. Bacha F. Guzdar v. Commissioner of Income-tax [1955] 25 Comp. Cas. 1 , 5; 27 ITR I; [1955] SCR 876; AIR 1955 SC 74. The Supreme Court said as follows: "It was argued by Mr. Kolah on the strength of an observation made by Lord Anderson in Commissioners of Inland Revenue v. Forrest [1924] 8 TC 704, 710 that an investor buys in the first place a share of the assets of the industrial concern proportionate to the number of shares he has purchased and also buys the right to participate in any profits which the company may make in the future. That a shareholder acquires a right to participate in the profits of the company may be readily conceded but it is not possible to accept the contention that the shareholder acquires any interest in the assets of the company. The use of the words 'assets' in the passage quoted above cannot be exploited to warrant the inference that a shareholder, on investing money in the purchase of shares, becomes entitled to the assets of the company and has any share in the property of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ht to the property, however insignificant it may be, is affected by the sale. In this view of the law, I am of opinion that the rule ought to succeed." It will be observed that, although the learned judge says that it need not be a. "proprietary" title, still he holds that the right involves a right in property. It was a right to realise his decretal amount by sale of the property attached. Reference may also be made to a single Bench decision of this court, Bulanda Bashini Dasi v. Prangovinda Dhar AIR 1936 Cal. 547 ; 40 CWN 1334; 166 IC 388, 390 . Speaking about a decree-holder who had attached a property, Mitter J. said as follows: ".... in my judgment, a decree-holder acquires a pecuniary interest in the property, the sale of which at the instance of another decree-holder he challenges, as soon as he has done a formal act, an act in court, which indicates unequivocally that he wants that property for the satisfaction of his decree. The act must be specific in relation to that particular property and must not remotely but proximately or immediately connect his intention to realise his dues out of that particular property." The next Calcutta case cited before us is a Be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nterested in the properties of the company in which he holds shares; if the property is not properly looked after and administered the shareholder would naturally suffer in his pocket, but this does not mean that every shareholder who apprehends that the property of the company is being mismanaged or is being fraudulently disposed of, is entitled to interfere and come to court and apply for setting aside the sale under Order 21, rule 90. In Official Receiver of Ramnad v. Veerappa Chettiar AIR 1943 Mad. 199, it was held that a person applying under Order 21, rule 90, must possess an interest which can be said to have been affected at the date of the sale and not by reason of any subsequent event or act. In the Full Bench decision of Ayyappa Naicker v. Kasiperumal Nayakar AIR 1939 Mad. 250 (FB) it. was held that Order 21, rule 90, intended to confer the right to apply on any one who is directly and immediately affected by the sale. The same view was taken in another Bench decision, Murugappa Chettiar v. Kannammai Achi AIR 1959 Mad. 76 , where it was held that the interests which are alleged to be affected by the sale within the meaning of Order 21, rule 90, Civil Procedu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s have no right in the property, either legal or equitable. Now that the company is being wound up, their only right is to participate in the surplus assets after the payment of debts and liabilities. Until the debts and liabilities are ascertained and paid, it cannot be said as to what the surplus assets are, or whether there will be any surplus at all. Let us look at some of the facts involved in this case. I have already mentioned that the company was the owner of two properties, namely, the Lillooah property and the Cotton Street property. The Lillooah property, according to the petitioners themselves (see paragraph 6 of the petition), had been valued by Mr. Parkes at Rs 13.25 lakhs. It was actually purchased for Rs. 15 lakhs. The Cotton Street property, although mortgaged to the Roys of Bhagyakul, was withdrawn from sale as the bids did not reach the reserved price. It is stated in paragraph 28( f )( i ) and ( ii ) of the petition that in the balance-sheet for 1959 the Lillooah property was valued at Rs. 17,19,586.26P. and the Cotton Street property was valued at Rs. 10,18,130 16P. As regards the mortgage in favour of the Roys of Bhagyakul, the principal debt was Rs. 3,50,000 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ow whether, even the Cotton Street properties would be saved and form any part of the surplus. At the present moment, therefore, the appellants have only a right to participate in the surplus and they have no right in the property sold, either of a legal or equitable nature. It is not that the appellants have no right whatsoever. I have already mentioned that in a compulsory winding up, it is the duty of the liquidator to do all things necessary for winding up the affairs of the company and distribute its assets, and this is subject to the control of the court. Under section 457(3), any contributory may apply to the court to direct the liquidator to take any steps which will be beneficial to the winding up. For the reasons aforesaid, I am of the opinion that the appellants have no right to make an application under Order 21, rule 90, to set aside the sale of the "Lillooah property", because it cannot be said that their "interests are affected by the sale". The learned judge in the court below was right in holding that the appellants had no locus standi. The appeal, accordingly, fails and is dismissed, but no order is made as to costs. Certified for two counsel as against thei ..... X X X X Extracts X X X X X X X X Extracts X X X X
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