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TMI Blog1972 (9) TMI 87X X X X Extracts X X X X X X X X Extracts X X X X ..... of Hasanali one Abdul Kadar was appointed. He was removed in the year 1929 and in his place one JVD. Flynn was appointed as receiver. Subsequently, in an appeal preferred by Hasanali before the Court of the Judicial Commissioner against an order in the execution case, Hasanali was placed in possession of Jannardev Colliery No. 2 on January 2, 1932. He engaged the C. P. Contracting and Mining Syndicate (hereinafter referred to as "the Syndicate") as raising contractor for the colliery. Although subsequently Hasanali was removed from the possession of the colliery .under orders of the court, the Syndicate continued as raising contractor on behalf of the court on certain terms. On January 9, 1933, the Syndicate filed an application for being appointed as receiver. By an order dated January 23, 1933, the Syndicate was appointed receiver on the condition that the receiver would not incur capital expenditure exceeding Rs. 20 without the permission of the court. Under the terms of appointment the Syndicate was to get Rs. 1-13-0 per ton as cost of raising coal, annas 0-8-0 per ton as transportation charges and annas 0-2-0 per ton as their commission for general management. (Vide order d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... okras was appointed official receiver in his place, vide order dated April 25, 1942 (page 995, paper book, part III). The Syndicate, however, continued to work in the colliery until it was sold in 1945 and the possession was delivered to the purchaser, Dalmia and Co., in February, 1945 ( vide order sheet, dated February 2, 1945, at page 787 of the paper book, part III). The Syndicate had submitted a claim of Rs. 1,58,341-0-1 by affidavit dated May 27, 1942, and report of the official liquidator dated July 2, 1942 (pages 1057-1073 of the paper book, part III) but this claim was not considered by Shri Lokras, official, liquidator, as an objection was raised that he had appeared in some cases as counsel of the Syndicate. He was also precluded from considering the claim of the Syndicate by order of the High Court dated September 29, 1942. Ultimately the claim of the Syndicate was ascertained by Shri Mankeshwar, chartered accountant, who was appointed by the court to enquire into the claim of the Syndicate and to submit his report, vide order of the District Judge dated January 10, 1955 (at page 803 of the paper book, part III). Shri Mankeshwar submitted his report dated October 20 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ourt may be had in the same manner and subject to the same conditions in and subject to which appeal's may be had from any order or decision of the same court in cases within its ordinary jurisdiction". From the aforesaid section it is clear that an appeal from an order or decision of the court in the matter of winding up of a company is to be had in the same manner and subject to the same conditions in and subject to which appeals may be had from the orders or decisions of the court in cases within its ordinary jurisdiction. There can be no doubt that the appeals arising out of the orders or decisions of the courts in cases within its ordinary jurisdiction are governed by the Code of Civil Procedure. It, therefore, follows that the same procedure shall be applicable to appeals under section 202 of the Act. In Shankerlal Aggarwala v. Shankerlal Poddar [1965] 35 Comp. Cas. 1; [1964] 1 S.C.R. 717 (S.C.) , their Lordships held that the second part of section 202 which refers to "the mariner" and "the conditions subject to which the appeals may be had" must be construed as merely regulating the procedure to be followed in the presentation of the appeal and of hearing them, the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is thus a matter of procedure by which the right of appeal may be exercised and since .the procedure applicable to regular appeals under the Code of Civil Procedure is applicable to the appeals under section 202 of the Act, it follows that Order 41, rule 22, of the Code of Civil Procedure, would be applicable to the appeals under the Act. We, therefore, hold that the cross-objection is maintainable. The learned counsel for the respondents referred to the decision of the Nagpur High Court in Jaikrishna Viswanath v. Sawatram Ramprasad Shop I.L.R. [1942] Nag. 156; A.I.R. 1940 Nag. 292, in which it was held that the procedure in Order 41, rule 22, of the Code of Civil Procedure, relating to cross-objections applies to insolvency proceedings, and the respondent in an appeal under section 75 of the Provincial Insolvency Act is entitled to file a cross-objection. The decision in that case was based mainly on the construction of section 75 of the Provincial Insolvency Act which provides that, in regard to proceedings under the Act, the courts shall have the same powers and shall follow the same procedure as they respectively have and follow in regard to civil suits. This decision is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al record, it being too bulky, we propose to refer to the various pages in the paper book prepared in this case which is in six parts. One of the principal items in dispute is the one relating to capital expenditure incurred by the Syndicate during the period they worked the colliery. It seems that in the lower court it was urged by the objectors that during the period the guaranteed profit scheme was in force the Syndicate was not entitled to any amount spent by it towards any amount incurred by it as capital expenditure. This contention was rejected by the trial court for the reasons given, vide paragraph 32 of the order. The reasons given by the trial court are convicing and it is also obvious from the very fact that under the scheme 25 per cent, of the profits were to be appropriated towards the cost of capital investment. It is not necessary to deal with this point any further because this point was not also pressed by the objectors at the hearing. The main points that were urged in connection with the capital expenditure were that certain items should not have been allowed by the trial court. On the other hand, on behalf of the Syndicate, it has been urged that the Syndicat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lasting value and are likely to get exhausted or consumed in the process of the return or a very limited number of returns". The lower court also referred to the decision of the Supreme Court in Assam Bengal Cement Co. Ltd. v. Commissioner of Income-tax [1955] 27 I.T.R. 34, 45; [1955] S.C.R. 972 (S.C.) in which the difference between capital expenditure and revenue expenditure was .considered and explained. Their Lordships quoted with approval the following observations of Mahajan J. (as he then was), in the Full Bench decision of the Lahore High Court in Benarsidas fagannath, In re [1947] 15 I.T.R. 185 (Lah.) [F.B.] : "It is not easy to define the term 'capital expenditure' in the abstract or to lay down any general and satisfactory test to discriminate between a capital and a revenue expenditure". Their Lordships, after considering the various tests laid down in the Full Bench case for determining whether a particular item of expenditure is capital expenditure or revenue expenditure, observed as follows in paragraph 24: "In cases where the expenditure is made for the initial outlay or for extension of a business or a substantial replacement of the equipment, there i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Syndicate claimed a total sum of Rs. 59,247-14-3. Out of this amount, the auditors allowed a sum of Rs. 58,621-4-3 while the court allowed Rs. 52,521-5-6. On behalf of the objectors it has been urged that the Syndicate is not entitled to any amount on this count. On October 6, 1938, the Syndicate had filed an application that it was necessary to take in hand the construction of a pair of inclines because the old inclines of the colliery were practically exhausted ( vide page 694 of part II of the paper book). The estimated cost of the incline as given in the application is Rs. 12,100. The Syndicate (receiver) subsequently submitted another application dated October 21, 1939, in which it was stated that it would cost about Rs. 30,000 to complete this incline and Rs. 10,000 to complete the pit ( vide page 743 of the paper book, part II). In this application the Syndicate prayed that the completion of the new incline within a few months was of utmost importance and prayed for the direction of the court for completion of the work at an early date. It seems that no orders were passed but the work continued with the implied consent of the court as well as the parties concerned beca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rders of the court by various applications indicating the estimated expenditure which was necessary for keeping the mine alive. Although the court did not pass any orders expressly granting permission, for incurring expenditure over the incline no orders directing the Syndicate not to incur any such expenditure were brought to our notice. Thus, ever if there was any irregularity inasmuch as the previous sanction of the court was not obtained, the court could accord its sanction subsequently after hearing both the sides and this is what the trial court has already done. Moreover, it is clear from the application of Shri Saran, the main objector in this case, that he was willing to have a sum of Rs. 40,000 sanctioned for the incline. ( Vide page 283, paper book, part V). It has not been disputed before us that the total amount of expenditure on the incline is supported by the entries in the account books of the Syndicate and in the absence of the evidence to the contrary we must treat it as sufficient evidence of the fact that a total amount of Rs. 59,257-14-3 was incurred over the construction of the incline. It is also obvious that the construction of the incline was absolutely ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ount had already been adjusted by the Syndicate towards capital expenditure out of guaranteed profits. From the schedule showing guaranteed profits and disbursement from December 16, 1932, to March 31, 1939, filed by the Syndicate it would appear that in 1938-39, there was capital expenditure of Rs. 8,274-9-6 on the Incline and that this amount was appropriated out of the guaranteed profits earned by the judgment-debtor company ( vide pages 723-733 of paper book, part II). Having already recouped this amount out of the guaranteed profits it was not open to the Syndicate to claim this amount as an item of capital expenditure. Similarly, the Syndicate appropriated Rs. 7,252-12-11 out of the balance of the guaranteed profits towards the capital expenditure ( vide page 906 of paper book, part III) while in their final claim on April 7, 1948, they included capital expenditure of Rs. 1,900-7-0 incurred in 1939-40 and capital expenditure on Incline No. 4, Rs. 16,917-3-0. Thus, they claimed the entire capital expenditure of Rs. 18,817-10-0 and not the balance. The trial court, therefore, rightly held in paragraph 63 of the judgment that as the Syndicate had recovered Rs. 8,274-9-6 and Rs ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed ( vide page 238 of paper book, part I) and Shamsher Bahadur was merely to continue as supervisor in his capacity as one of the directors of the judgment-debtor company. From the statement dated January 9, 1933, furnished by the Syndicate at page 204 of the paper book, part I, it appears that the Syndicate claimed 5,320 tons of coal as its own and, therefore, did not account for its price. The Syndicate may have a lien over it for its raising charges but it could not appropriate the entire price of coal. In the absence of any material to show that the price of this coal was credited to the company the proper course would be to hold the Syndicate liable for the price thereof less raising charges. The trial court has calculated the price at Rs. 2-12-0 per ton for the reasons given by him and this appears to be fair. But he has not adjusted the raising charges to which the Syndicate was entitled as raising contractor. By allowing the raising charges at the rate of Rs. 1-13-0 per ton as per order dated January 23, 1933, at page 238 of the paper book, part I, the balance to which the judgment debtor company would be entitled comes to Rs. 4,987-8-0 instead of Rs. 14,630 as worked ou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d was not purchased from outside. It is obvious that this coal belonged to the judgment-debtor company and, therefore, the Syndicate was not entitled to charge its price. The learned judge of the trial court observed in paragraph 85 of the judgment that Shri Padhye, learned counsel for the Syndicate, was unable to justify the price of the coal being charged and we must say that the learned counsel for the appellant had also no effective explanation therefor. Thus this item was rightly disallowed by the lower court. Now, we come to the item of Rs. 6,791 on account of the price of the shale. Objecting creditor's witness No. 8, Chimanlal, accountant of the Syndicate, admitted in paragraph 2 that coal-shale, which is bad quality of coal worth Rs. 6,791, was sold from the year 1941-45. Mr. Gandhi, objecting creditor's witness No. 6, who was also an employee of the Syndicate and had worked in various capacities admitted in paragraph 24 of his deposition that shale used to be sold from time to time, but the sale proceeds thereof were not credited in the account books according to the instructions from the head office. The trial court dealt with this item in paragraph 87 of the judgment. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s a foot-note that no other demand remained. Thus the entire amount of the bills was paid by the Syndicate and nothing remained in arrears. In spite of this, Naurangsingh submitted additional bills claiming additional rate for transportation work on account of increase in price of material due to war ( vide supplementary bill dated March 23, 1943, paper book, part IV, pages 1470 and 1471). It is obvious that as the bills had been already paid off earlier there could be no question of allowing extra remuneration for the work covered by the previous bills. The learned trial judge rightly observed that the Syndicate had no business to be over-generous at the cost of the judgment-debtor company. This amount was, therefore, rightly disallowed by the trial court. Another item is of Rs. 6,087-8-9 on account of rebate and commission which has been disallowed by the trial court. The fact that the commission was actually paid to Madholal is borne out by the accounts furnished by the Syndicate and must be accepted in the absence of any evidence to the contrary. The only point for consideration is whether the Syndicate is entitled to claim this amount. This amount relates to the period 1941 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on January 7, 1941. The Syndicate was liable to pay guaranteed profits in respect of this quantity. It is, therefore, obvious that the Syndicate was not entitled to charge the expenditure incurred prior to January 7, 1941. The trial court, therefore, rightly held that the Syndicate was not entitled to charge this amount. Another item is of Rs. 660. This item relates to the pay at the rate of Rs. 220 per month of Mr. Gandhi, an employee of the Syndicate, for the period from April to June, 1945. This amount was disallowed by the trial court for the reasons given in paragraph 108 of the judgment. Since the possession of the colliery was delivered to the auction-purchasers on February 22, 1945, there could be apparently no justification for retaining Mr. Gandhi in connection with the work of the colliery thereafter. This amount was, therefore, rightly disallowed by the trial court. Another item of expenditure which was incurred in March, 1945, was rightly allowed by the trial court on the ground that it was in respect of the liabilities incurred by the Syndicate prior to February 22, 1945, in connection with the colliery. We, therefore, uphold the decision of the trial court on this ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... profits scheme and have also considered the various disputed items, As regards capital expenditure before the scheme came into force, the question was taken up by the executing court on August 20, 1938 ( vide page 393 of the paper book, part II) and oral statements of Shri H. L. Verma, for the judgment-debtor company, and Shri Ghiara, for the receiver, were recorded. Shri H. L. Verma in his deposition accepted the figure of Rs. 1,11,002 (one lakh, eleven thousand and two) given by the receiver as capital expenditure up to March 31, 1938, and the depreciation on the aforesaid amount up to that date as Rs. 20,900 ( vide page 685 of the paper book, part II). Thus, the judgment-debtor accepted the amount of Rs. 90,102 as due to the receiver on that date on account of capital expenditure incurred by the receiver (Syndicate) over the development of the mine. Shri Ghiara adopted the above statement and the executing court recommended the aforesaid figures for acceptance by the district judge, company judge dealing with winding-up proceedings. ( Vide order sheet dated August 20, 1938). On September 19, 1938, the district judge accepted the figure of capital expenditure as well as the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he payments were never challenged by Shri Verma himself as pointed out by the trial court in paragraph 72 of the judgment. As regards the justification for these payments, the matter was fully considered by the trial court in paragraphs 73 to 75 of the judgment and a sum of Rs. 16,975 was held to be admissible for the reasons given thereia. We generally agree with the lower court on this point and nothing had been brought to our notice which may impel us to take a contrary view. Shri Saran, one of the objectors, who personally argued the case, questioned almost every item in general terms. We have already considered all such objections which need consideration. Others must be rejected without any specific reference. Thus, the appeal and the cross-objection are partly allowed to the extent indicated above. The total amount due from the Syndicate on February 21, 1945, works out at Rs. 82,891.74 instead of Rs. 97,818.19 as determined by the trial court. The Syndicate is directed to return the said amount with interest at 3% from February 21, 1945, to January 22, 1963, and at 5% thereafter till realisation as directed by the trial court. The appellant shall bear his own costs of th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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