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TMI Blog1976 (7) TMI 109X X X X Extracts X X X X X X X X Extracts X X X X ..... and under its directions under the provisions of the Companies Act, 1956, On the said petition an order for winding up was made by Nain J. on 10th January, 1972. By the said order the official liquidator was appointed the liquidator of the company (hereinafter referred to as "the liquidator") with all powers under section 457 of the Companies Act, 1956, and on terms and conditions mentioned in the said order. One of the terms and conditions of the said order material for the purposes of present summons was that: "The official liquidator as such liquidator do deposit all moneys received by him herein to the credit of Public Accounts of India, in the Reserve Bank of India, Bombay, under section 552 of the said Act, within 7 days of the receipt thereof". It appears that the State Bank of India, a secured creditor of the company was, inter alia , entitled to the hypothecation of the book debts of the company. In enforcement of its claims as the secured creditor, the said State Bank of India filed in this court a suit being Suit No. 426 of 1973, against the liquidator and certain other persons connected with the company. The said suit was filed on 18th April, 1973. It appears that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that in case the learned company judge permits the official liquidator to undertake the work of recovery of book debts, the State Bank of India should agree to pay the official liquidator 10% out of the net amount recovered towards the commission, irrespective of recoveries made in contested matters and such percentage as may be allowed by the learned company judge in respect of recoveries made in uncontested case?". (Emphasis supplied). Further correspondence ensued between the attorneys of the State Bank of India and the liquidator in course whereof certain clarifications were given and modifications made. Pursuant to this arrangement between the State Bank of India and the liquidator, where/under the liquidator, inter alia , was to be paid in contested matters besides costs, charges and expenses, etc., a further amount equivalent to 10% of the net recoveries of book debts hypothecated to the State Bank of India, the liquidator made a report to this court on 20th August, 1973. After setting out the relevant facts the liquidator sought directions of this court as to "whether the official liquidator should undertake the work of recovery of book debts on behalf of the Sta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r is not entitled to the benefit of section 458A of the Companies Act, and the claim made in judge's summons is barred by limitation. Shri J.I. Mehta, learned counsel for the liquidator, advances several arguments ; the said arguments may be summarised as follows : ( a ) that upon a true construction of the arrangement made between the liquidator and the State Bank of India the liquidator is entitled to 10% of the net recoveries of book debts not by reason of the fact that the liquidator is acting as the agent of the State Bank of India in the matter of the recovery but by reason of the fact that the company, as owner of the book debts, was entitled to recover the book debts and that the State Bank of India gave the benefit of 10% on book debts recovered by the liquidator, so as to make substantial amounts available to the unsecured creditors; ( b ) that in substance the present proceeding by the liquidator is in the name of the company and on behalf of the company. Says the learned counsel, that it is true that 90% of the benefits or the fruits of the liquidator's exertions would go to the State Bank of India but that is incidental. The real benefit goes to the company in windin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urt may impose". Under section 456 the liquidator is not vested with the assets of the company but is merely-given custody of the assets of the company. The said section provides that on a winding-up order being made, the liquidator shall take "into his custody or under his control all the property, effects and actionable claims to which the company is or appears to be entitled". Sections 457 and 458 confer powers on the liquidator. Clause ( a ) of sub-section (1) of section 457 confers powers upon the liquidator with the sanction of the court, "to institute or defend any suit, prosecution or other legal proceeding, civil or criminal in the name and on behalf of the company". (Emphasis supplied). Section 458 provides for discretionary powers where a blanket authority is conferred on the liquidator. The key concepts in section 457(1)( a ) are that a proceeding must be adopted by the liquidator "in the name of" and "on behalf of the company" "In the name" does not present any difficulty. The basic controversy is as to what is the true connotation of the expression "on behalf of the company". That expression and its import are at the heart of the matter. The expression "on behalf ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the case in which such a creditor prefers to assert his right, not as a mortgagee, but as a creditor. He may say, ' I will prove in respect of my debt'. If so, he comes into the winding-up". (Emphasis supplied). This dichotomy between the creditor as a secured creditor and a creditor giving up security and participating as an ordinary creditor for the winding-up was noticed and legal assumption relating thereto approved by the Supreme Court in M.K. Ranganathan v. Govt. of Madras [1955] 25 Comp. Cas. 344, 351 (SC). In that case, a question arose as to whether a secured creditor was also liable to take the leave of the court under section 171 of the Companies Act, 1913. Bhagwati J., delivering the judgment, noticed the above abstracted passage from the speech of Lord Wrenbury, The learned judge then observed at page 351 as follows : "The secured creditor is thus outside the winding-up and can realise his security without the leave of the winding-up court, though if he files a suit or takes other legal proceedings for the realisation of his security he is bound under section 231 (corresponding with section 131, Indian Companies Act) to obtain the leave of the winding-up c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... self makes a distinction between recoveries for and on behalf of the company and recoveries for secured creditors. Separate provisions are made in the said rule for these different eventualities. I am, however, not called upon to decide whether, a liquidator can legitimately do so or not. Indeed, having regard to the order made by Kania J., such a question is concluded in favour of the liquidator. But that is not the issue. What is in issue is whether the present proceedings can be said to be one adopted by the liquidator on behalf of the company. The legal spectrum noticed above tends to render the contention of Shri Mehta untenable. The facts of the case also do not support the claim that the liquidator is acting on his own or on behalf of the company. After the meeting between the liquidator and the attorneys of the State Bank of India and the correspondence which was exchanged, the arrangement that emerged was that, ( a )liquidator would be paid 10% out of the net amount recovered towards commission in respect of recoveries in contested matters ; ( b )liquidator would receive such percentage of commission for uncontested matters as the company judge might permit; ( c )t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in-support the liquidator fairly admits that the report dated 28th August, 1973, was made by him "at the request of the State Bank of India". The liquidator further admits in the said affidavit that "he was authorised by this Hon'ble Court to recover book debts on behalf of the State Bank of India". Thus, the liquidator admits in categorical terms that the recovery of debts is on behalf of the State Bank of India. This aspect of the matter is buttressed by the express language of the sanction accorded by this court to the liquidator on his aforesaid report. The relevant direction of this court reads as follows : "Whether the official liquidator should undertake the work of recovery of book debts on behalf of the State Bank of India who claim to be the secured creditors ? Yes" There is no escape from the conclusion that this court sanctioned recovery of the debts on behalf of the State Bank of India and not on behalf of the company. The language of the direction is significant not only for what is expressly provided but also for what it does not provide. I have anxiously examined the material on record to find any cogent piece therein to support the con ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sation by a person of his own debts or parts thereof. The parties advisedly contemplated commission. The payment of 10% of the net realisation besides the payment of fees as provided by rule 291(4) of the Companies (Court) Rules is the payment made to the liquidator for his undertaking to recover and for recovering book debts for and on behalf of the State Bank of India. Such a payment must be held to be payment by way of a commission. It must be held that the footing upon which the liquidator undertook to recover the debts was the agency created in his favour by the State Bank of India. The State Bank of India agreed to pay the amount in consideration of the liquidator's reciprocal obligation to recover book debts hypothecated to the former and on its behalf. Shri Mehta strongly relies upon the fact that, as a result of the recoveries, the coffers of the liquidator will be enriched by 10% of the book debts so recovered by the liquidator and consequently large amounts would be available for distribution amongst unsecured creditors. I have no quarrel with that assertion. Motivations leading to the liquidator's action might be laudable. I agree with Shri Mehta that the efforts of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he claim arose on or before 21st January, 1971, the logical conclusion is that the claim is barred by limitation. There is yet another reason which commends itself to me. It is well-settled law that what a person cannot do directly, he cannot be permitted to do indirectly. (See M.K. Rappai v. John [1969] 2 SCC 590). This salutary legal principle acquires added significance when it is seen that the prohibition sought to be circumvented is contained in a statute based on public policy. The Limitation Act is based on public policy. Inexorable as its provisions are, they cannot be defeated by collateral devices. It is not disputed that if the State Bank of India were to recover the debts from the respondent its claim would have been barred by limitation. If the State Bank of India could not enforce the book debts having regard to the prohibition contained in the Limitation Act, the irresistible view is that it is not open to the State Bank of India to utilise the instrumentality of the liquidator to recover debts which in its hands are barred by limitation. In so far as the liquidator is a party, might be an unwitting party, to such contrivance, he cannot claim the benefit of sec ..... X X X X Extracts X X X X X X X X Extracts X X X X
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