9911796707
TMI Blog1998 (12) TMI 453X X X X Extracts X X X X X X X X Extracts X X X X ..... tor attached to this High Court was appointed as the liquidator for that company and the liquidator was directed to take charge of the company together with all its assets, records, books, machineries, spare parts, stores, manufactured goods, land and buildings and all other properties after taking an inventory in that behalf. The order stated that he will have all the powers prescribed under sections 456 and 457 of the Companies Act, 1956 ('the Act') and would also be at liberty to seek permission from this Court whenever he felt it necessary. 2. Shri Ambica Mills Ltd. is having its properties situated mainly at four different places : (i)Unit No. 1 situated in the Khokra area of Ahmedabad. (ii)Unit No. 2 which is situated near Railway Lines at Ahmedabad. (iii)A textile mill at Baroda. (iv)Ambica Tubes Division at Vatva. 3. In the present application, we are concerned with unit No. 2 which is situated near railway lines at Ahmedabad. The present application is an application under section 446 which seeks leave through prayer (B) to continue to proceed with civil suit No. 4780 of 1995 filed by the applicant against the company in winding-up on 14-9-1995 in the City Civil Cour ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... applicant was constrained to file Civil Suit No. 4780 of 1995. It was thereafter that the winding up order came to be passed on 17-1-1997 which came to be confirmed on 31-3-1997 in O.J. Appeal No. 7 of 1997 filed by another concern, namely, one Sunil Mills Ltd. In para 6 of the application, it is stated that the official liquidation has taken over possession of Unit No. 2 since then. 5. A copy of the aforesaid Civil Suit No. 4780 of 1995 is produced in this Court. The said civil suit inter alia prays for-- (a)leave to sue under order 2 rule 2 of the Civil Procedure Code; (b)a declaration that the agreement/contract, dated 2-11-1989, 6-12-1989 and 9-12-1989 are no longer subsisting and have been lawfully rescinded; (c)a declaration that the plaintiff (applicant) is not liable to perform any obligation in or arising out of the said agreements; (d)a decree for Rs. 18,28,31,901 (which is principally for the expenditure allegedly incurred by the plaintiff on behalf of the company in winding up); (e)an inquiry for compensation and charges for the loss incurred and the damage suffered ; (f)decree for specific delivery of the plant and machinery and equipments in favour of the appli ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ad accordingly given an undertaking to the Hon'ble Supreme Court, that it shall not charge, encumber or alienate its immovable assets except with the leave of the Supreme Court, and that it shall make available its immovable assets for discharging the liabilities of ONGC that may arise on account of difference in price at which gas was being supplied to the company and the price which may ultimately be determined by the court. 7. It has so happened that as referred to above, there was a prior litigation between ONGC on the one hand and the Association of Natural Gas Consuming Industries (including Ambica Mills Ltd.) on the other hand regarding the unpaid dues to ONGC for supply of gas. The matter was initially contested in this High Court and, subsequently, the order passed by this court was carried to the Hon'ble Supreme Court being Civil Appeal No. 8330-40 of 1983. During the pendency of those appeals, the Hon'ble Supreme Court had directed ONGC on 15-4-1987 to continue to supply gas to these companies including Shri Ambica Mills Ltd. at the rate of Rs. 1,000 for one thousand cubic metres. That was subject to an undertaking to be given by the companies concerned that they will n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the undertaking on behalf of the respondent No. 10 company pursuant to the Hon'ble Court's order, dated 15-4-1987, passed in Civil Misc. Petitions No. 7875-85 of 1987 in the present civil appeals. I state that the copy of the said order was made available to the respondent No. 10 company by the office of this Hon'ble court only on 14-5-1987. 3.I state that respondent No. 10 company undertake that none of immovable assets of the company will be further charged and encumbered hereafter with effect from 15-4-1987, i.e., from the date of order of this Hon'ble court except with the leave of this Hon'ble Court. 4.I state that respondent No. 10 company further undertake not to alienate any of its immovable assets hereafter with effect from 15-4-1987 except with the leave of this Hon'ble Court. Respondent No. 10 company further undertakes to make available all its immovable assets in the event of discharging the liabilities which may arise on account of the difference between the price at which all the gas being supplied in the company during the pendency of the proceedings in this connection and the price which may be determined by this Hon'ble Court while disposing of the present appea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... court and subject to such terms as the court may impose. (2) The court which is winding up the company shall, notwithstanding anything contained in any other law for the time being in force, have jurisdiction to entertain, or dispose of-- (a )any suit or proceeding by or against the company; (b)any claim made by or against the company (including claims by or against any of its branches in India); (c )any application made under section 391 by or in respect of the company; (d)any question of priorities or any other question whatsoever, whether of law or fact, which may relate to or arise in course of the winding up of the company; whether such suit or proceeding has been instituted, or is instituted, or such claim or question has arisen or arises or such application has been made or is made before or after the order for the winding up of the company, or before or after the commencement of the Companies (Amendment) Act, 1960 (65 of 1960). (3) Any suit or proceeding by or against the company which is pending in any court other than that in which the winding up of the company is proceeding may, notwithstanding anything contained in any other law for the time being in force, be tr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e case of Sudarshan Chits Fund Ltd. v. Sukumaran Pillai [1984] 3 Comp. LJ 40. In that case, the Hon'ble Supreme Court was concerned with a situation wherein the winding up order of the Company Court was kept in abeyance by the appellate court and the Supreme Court had to consider as to whether the Company Court would have jurisdiction under section 446(2) during that period. We are certainly not concerned with such a situation in the present case. It is, however, relevant to note that in this judgment, the Hon'ble Supreme Court has observed that summary remedy under this section had been conferred on the Company Judge to save the company which is ordered to be wound up 'from prolix and expensive litigation'. In that context, the court observed : "This was the object behind enacting section 446(2) and, therefore, it must receive such construction at the hands of the court as would advance the object and at any rate not thwart it" (p. 45). Then Mr. Nanavati relied upon the judgment of the Hon'ble Supreme Court in the case of ICICI v. Srinivas Agencies [1996] 2 Comp. LJ 421 . In that case, the court was concerned with the proceedings before the Debt Recovery Tribunal and the court h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the company. The applicant had filed an application before the rent controller for fixing the fair rent. The company was subsequently ordered to be wound up. The applicant had applied to the court for leave to continue the proceedings. Leave was granted and, in that case, the court referred to some of the earlier judgments including English judgments on page 52 of that report. In those observations, the court referred to Wilson v. Natal Investment [1867] 36 LJ Ch. 312 wherein it was held that where the question at issue is such that it cannot be conveniently gone into in the winding up, leave will generally be given. In the case before the Madras High Court, the question was with respect to fixation of fair rent and the court observed : "The order fixing fair rent has to be made only by the Rent Controller after taking into consideration various factors set out in the section and it is in the exclusive jurisdiction of the Rent Controller to fix the rent". In that context, leave was granted. The court, however, noted that in Marine Investment Co., In re [1868] 17 LT 535, it has been held that in cases where company is a necessary party to the action, but there are other defend ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... his suit No. 4870 of 1995 has been filed in the City Civil Court at Ahmedabad on 14-9-1995. It is the submission of Mr. Nanavati that this suit has been filed prior to the passing of the winding up order which was passed on receipt of the opinion under section 20 of the Sick Industrial Companies (Special Provisions) Act, 1985. The opinion of the Board was registered as petition No. 121 of 1995 and the winding up order came to be passed on 17-1-1997. As against that, Mr. Shah points out that the order passed by this court (Coram : Pandit, J.) on Company Petition No. 121 of 1995 specifically states that it is an order on Company Petition No. 66 of 1988 (and other petitions including Company Petition No. 121 of 1995) which was the earliest petition filed against this company and that petition had been kept in abeyance in view of the reference to the BIFR. Mr. Shah submits that commencement of the winding up proceedings is defined in section 441(2) of the Act as deemed to have commenced at the time of presentation of the petition for winding up. Petition No. 66 of 1988 was presented on 12-4-1988 and it had only remained in abeyance due to the reference to BIFR. The said proceeding was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted that upon these negotiations, the applicant decided to purchase the said Unit No. 2 free from all charges and encumbrances. It is, however, stated that during these discussions, the applicant had no knowledge and it was not disclosed to the applicant that defendant No. 1 had given an undertaking to the Hon'ble Supreme Court of India that it would not effect sale or transfer of its assets without the leave of the Hon'ble Supreme Court. It is important to note what is stated thereafter in para 9 which is as follows :-- Although the defendant No. 2 was a party to the proceedings before the Hon'ble Supreme Court of India in which the said undertaking had been given as was subsequently discovered by the plaintiff, the fact of such undertaking was never disclosed to the plaintiff either by the defendant No. 1 or by the Defendant No. 2. From the minutes and the resolution of the extraordinary general meeting and from the various correspondence and minutes of the proceedings, it never appeared that there was any impediment to the completion of the sale. The necessity for obtaining leave from the Hon'ble Supreme Court for the purpose of completing the proposed sale was never disclosed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... part from this amount, the payment to be made to the workers towards gratuity and retrenchment compensation was quantified and the final consideration was also fixed in a particular manner as stated in the said paragraph. The plaintiff thereafter went into possession and started running the mill. 20. Thereafter, it is stated in the plaint that defendant No. 1 (mill company) obtained the clearance under section 230A of the Income-tax Act, 1961 for completing the sale and also the required permission from the Ministry of Textiles. However, with respect to the applicant's requisition concerning the title to the property, no clearances were given by the mill company. It is thereafter stated in para 26 that it was only in the balance sheet of the year 1991-92 (which became available in September, 1992) that the applicant found that in the auditor's report--there was a mention of the order of injunction granted by the Hon'ble Supreme Court of India by reason of which execution of the deed of conveyance in favour of the plaintiff was remaining pending. In the balance sheet it was mentioned that defendant No. 1 had disposed of Mill No. 2, but the final sale could not be completed because ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eafter, it is stated in para 38 that, in these circumstances by a letter, dated 24-1-1995, the plaintiff rescinded the agreement with defendant No. 1 and called upon them to take back possession of Unit No. 2. Then, in the subsequent para, more particularly, in para 43, it is specifically contended that the plaintiff was deceived and defrauded by defendant No. 1. 22. Thereafter in paras 49 to 56,the applicant has sought to make out a case for an amount of Rs. 23,99,81,507. In these paras, the claim made is as follows : A.Para 49Rs. 7,89,39,100 B.Para 50Rs. 6,44,10,000 C.Para 52Rs. 5,71,49,606 D.Para 53Rs. 3,94,82,801 Para 49 includes the claim for compensation for the loss incurred and damages suffered through non-fulfilment of the contract. The items of para 49 are as follows : (a)Payment made towards wages, privilege leave, provident fund, ESI, on account of the defendant No. 1 as per clause No. 2(a) Group (d) (i) (ii ) ( iii) (iv) of the agreement dated 2-11-1989Rs. 44,56,000 (b)Payment to Union Bank of India on account of the defendant No. 1 as per clause No. 2(a) Group ( d) (v) of the said agreementRs. 22,44,000 (c)Payment of gratuity and retrenchment com- pensatio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e State of Gujarat whatsoever in this plaint as initially filed. These two paras 58 and 61 read as follows : "Para 58 The plaintiff has been unable to fully ascertain the amount of compensation recoverable by reason of the loss incurred and damages suffered by the plaintiff. With the passage of time, more and more liabilities are coming to light which the defendant No. 1 is wrongfully denying and seeking to foist upon the plaintiffs in spite of the fact that the contracts have been rightly rescinded. In these circumstance, the plaintiff prays for leave under order 2 rule 2 of the Code of Civil Procedure to file subsequent suits for recovery of further amounts by way of compensation and by way of further relief arising out of the same transactions and cause of action. Para 61 Inasmuch as the declarations have been sought regarding the obligations under the aforesaid agreements which have been rescinded, it is just and proper that such declarations are sought in the presence of ICICI and Ahmedabad Electricity Co. Ltd. Apart from the declaratory decrees claimed herein no other relief is sought against those defendants." 24. The applicants have produced copies of the agreement, da ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aff upto the date of receiving possession. In clause 11, it is provided that upon payment of the said gratuity, the vendor shall make over possession of the said undertaking and the vendor shall hand over to the purchaser possession of the said undertaking and all lands together with the factory building and other structures, plant and machinery, furniture, fixtures, fittings etc. What is provided thereafter in this clause is as follows : "AND the purchaser shall be entitled to exercise all rights of ownership in respect of the said properties and rights, etc., notwithstanding that the sale deed has not been made and executed and the documentation in respect of transfer of all the properties, rights etc. or some of them have not taken place until then and the purchaser company shall not be bound to part with possession of the same for any reason and under any circumstances whatsoever." Clause 12 thereafter records what the vendor has informed, represented and warranted to the purchaser. Sub-clause (p) of clause 12 states : 'at the extraordinary general meeting of the shareholders of the vendor held on 30-3-1989 at Ahmedabad, the shareholders of the vendor have passed the necessar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the earlier agreement have been agreed and these are quantified as provided in agreement. Clause 2 of this supplemental agreement gives the figure of gratuity and retrenchment compensation to 771 employees which comes to Rs. 1,95,45,918. In the earlier agreement, the price of Rs. 4.25 had been mentioned as the price of the earlier agreement. Thus, both together, the amounts come to Rs. 6,20,45,918. The value of the property which is sought to be sold including the amount of plant and machinery is also provided in this agreement which is shown as Rs. 6.20 crores. Then it is provided that the parties will approach the Income-tax authorities under section 269(UC) of the Income-tax Act for the No Objection Certificate. Thus, the entire property is to be sold at about Rs. 6.20 crores out of which Rs. 4.25 crores are supposed to go towards various liabilities as described in 4 sub-groups of clause 2 of the earlier agreement and Rs. 1,95,45,918 is to be given to 771 employees to be retrenched. Thereafter, the working agreement, dated 9-12-1989 and the deed of indemnity (whereunder the vendor has agreed to indemnify the purchaser) is produced. 26. The applicant has then produced the notic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... parties concerned" [Emphasis supplied] In para 39, it is stated that the applicant has performed all its obligations under the agreements. Prayer (b) of this application is for ex post facto leave for alienation of unit No. 2 in favour of the applicant and prayer (c) is to seek modification of the order, dated 15-4-1987 and to direct Shri Ambica Mills Ltd. to execute and register the necessary documents for completing the transfer. The applicant has thereafter produced various documents which were annexed to the appeal memo as well as the orders passed by the Hon'ble Supreme Court from time to time. 28. In the circumstances, Mr. Nanavati, the learned senior counsel appearing for the applicant, submitted that the applicant was a bona fide purchaser for value of unit No. 2 and the applicant had acted on the agreements which were valid when they were signed. Mr. Nanavati submitted that the injunction of the Hon'ble Supreme Court or non-compliance of some of the provisions of the Act with respect to disclosure of full particulars to the shareholders in the extraordinary general meeting by Shri Ambica Mills Ltd. would not make the agreements bad in law at the outset. The applicant had ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is concerned, the applicant was not knowing anything about the injunction or the undertaking and therefore, qua the applicant, the agreements became voidable when the applicant acquired the knowledge about the injunction and the undertaking at a later point of time. The applicant, therefore, decided to avoid the agreements and in the submission of Mr. Nanavati, that agreements will have to be treated as voidable at the instance of the party which suffered. He submitted that a fraud had been played upon the applicant and on coming to know about it, as provided under section 19 of the Indian Contract Act, the agreements became voidable at the option of the applicant which had suffered in this bargain. The applicant, therefore, rescinded the agreement by issuing a notice on 24-1-1995 and called upon the company to compensate and to pay damages and to take over the unit No. 2. The reaction of the mill company to this notice was however a negative one. As stated in para 47 of the plaint, the mill company replied by their letter, dated 4-2-1995, that unit No. 2 had been sold to the applicant and the mill company was under no obligation to take it back. In fact, what they submitted was th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ages and compensation on the one hand and the other suits, and therefore the suit already instituted should be permitted to be proceeded with. Alternatively, he submitted that, in any case, assuming without admitting that a suit for damages does not fall within the purview of section 446, the suit which was instituted was also for various other declaratory reliefs against the company in liquidation as also against the other defendants such as the State Government. He, therefore, submitted that it will be in the interest of justice and in consonance with equity that the application ought to be allowed. 31. Mr. Ashok L. Shah, the learned counsel appearing for the official liquidator on the other hand, submitted that the agreements (including the initial one, dated 2-11-1989) were void right at the outset for various reasons as provided under section 24, read with section 23 of the Indian Contract Act. Mr. Shah submitted that this was a case-- (a)firstly, where the agreements were entered into in clear violation of the injunction, dated 15-4-1987 issued by the Hon'ble Supreme Court and in violation of the undertaking, dated 27-5-1987 given by the company to the Hon'ble Supreme Court ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... approbate and reprobate at the same time. The applicant must have made good profits during this period. Otherwise, it would not have invested so much amounts to run the unit. It had, in fact, tampered with the property of unit No. 2 and as it averred in para 15 of the plaint, it had dismantled and removed old machinery, plant and equipment. If that was so, a party which had received advantage under the agreement which had become void (according to it) was bound to restore the advantage and to compensate for the dismantling and removal of machinery as required under section 65 of the Contract Act. Mr. Shah submitted that although a hue and cry was raised with respect to the expenses incurred by the applicant and compensation and damages were sought, in fact, there was no merit in any of the claims sought to be canvassed through the plaint. Mr. Shah lastly submitted that, in any case, a suit for compensation and damages against company in liquidation cannot lie. He submitted that the winding up court has to decide the liabilities as they existed at the commencement of the winding up and no new rights can thereafter be created nor can any incomplete rights be completed. Doing so woul ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be subject to implied condition that the transferor will obtain sanction of the authority concerned. The next submission of Mr. Chudgar in this behalf was that failure to mention the injunction and the undertaking in the explanatory statement would even otherwise also not make the resolution passed under section 293(1)(a) bad. He submits that, at the most, the agreement could be said to be a voidable one but not void ab initio. He further submitted that the applicant has put in a good amount of money and they have also taken efforts to run the enterprise for a substantial peirod. However, having failed in that, the applicant had rescinded the agreement and they were entitled to compensation and damages. Mr. Chudgar also submitted that violation of the injunction may at the highest invite penal consequences against the vendor. Mr. Chudgar relied upon various judgments in support reported in Lal Chand v. Sohan Lal AIR 1938 Lah 220; Dharmchand v. Mitsui Bussan Kaisha & Co. AIR 1920 Nag 12, Pranakrushna v. Umakanta Panda AIR 1989 Ori 148 ; Dalbara Singh v. Chhaja Singh AIR 1992 (Punj & Har.) 237; Adapa Vittal v. Govula Ramakistiah AIR 1969 AP 167; Kusuma Dei v. Malati AIR 1969 Ori 195 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the applicant towards the liabilities of the company or to the workmen (were concerned), there were averments made in the plaint only with respect to some of the items which could be correlated to the provisions of the agreement. Thus, for example, an amount of Rs. 5 lakhs is claimed to have been paid to ICICI against the liability of Rs. 18.75 laksh. Then, there is a claim with respect to wages, some payment towards leave encashment, ESI contribution and grantuity as also some payment to Union Bank of India. There is, however, no clear averment that the entire amount of Rs. 6.2 crores was in any particular manner cleared/paid to the creditors of the company in liquidation or to the employees nor are any documents produced in support thereof along with the plaint. Mr. Chudgar submits that it is a matter of evidence and it will be produced in the court when the trial begins. Surely, when a submission is being made that the applicant has fully acted in accordance with the obligations under the agreement, the necessary documents ought to have been produced along with the plaint. In any case, as of now, all that we have are some averments having some correlation with respect to some of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cluding these restrictions) has to be read together; the first part of the Supreme Court order also includes a restraint on encumbrance. The definitions of encumbrance referred to and relied upon by Mr. Chudgar clearly include an element of creating a burden on the property. By no stretch of imagination can it be said that this agreement for sale did not create a burden or an encumbrance on the property concerned. 36. However, that is not the only part of the restrictions. The other part of the direction of the Supreme Court was that the property will be made available for discharging the respective liabilities on account of the difference of price of all the gas supplied and further, during the pendency of the appeals as permitted by orders made by the court while disposing of the appeals. Again, if we look to the order of the Hon'ble Supreme Court, what was submitted to the court and what was contemplated was that the mill company will be run by the then management. If any alienation of the property to any third party was contemplated or was to be permitted, firstly, the court could have said that. Thus, on the one hand what was submitted to the court was that in the interest of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Bombay Tenancy and Agricultural Lands Act, the question was as to whether sale can be entered into before obtaining sanction of the collector and whether possession of the person on the basis of an agreement without prior sanction is illegal. These questions arose concerning interpretation of this specific section 43(1) of the Act in the facts of those cases. As stated above, in the present case, we are not concerned with any statutory interpretation. What is sought to be canvassed is that in spite of the injunction initially granted by the Hon'ble Supreme Court, the agreement entered into in violation thereof is not a void one, but a voidable one and the company should be directed to act in accordance therewith. What is sought to be done is to interpret the order of the Supreme Court in a convenient way. As stated above, we are not concerned with statutory interpretation herein. We are concerned with the successive orders in the facts of this very case which are very clear and which leave no room for any such interpretation as is sought to be canvassed. For the same reason, there can be no quarrel with the proposition in the judgment of the Hon'ble Supreme Court in the case of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... no such agreement can be permitted which is contrary to and violative of the injuction and the undertaking given to the court, much less the Hon'ble Supreme Court of India. The two judgments cited by Mr. Chudgar concerning public policy do not help him. In Gherulal Parakh's case (supra) the Supreme Court was concerned with wagering contract. The Hon'ble Supreme Court held that though wager was void, it was not forbidden by law and in that context, the Supreme Court observed as under : "There is no definite head or principle of public policy evolved by courts or laid down by precedents which would directly apply to wagering contracts. Even if it is permissible for courts to evolve a new head of public policy under extraordingary circumstances giving rise to incontestable harm to the society, wager is not one of such instances of exceptional gravity, for it has been recognised for centuries and has been tolerated by the public and the State alike". In Kedar Nath Motani v. Prahlad Rai reported in AIR 1960 SC 213, the Hon'ble Supreme Court observed that it is necessary to see as to whether there was a conspiracy to defraud third parties and whether the illegality goes to the root of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be transacted at a meeting of the company relates to, or affects, any other company, the extent of shareholding interest in that other company of every director and the manager, if any, of the first mentioned company shall also be set out in the statement if the extent of such shareholding interest is not less than twenty per cent of the paid-up share capital of that other company. (3) Where any item of business consists of the according of approval to any document by the meeting, the time and place where the document can be inspected shall be specified in the statement aforesaid." Section 293(1)(a) requires a company not to sell, lease or otherwise dispose of the whole or substantially the whole of the undertaking of the company except with the consent of the public company in its general meeting. That consent is to be obtained after informing the shareholders accordingly in the meeting to be held for that purpose. Any such business would be a special business under section 173(1)(b) and where such a business is to be transacted, it is mandatory that a statement setting out the material facts concerning each such item of business (including any opportunity, nature of the concern ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... September, 1961, would be invalid and so also would be the resolution passed at the meeting be invalid"; (p. 841) The above observations were also quoted with approval by Madon, J. (when he was in Bombay High Court) in Firestone Tyre & Rubber Co. v. Synthetics & Chemcials Ltd. [1971] 41 Comp. Cas. 377 (Bom.). That was in the context of the shareholders not being made aware that a particular director had an interest or concern in the contract of appointment of a private company for further term. The company had not placed that fact at any time before the shareholders. The learned Judge held the provision of section 173(2) to be mandatory one. Earlier, of the said report, the learned Judge observed-- "The object underlying section 173(2) is that the shareholders may have before them all facts which are material to enable them to form a judgment on the business before them. Any fact which would influence them in making up their mind one way or the other would be a material fact under section 173(2). . ." (p. 435) This view regarding mandatory nature of section 173(2) has also been taken by the Division Bench of the Calcutta High Court in Shalagram Jhajharia v. National Co. Ltd. [19 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ions of law. As observed in Sheth Mohanlal Ganpatram's case (supra) such a resolution would be invalid and the meeting would also be invalid and thus the entire action based on that would be void. The learned Judge of the Madras High Court has called such a meeting as virtually an 'ex parte meeting'. 42. With respect to the submission that the agreement is void because it is forbidden by law and law includes orders passed by a competent court, Mr. Shah relied on a judgment of the Full Bench of the Allahabad High Court in the case of Abdul Hameed v. Mohd. Ishaq AIR 1975 All. 166 wherein the court held : "On the application of the principles contained in the definitions in section 3(29), General Clauses Act, 1898, and Article 13(3) read with Article 366 (10) of the Constitution of India, it can safely be laid down that the term `law' includes an order by a competent authority having the force of law. Consequently, where any agreement is forbidden by an order of the competent authority having the force of law, it shall be an agreement forbidden by law as contemplated by section 23 of the Contract Act." Such an agreement is one where the object or consideration is forbidden by law o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... deemed to have commenced at the time of the passing of the resolution, and unless the court, on proof of fraud or mistake, thinks fit to direct otherwise, all proceedings taken in the voluntary winding up shall be deemed to have been validly taken. (2) In any other case, the winding up of a company by the court shall be deemed to commence at the time of the presentation of the petition for the winding up." This Hon'ble court (Coram : S.D. Pandit, J.) by its order, dated 17-1-1997, passed in various company petitions including company petition No. 66 of 1988 directed the company to be wound up. The company petition No. 66 of 1988 was filed on 12-4-1988. Thus, the winding up is deemed to have commenced on 12-4-1988 under the provisions of section 441(2) of the Act. This court (Coram : H.L. Gokhale, J.) by its judgment and order, dated 26-11-1998, passed mainly in company applications Nos. 99 of 1998 and 524 of 1997 also held that the winding up of the company commenced on 12-4-1988. The disposition sought to be made of the undertaking of the company pursuant to the agreement, dated 2-11-1989, being subsequent to the commencement of the winding up is void under section 536 of the Ac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ect of damages for alleged breach of contract, it can become a creditor only when a decree for damages is passed. At present there is no decree for damages and any decree for damages that may be passed after the date of winding up order is not permissible since it would amount to creating new rights or completing incomplete rights and the same is not permissible under the scheme of the Act relating to winding up. The present claim being admittedly for damages and compensation for alleged breach of contract and not for any debt existing on the date of winding up order, the same is not maintainable and cannot be permitted to be proceeded with further. The submission of Mr. Shah is well-taken. A claim for damages or breach of contract is not a claim for an ascertained amount or for amounts presently due and payable. With respect to the nature of a suit for damages, way back in the case of Iron & Hardware India Co. v. Shamlal & Bros. AIR 1954 Bom. 423 Chagla, C.J., stated the law on this issue as follows : "In my opinion it would not be true to say that a person who commits a breach of the contract incurs any pecuniary liability, nor would it be true to say that the other party to the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the winding-up from granting new or completing imperfect rights in security as the individual bankrupt is by his bankruptcy. . ." (p. 713). The Hon'ble Supreme Court later observed in the same judgment : "It is thus well established that once a winding-up order is passed under-taking and the assets of the company pass under the control of the liquidator whose statuory duty is to realise them and to pay from out of the sale proceeds its creditors. Such creditors acquire on such order being passed the right to have the assets realised and distributed among them pari passu. No new rights can thereafter be created and no uncompleted rights can be completed, for doing so would be contrary to the creditors' right to have the proceeds of the assets distributed among them pari passu. . . ." (p. 714). 47. Thus, the position is clear that once a winding up order is made, no permission can be granted under section 446 which has the effect of creating new rights or to completing of incomplete rights. That is what is precisely sought to be done in the proposed suit. The proposed suit is not for any crystallised or ascertained amounts. In para 58 of the plaint (which is quoted above) it is ve ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that after making various efforts before the BIFR and the Hon'ble Supreme Court to get the conveyance executed and the said efforts having failed, it rescinded the 'contract' on 25-1-1995. Mr. Shah pointed out that after it became aware of the alleged fraud and misrepresentation, the applicant made an application on 15-3-1993 to the BIFR to be permitted to participate in the proceedings; the company made (to the knowledge of the present applicant) an application in July 1993 to the Hon'ble Supreme Court seeking its permission to execute the conveyance and the said application was rejected by the Hon'ble Supreme Court by its order, dated 10-8-1993 (para 34 of the plaint). Another application was made by the company (again to the knowledge of the present applicant) to the Hon'ble Supreme Court in January, 1994, but the same was also rejected by the Hon'ble Supreme Court (para 36 of the plaint). The applicant itself also made an application to the Hon'ble Supreme Court in May, 1994, for permission to transfer unit No. 2 to the applicant. The said application was also rejected by the Hon'ble Supreme Court by its order, dated 9-1-1995 (para 37 of the plaint) (No copy of the application ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... icant would not have any claim against the company. Thus, in effect, almost the entire claim of the applicant is based on or arising out of the alleged non-performance of the agreement/s. The claims of the applicant are in the nature of compensation or damages for the alleged breach of contract or arising from avoidance of a contract which is alleged to be voidable. As observed earlier herein, the agreements were void ab initio and no rights can flow from them. A suit which is mainly for compensation or damages against a company in liquidation will create, if at all, a liability only when a decree is passed which will obviously be subsequent to the date of passing of the winding up order. As observed earlier, after the passing of a winding up order no new rights can thereafter be created and no incomplete rights can be completed. Permitting the applicant to proceed with such a suit which has no substance at all and is based on patently void agreements would expose the company in liquidation to unnecessary litigation and unnecessary costs. Such a course cannot be permitted under section 446. 52. With respect to the submission of Mr. Nanavati that the applicant is required to face t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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