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TMI Blog1953 (10) TMI 48X X X X Extracts X X X X X X X X Extracts X X X X ..... ay be mentioned that the company was ordered to be wound up in O. P. No. 112 of 1952 on 29-9-1952. After the appointment of the provisional liquidator on 18-4-1952 and prior to the order of winding up, the applicant Bank is said--to have advanced a sum of ₹ 21000 to the Company. This company was under the management of Managing Agents known as the Aidco Ltd. of which one V. Butchiah Chowdary was the Managing Director. At a meeting of the Board of Directors of the company in liquidation held on 25-1-1952, it was resolved to', borrow upto ₹ 10 lakhs from the Andhra Bank Ltd. on the pledge of sugar, jaggery and gunnies of the company. It was also resolved to authorise the Managing Agents to execute the necessary documents to the Andhra Bank Ltd. to give effect to the above resolution. On the same date, there was a meeting of the Board of Directors of the Aidco Ltd. when it was resolved to authorise the Managing Director, V. Butchiah. Chowdary, to borrow on behalf of the Aidco Ltd. as Managing Agents for the Godavari Sugars and Refineries Ltd. from the Andhra Bank Ltd. (vide the resolutions Exs. P. 5 and P. 6). Accordingly, Butchiah Chowdary, as the Managing Director ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ny by a self-cheque drawn by Butchiah Chowdary. Thus, the Andhra Bank is said to have advanced, as loop to the company in liquidation, a sum of ₹ 12000 on 25-4-1952 and a further sum of ₹ 9000 on 26-4-1952, on the security of sugar and gunny bags stated above. It will be seen that those two advances were made after the presentation of the petition for winding up, and indeed even after the appointment of the provisional liquidator, and prior to the order for winding up. This application is Sled by the Andhra Bank under Section 227(2) Companies Act for validating the charge in their favour. 2. That section provides that in the case of a winding up by or subject to the supervision of the court, every disposition' of the property (including actionable claims) of the company made after the commencement of the winding up shall, unless the court otherwise orders, be void. In this case there was a disposition of the sugar and the gunnies in favour of the applicant-Bank after the commencement of the winding up. That being so, the security offered in favour of the applicant bank must be treated as void, unless the court otherwise orders. This section corresponds to Sectio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e had not done so, the wages would not have been paid the business temporarily at any rate, would have to be closed down. In those circumstances, it was held that the transaction was just the sort of transaction which Lord Cairns thought it was the object of the proviso to the section to preserve and which ought to be rendered valid by an order of the court. In that case, it was also argued that the power under the section ought not be exercised in favour of a person who, at the date of the transaction in question had knowledge that the winding up petition had been presented. In that, case, the debenture holder was aware, when he agreed to advance the money, that a petition had been presented for the winding up of the company. That contention was repelled and Romer J. observed at page 832: If, therefore, I were to hold that no one who knows of presentation of a petition can safely enter into any arrangement with the company, I think I should be depriving the company of the benefit which, according to Lord Cairns, the provision of the section was intended to secure to it. It therefore becomes Immaterial whether or not in this case the Andhra Bank had knowledge of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ferential debts enumerated in Section 230 a further category of all debts which the company might choose to pay wholly or in part. The learned Chief Justice also propounded at page 4 the following test for the proper exercise of the court's discretion: And as the court's sanction is now asked for ex post facto, I think It a fair test to consider whether the court would have sanctioned the giving of these securities, supposing it had been asked to do so at the time In 'Gorakhpur Electric Supply Co. Ltd. v. Siemens (India) Ltd. AIR1940All514 , the learned Judge sums up the principle as well as the exception thereto in these words at page a 515 and 516, There can be no doubt that the ordinary principle is that all creditors to whom money is due at the date of petition for winding up should be treated equally, with certain exceptions is favour of those who have priority under the express provisions of the Act. Where the company or its officers make preferential payments to some creditors, they are obviously acting in contravention of this rule. On the other hand, where the business of the company is continued in good faith either because it is hoped that it may not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Ltd AIR 1942 All 141: The principle must prevail, that is, the principle of 'pari passu' distribution among the creditors: it was not a case of salvage, of real necessity, nor of the transaction having been the only means of keeping the company going. It may be that in this case, the Andhra Bank were bona fide (sic, lenders') in having advanced the said sums to the company without any notice of the presentation of the winding up petition. Merely because they' were bona fide lenders, it does not at once follow that the transaction in their favour should be validated. This is a case in which one of two innocent parties has to suffer, -- the applicant Bank on the one hand and the general body of creditors on the other. It is for the applicant Bank to make out a case why they should-be preferred to the general body of creditors and why the discretion of the court should be exercised In their favour under Section 227 (2) of the Act. That leads us to the consideration of the circumstances in which the loans were advanced by the Bank to the company in liquidation. In considering those circumstances, it is well to emphasise, one important fact, which I have alrea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ty of the company's goods must be characterised as a flagrant violation of the pro visions of the company law. They were not for any bona fide purpose, which would Justify the court, in upholding them. It is clear, applying the test laid down in the Bombay case, that if the application were made at that time, to sanction, the transaction, the court would have decided to do so. 4. It was further contended by the learned Official Liquidator that in this case, there with a change in the constitution of the Managing Agents and inasmuch as the change had not been recognised under. Section 87-BB, the Managing Agents ceased to function, and that therefore they became wholly incompetent to borrow any loan on behalf of the company. There is no evidence now placed before me as to the time or nature of the change in the constitution of the managing agency; and even otherwise, that may not make much difference, because the same result should flow, from the fact that prior to the present loans, a provisional liquidator was appointed. However, it is unnecessary to consider this question further; and it will be left open to the Official Liquidator to examine it in case the Andhra Bank cho ..... X X X X Extracts X X X X X X X X Extracts X X X X
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