Judgment:
D.P. Wadhwa J.
1. The company, Wearwell Cycle Co. (India) Ltd., was ordered to be wound up on March 9, 1978 (OP NO) 54 of 1977), on a creditor's petition, In fact, the company supported the winding up petition. The amount of debt was Rs. 10,530.89. The company did not file any reply to the petition, but in the relay to an application seeking interim orders (CS No. 362 of 1977), the company admitted that it was unable to pay its debts. The petitioning creditor had alleged that there were numerous creditors of the company who were not paid and that the company was doing no business for want of funds and loss of provisions of the Companies Act, 1956 (for short 'the Act'), and there were allegations of mismanagement by the directors of the company. It was also stated that it appeared that on getting wind of the intention of the creditors to file a winding up petition and other applications for preservation of the assets of the company, the company 'transferred its valuable tenancy rights in its Cannaught Place office to a third party on receipt of huge underhand payment with a view to defraud its creditors.' In the reply mentioned above, the company detained the circumstances and the efforts put in by the directors to revive the company and put it back on its feet. It referred to the liability to the Punjab National Bank and also to a writ petition (CW No. 834 of 1973), which was decided by this court and a direction issued to the Central Government to transfer to the land and building too the company for certain amount. This judgment is dated August 28, 1974. The company stated that it would have certainly 'turned the corner' if this property had been transfer the land and building to the company for certain amount. This judgment is dated August 28, 1974. The company stated that it would have certainly 'turned the corner' if this property had been transferred too the company, but the Union of India had filed an appeal (LPA No. 109 of 1974) and there was stay of the operation of the judgment dated August 28 , 1974. The company said that in spite of its efforts to have the Letters Patent Appeal decided at an early dated, it was unsuccessful. It was mentioned that the company suffered a loss of Rs. 2,38,400.53 in the year 1973 - 74 and accumulated losses rose up to Rs. 27, 86,687.91 as against paid - up capital of Rs. 18,62,970. It was also mentioned that the director, their friends and relatives had themselves given a loan of over Rs. 3.75 lakhs to the company and were not able to get back the same and further that the bankers were not ready to extend and further loan to the company and that power in the factory had been disconnected on account of non - payment of electric bills. It was then stated that there were servile statutory liabilities which remained unsatisfied. Certain blame was also laid on the old management of the company. It was mentioned that the Government has also been approached to take over the company as a sick unit and various other industrialists were also contacted for the purpose. The company did not pay any remuneration too the directors for the last over 16 years and no one was prepared to become a director and there had been no secretary, because the company could not afford any good salary. One of the directors died in December, 1977, and another director resigned. The company was left only with one director who alone constituted the board of directors. It was stated that since there was no sale at all from the showroom of the company in New Delhi for a period of about 8 months in 1973, the tenancy rights were surrendered to the landlord in December, 1973, 'who did not pursue his legal case and also condoned recovery of the rent'. On these averments, it was stated that 'the respondent company supports the prayer of the petitioner in the application for appointment of provisional liquidator for the purpose of winding up the respondent company'. This reply of the company is dated January 5, 1989. Along with the reply, a copy of the resolution of the board of the company dated December 31, 1977, was filed. This resolution reads as under:
'The board approved with regret that the company may support the winding up petition filed by M/s Lalit trading Company, as it is unable to run the business any more, due to extreme financial difficulties. Further, the board authorised Shri H. L. Seth to state full difficulties to the court including the maximum sacrifices suffered by him and the present management in running the unit for over 11 years.'
2. On the date his resolution was passed, the Punjab National Bank instituted a suit in this court against the company and the guarantors for recovery of about Rs. 25 lakhs with future interest. This is Suit No. 109 of 1979. Term were in all 9 defendants. Defendants Nos. 2 and 3 are respective;y H. L. Seth and R. K. Seth. It will be appropriate to set out the reliefs only to understand the nature of the suit. These are:
'It is, thereforee, respectfully prayed that this hon'ble court may be pleased to award / grant to the plaintiff:
(a) a preliminary decree in terms of Order 34, rule 4, against defendant No. 1 (Being principal debtor) and defendants Nos. 2 and 3 (being guarantors) jointly and severally for Rs. 24, 87,547.95 plus further interest as claimed in para 22 above;
(b) a preliminary decree against defendant No. 1 (being principal debtor) and defendants Nos. 4 to 8 (Being guarantors of the old accounts Nos. 313 and 315) jointly and severally for Rs. 21,90,171.33 (which is the debit balance in the old accounts ) plus further interest as claimed in para 22 above;
(c) in case of failure of the defendants t pay the amount of preliminary decree, than, a final decree in terms of Order 34, rule 5, for the sale of the mortgaged / pledged / hypothecated properties. Directions be also given as to the payment out of the sale proceeds to the plaintiff bank the amounts decreed in its favor keeping in view the respective guarantees and the extent of the liability assumed by respective guarantors;
(d) costs of the suit; and
(e) such other relief in addition to and / or in substitution of the relief prayed for above, to which the plaintiff may be found entitled, inter alia, to make the relief to the plaintiff complete and effective.'
3. This suit was ultimately settled and the order dated October 31, 1986, deciding the suit is as under:
'In this suit for recovery of Rs. 23,87,547.95, filed under Order XXXIV of the Code of Civil Procedure by the plaintiff - bank, the parties have arrived at a compromise and in pursuance thereof a sum of Rs. 19.18 lakhs has been received by the plaintiff - bank from the guarantors / defendants and in view thereof learned counsel for the plaintiff as come forward with a statement that the suit may be filed as satisfied. Accordingly, the suit is filed as satisfied. The guarantors are released from their liability and the documents of title which are with the bank or have been filed by the bank in the court would be returned by the bank to the party entitled. The parties would bear their own costs.'
4. This was on the statement of counsel for the Punjab National Bank, the plaintiff that a sum of Rs. 19.18 lakhs had been received by the bank from the guarantors towards full and final settlement of the claim of the plaintiff in the suit and as such the suit might be filed as satisfied and that the guarantors might be released from their liability and the documents might be returned to them. As top who in fact made this payment of 19.18 lakhs and the circumstances in which this payment was made and as to the effect o the aforesaid order directing the suit too be fled as satisfied. I will have to refer in detail at a later stage.
5. On September 14, 1983, H.L.Seth ('Seth' for short) filed an application (CA No. 527 of 1983) under section 391 of the Act and sought directions too convene separate meetings of the unsecured creditors and of the equity and preference shareholders of the company for the purpose of considering and/or approving with or without modification a scheme of arrangement proposed to be made between the company and the unsecured creditors and the contributories of the company. Punjab National Bank, being a secured creditor, was outside the proposed scheme of compromise or arrangement. This application was filed through Mr. R.K.Talwar, advocate for Seth. It was mentioned that the authorised capital of the company was Rs.50 lakhs divided into 40,000 equity shares of Rs. 100 each and 10,000 10% cumulative preference shares of Rs.100 each, and further that the issued capital of the company was Rs. 30,91,900 consisting of 10,000 10% cumulative preference shares of Rs.100 each and 20,919 equity shares of Rs.100 each. It was further stated that issued, called and paid-up capital of the company was Rs.18,62,900 consisting of 3,527 10% cumulative preference shares of Rs.100 each and 14,802 equity shares of Rs.100 each and that the calls in arrears were Rs. 2,575. An amount of Rs. 32,645 on account of preference shares was stated to have been forfeited by the company. The application mentioned that the secured loans were too the tune of Rs.15,85,401.95, unsecured loans - Rs.4,61,269.14 and current liabilities - Rs.8,23,085.96. The applicant was a former managing director of the company and as propounder of the scheme stated that he and members of his family, relations, friends, etc. held about 70% of the issued, sub-scribed and paid-up capital of the company. It was mentioned that a 'financier' has agreed to associate himself with the applicant and provide necessary funds for the implementation of the scheme and also provide working capital for he company. Reference was made to a letter dated May 6, 1981 of Punjab National Bank that the bank was prepared to settle its Rs.25 lakhs for Rs. 14 lakhs only. It was also mentioned that thought the bank claimed to be a secured creditor, it was not in fact a secured creditor because its charged had not been registered. It was mentioned that, under the scheme, it was proposed that the bank should be paid the amount like any other unsecured creditors of the company who would be paid 50% of the amount due and payable by the company to the creditors. The scheme envisaged payment of 20% of the amount paid up on equity shares and at the rate of 30% on the preference shares and no arrears of divided were too be payable on the preference shares. It was stated that the rehabilitation of the company which was a sick industrial undertaking was not only in the interest of the creditors and con tributaries but also greatly in public interest. The proposed scheme of arrangement with the shareholders and creditors was stated to be beneficial to the shareholders and the creditors. Reference in the application was also made to the writ petition (CW No.834 of 19773) and pendency of the Letter Patent Appeal (LPA No. 109 of 1974) against the order dated August 28,1974, allowing the writ petition. It was mentioned that by an order of the appellate Bench, the order of the single judge had been stayed till the disposal of the appeal and that the appeal was ready for hearing. It is not necessary to refer in detail to the proposed scheme of arrangement and it is enough if reference is made to the order of March 15, 1984, of D.R. Khanna J. It was mentioned in this order that it was stated from the side of Seat that he was still assessing the viability of the scheme and that in case the liabilities of the company exceeded a particular limit, he might be interested in pursuing his scheme and if these liabilities were beyond that limit, he might have too droop the scheme. The court observed that it was strange that this stand was being taken after having moved the scheme but that the position should have been assessed earlier, and that the applicant should not have rushed to the court with the scheme without ascertaining what matter of the company he had tackle. In the order dated May, 21, 1984, it was observed that the official liquidator as well as the Central Government had pointed out that the scheme was ex facie highly vague and generalised and did not bring out detailed particular. The company owned an industrial plot of land measuring over 55,000 sq. yards and building sheds at Faridabad for the establishment of a factory which had been allotted to the company by the Government of India, Ministry of Rehabilitation. The entire machinery of the company for manufacture of cycles was stated to be lying idle. It was stated that the value of the land had substantially increased in the meanwhile. The court did not order holding of meetings of the creditors and shareholders as it was not satisfied prima facie about the viability of the scheme. The propounder was directed to come out with clear figures as to what were the liabilities, both secured and unsecured, and also as to what were the existing assets of the company. A direction was also issued that the scheme should mention as to what were the investments to be made and the officer, if any, of financial assistance, should be placed on record. It was also mentioned that that part, the propounder must come out with a time-schedule within which the scheme was intended too be implemented and that it should not be made dependent upon the court or any third party decided certain matters. Thereafter, the propounder sought time after time. Ultimately, by order dated January 15, 1985, it was observed that a fresh application under section 391 of the Act (CA No.26 of 1985) had been made and that the present application (CA No. 527 of 1983) had, thereforee, become infructuous and was disposed of as such. The record of the application was, however, directed too be retained for the purposed of reference.
6. Seth, in the meanwhile, has entered into an agreement on November 28,1984, with A.K. Misra and Brahman Arnejawhich was with reference to the scheme of arrangement propounded by seth and was the subject matter of CA No. 527 of 1983. Under this agreement, Seth approached Misra and Arneja to take entire project of the company for its revival/reconstruction. The agreement stated that Seth and his group held 75% of equity shareholding (numbering 13,00 shares) in the company and 2,100 preference shares. Details of the shareholdings were annexed with the agreement. Misra Arnejawere to buy equity shares of the face value of Rs.100 each at the rate of Rs.20 per shares and they were also to buy 2,00 preference shares of Rs.100 each at the rate of Rs.30 per such share. The total price thus payable for 13,00 equity shares and 2,000 preference shares was Rs. 3,20,000. Seth agreed to transfer these shares to Misra and Arneja for the aforesaid consideration. This payment was agreed to be made in three amount of Rs.51,000, Rs. 30,00 and Rs.2,39,000. Rs.51,000 was paid by Misra and Arneja on the signing of the agreement by means of a cheque. A cheque for Rs.30,000 was issued in favor of one P.N. Seth and that was to be encased only on no objection by the High Court regarding transfer of shares. The amount of Rs.2,39,000 was to be paid immediately on approval of the scheme. Various account payee cheques totaling this amount were issued in favor of various transferors of shares with the condition that these favor of various transferors of shares with the condition that these cheques would be encased only on the scheme being approved by the High Court and shares transferred in the names of Misra and Arneja and/or their nominees and the factory premises of the company being handed over to Misra and Arneja. Under another terms of the agreement, Misra and Arneja also agreed to buy creditors amounting to Rs.4,88,996.24 standing in the names of various persons in the company on paying Rs. 2,44,498,.12, being 50% of the value of the credits. The names of the creditors/depositors were also annexed to the agreement. Again, payment was to be made on approval of the scheme, etc., by the High court. There was yet another term in the agreement under which it was stated that the Punjab National Bank was a creditor of the company too the extent of Rs.24,87,537 and that as per letter dated May 6,1981 of the bank, it has agreed to accept an amount of Rs.14lakhs in full and final settlement of its claim against the company. Seth assured that though a period of 3 years elapsed from the dated of the letter, yet the bank would accept Rs.14lakhs in full and final settlement of all its dues from the company. It was stipulated that this was a vital assurance given by seth and he would see that the Bank gave a valid discharge of all the liabilities of the company on payment of Rs.14 lakhs and released all its assets and guarantee,etc. Misra and Arneja undertook to pay Rs.14 lakhs to the bank within a reasonable time on the sanction of the scheme by the High court and possession of the factory premises handed over to them. The fourth terms in the agreement related to a liability amounting to Rs.6,27,082 due to other creditors of the company which was agreed to be met by Misra and Arneja under the terms of the Scheme of arrangement pending in the court in CA No. 572 of 1983. Again, under this agreement, Misra and Arneja were to prosecute the appeal through the official liquidator filed by' the Union of India (LPA No. 109 and 1974) and they were to meet all the expenses incur din that regard.
7. In spite of the fact that the scheme of arrangement proposed in CA No. 527 of 1983 fell throughout, yet the parties acted on the agreement and, as noted above, in fact another scheme of arrangement for revival of the company by CA. No. 26 of 1985 filed on January 11, 1985.
8. Under this agreement and pending approval of the scheme in CA No. 26 of 1985, Misra and Arneja claimed to have paid a sum of Rs. 39,87,570.00, and this not been disputed. This amount is stated to have been paid as under:
(1) Rs. 51,000 paid to Seth on November 28, 1984, on the execution of the agreement on account of purchases of shares.
(2) Rs. 2,69,000 paid to Seth on February 11, 1985, being the balance amount payable under the aforesaid agreement for the purchase of 13,000 equity shares and 2,00 preference shares.
(3) Rs.2,44,498.12 again paid to Seth on February 11, 1985, on account of assignment of credits/deposits as mentioned in the agreement
(4) Rs. 19,18,000 paid to Punjab National Bank in the sums of Rs.14,00,000 on August 1, 1985, and Rs.1,00,000 on August 10,1985, and Rs. 4,18,000 on May 8, 1986.
(5) Rs. 16,36,707.78 deposited with the Registry of the High Court being price for transfer of land and building to the company through the official liquidator by the central Government as per judgment of the High Court dated January 15,1985, in LPA No. 109 and 1974. This amount was deposited in the sums of Rs.12,00,000 on May 24, 1985, and Rs. 4,36,707.78 on September 30,1985.
(6) Rs. 68,365 paid to the official liquidator on February 20, 1987, for purchase of non-judicial stamp papers for execution of sale deed by the Central Government in favor of the company.
9. By judgment dated January 15,1985, in LPA No. 109 of 1974, the appeal of the Union of India was dismissed and the Union of India was directed too transfer to the company property bearing No.30, new Industrial Township, Faridabad, comprising of land factory sheds constructed thereon subject to the company paying a sum Rs.4,71,080 along with arrears of rent and interest up to date. There was a dispute regarding the claim of interest by the Union of India and an application, being CM No. 721 of 1985, was filed in LPA No. 109 of 1974 seeking certain clarification. By order dated May 17, 1985, the Court directed deposit of Rs. 12,00,000 on or before May 31, 1985, which amount, as noted, above, was deposited by Messrs. and Arneja. Ultimately, the dispute was resolved and a further amount of Rs.2,36,707.78 was deposited on September 30, 1985, by Misra and Arneja. Under orders of the court, the whole of the amount of Rs.14,36,707.78 was ordered to be given by the registry by making a cheque in the name of Tahsildar (Sales, Faridabad. The deed of the property was ultimately executed in favor of the company in liquidation on March 3, 1987.
10. Though under the agreement dated November 28,1984, Seth had assured that Punjab National Bank would settle its claim for Rs.14 lakhs, yet Misra and Arneja has to pay Rs.19,18,000 to the bank. Both H.L. Seth and P.N. Seth, defendants Nos. 2 and 3 respectively, in the suit filed by the Punjab National Bank, has created equitable mortgaged of their properties situated at Karol Bagh, New Delhi. They had also executed blank transfer deed in respect of their equity shareholding pledging their shares in favor of the bank. All these documents of title, share certificate and transfer deeds were returned too them on the decision of the suit and they were discharged of all their liabilities towards the bank.
11. Under the agreement dated November 28, 1984, Seth has handed over to Misra and Arneja requisite transfer deed regarding transfer of the shares along with with some share certificates. As regards other shares certificates not handed over, it was stated that these has been lost. All these transfer deed and share certificates have been filed in the proceedings before me.
12. It will be seen that till now Misra and Arneja has neither been the shareholders not the creditors of the company. It is not that they had been depositing or paying various amounts or prosecuting the appeal (LPA No. 109 of 1974) on their own. There have been specific orders of the court and they have been actively participating in these proceedings. In some of the applications filed by Misra and Arneja. Seth supported them. At some later stage, however, Seth tried to repudiate the agreement dated November 28, 1984, and even questioned the locus standi of Misra and Arneja in these proceedings. This happened, as it appears to me, as kelvinator of India Ltd. also jumped into the fray coming up with its own scheme for revival of the company and in that it was joined by one of the shareholders of the company. The terms offered by Kelvinator of India Ltd., being more lucrative to both shareholders and depositors/creditors of the company made Misra and Arneja, and rather compelled them, also to offer far better terms than proposed in CA No. 26 of 1985. Seth also wanted to have same terms offered to him and tried to go back on the agreement.
13. At this stage, it will appropriate to refer to some of the application filed in these proceedings.
14. CA No. 666 of 1984 is an application filed by Misra and Arneja in CA No. 527 of 1983, under which Seth has propounded a scheme of arrangement and reconstruction for the company. Misra and Arneja stated that they had entered into an agreement dated November 28, 1984, with Seth and set out some of the terms of the agreement in the application. It was prayed that Seth be directed to comply with the terms of the agreement and that Misra and Arneja be allowed to prosecute the appeal (LPA No. 109 of 1974) through the official liquidator. This application was disposed of by order dated December 3, 1984, which is a under :
'The applicant who is interest in the revival f the company under the arrangement with the former directors of the company would be entitled to assist the official liquidator in the conduct of the appeal and would be given all possible facilities by the official liquidator to enable the applicant to give effective assistance. The set of papers of the appeal would be furnished to the applicant by the official liquidator at the expense of the applicant.'
15. As noted above, Seth filed an application (CA No. 26 of 1985) on January 11, 1985, under section 391 of the Act seeking direction to convene separate meetings f equity shareholders, preference shareholders and unsecured creditors of the company for the purpose of considering and, if thought fit, approving with or without modification the scheme of arrangement of the company which was annexed as annexures 'A'. The scheme was proposed on the basis of the agreement dated November 28, 1984, between Seth and Misra and Arneja. On April 10, 1986, an order was passed directing convening of the meetings. Reference will have to be made to the proceedings in CA No. 26 of 1985, and the terms of the scheme of arrangement in some detail at a later stage in this order.
16. On January 24, 1985, Misra and Arneja filed application (CA No. 49 of 1985) seeking certain reliefs, inter alia, that the official liquidator be directed to receive scrapes for 4,038 equity shares and register their transfer in favor of Misra; Seth be directed to deliver the remaining 8,962 equity shares and 2,000 preference shares as per agreement dated November 28, 1984; the official liquidator be directed to give inspection of the factory premises to the applicants; the applicants be permitted to enter into correspondence with Punjab National bank for settlement of the dues from the company to the bank; and directing holding of meetings for considering the scheme of arrangement in terms of the agreement dated November 28, 1984. Notices of the application were issued to Seth as well as to the official liquidator and Punjab National Bank. No reply was filed by any one of them. By order dated February 12, 1985, the court recorded that apart form the amount of Rs.51,000 paid by Misra and Arneja at Seth in terms of the agreement, a further sum of Rs.2,69,000 had been to Seth on account of the value of 13,000 equity shares and 2,000 preference shares of the company. This was confirmed by Seth. It was also noted on the statement of counsel for Seth that shares scrips in respect of 4,038 equity shares along with transfer deeds had already been handed over to Misra and Arneja and that further share scrips and/or documents in respect of 8,962 equity shares and 2,000 preference shares has also since been delivered to Misra and Arneja. It was also noted that parties had completed the necessary documentation in respect of these transactions. Then the order proceeded to record that counsel for seth confirmed that he would have no objection to these transfer being duly registered by the company in accordance with law as and when such registration wa possible. It was also agreed that Misra and Arneja would be entitled to inspect the factory premises and that they would be entitled to take with them a charted accountant or engineer or any other consultant to make an assessment of its valuation. It was also agreed that Misra and Arneja might, in consultation with seth, enter into appropriate negotiations and correspondence with Punjab national bank of settlement of the outstanding dues. Parties also agreed that the official liquidator would prepare an up-to-date statement of account of the expenditure incurred during the liquidator proceedings to enables Misra and Arneja to have an idea of the liability on this court. The order then recorded further agreement between the parties that Misra and Arneja would be allowed to participate in the meetings of the creditors without exercising the right to vote and further that to facilitate the work of Misra and Arneja, Seth would prepare in up-to-date list of creditors of the company. For this purpose, necessary staff assistance was to be provided by Misra and Arneja. The court finally observed that these directions were in aid of the scheme which was still too be referred to the meetings, if any, and would be incorporated, wherever necessary, in the directions when meetings were convened. Lastly it was mentioned that no further directions were necessary on the application at that stage which was disposed of in the terms mentioned above.
17. CA No. 294 of 1985 was filed on April 9, 1985, by Misra and Arneja. In this it was proved that directions be issued to the official liquidator to seek clarification of the order dated January 15, 1985, passed by the Division Bench in LPA No. 109 of 1974 and to take appropriate proceedings too determine the amount which the company was to pay towards transfer of the factory premises too the company. Notice of this application was issued to the official liquidator as well as to Seth. Counsel of both of them accepted notice. No reply was filed by any one of them. By order April 267, 1985, the court directed the official liquidator to seek clarification as prayed in the application and also allowed other prayers in the application. It was mentioned that the official liquidator would take all the steps without de;lay. Liberty was given to Misra and Arneja to seek further directions if there was any delay in complying with the directions given by the court. If may be noted that both Mr. G.S. Vohra and Mr. R.K. Talwar, advocates, appeared for Misra and Arneja. Mr. R.K. Talwar has also been appearing for seth.
18. CA No. 562 of 1985 was an application filed by Misra and Arneja on May, 23,1985. It was submitted that in pursuance of the order dated April 26,1985, in CA No. 294 of 1985, the official liquidator did apply seeking clarification of the order of the Division Bench dated January 15, 1985, passed in LPA No. 109 of 1974 and that on notice being issued on that application , it was directed by the Division Bench that the mandamus granted earlier would remain in operation subject to the applicant (official liquidator) depositing Rs. 12 lakhs o0n or before May 31, 1985. It was submitted that the applicants were interested in revival/reconstruction of he company and under an arrangement with Seth has already acquired over 75% of the quiet shareholding of the company and were thus anxious to de[posit the amount of Rs. 12 lakhs before May 31, 1985, and where having in their possession two pay orders for Rs.6 lakhs each in favor of the registrar of this court. It was thereforee, prayed that Misra and Arneja be allowed to deposit the amount of Rs. 12 lakhs. The court directed issue of notice of the application too the official liquidator and it was ordered that subject to further directions that might be given by the Division Bench on the application seeking clarification, Misra and Arneja might deposit Rs.12 lakhs in this court, but that the amount would however, not be disbursed without notice not too Misra and Arneja.
19. CA No. 855 of 1985 was an application filed by Arneja on September 5, 1985. In this, certain details were given that under the agreement dated November 28, 1984, the applicants has so far paid a sum of Rs. 33 lakhs in aid of the scheme of arrangement proposed in CA No. 26 of 1985. It was stated that the applicants held requisite majority of equity and preference shareholding and that they were also the creditors of the company. In these circumstance, it was mentioned that the scheme had requisites support of the shareholders of the company, and thereforee the meeting of the equity and preference shareholders be dispensed with. Direction was also sought to be issued to the official liquidator file details of the claims received by him in pursuance of an advertisement directed too be published in certain newspapers as per court's order dated July 25, 1985, in CA No. 26 of 1985. Notice of the application was issued to the official liquidator. There are, however, on record, replies filed by Kelvinator of India Ltd. as well as by seth. The official liquidator also filed reply. The of Seth which, thought dated January 30, 1986, but filed on April 5, 1986, states that the sale of shares was conditional and contingent upon the approval of the scheme of revival of the company failing which the amount of consideration was refundable against return of shares. It was stated that it was not proper to dispense with the meetings of the equity and preference shareholders of the company. This reply was filed through Mr. P.C. Khanna and Mrs. Reva Khetrapal, advocates. The official liquidator, in this reply, stated that the proposed scheme has not yet been to the shareholders and creditors of the company and unless it was to the before them , it could not be said that the scheme has the support of the requisite majority of the shareholders and creditors of the company and that thereforee the scheme be referred to the shareholders and members of the company.
20. On September 5, 1985, Misra and Arneja filed another application, it being CA No. 856 of 1965. In this it was stated that certain acquisition proceedings under the Land Acquisition Act had been started in respect of certain land comprising the factory premises of the company and, thereforee, a direction was sought to be issued to the official liquidator to challenge the acquisition proceedings in the Punjab and Haryana High court at chandigarh. By order dated September 11, 1985, the official liquidator was directed to take steps to represent the case of the company against acquisition of the land. Permission was also granted to the official liquidator to file a writ petition in the High court at Chandigarh, if necessary. It was also directed that legal expenses so incurred would be borne by Misra and Arneja which would include the fee payable to the counsel engaged by the official liquidator. It was also mentioned that the official liquidator might engage a senior counsel for the purpose inn consultation with Misra and Arneja.
21. CA No. 949 of 1985 is an application by Misra and Arneja seeking to place an record facts relating to settlement of dues of Punjab national Bank. This application was filed on September 25, 1985. it is stated in the application that Misra and Arneja had already acquired over 75% of the equity shareholding of the company by paying a sum of Rs. 3,20,000 on account of the value of 13,000 equity shares and 2,000 preference shares of the company. It is also mentioned that an amount of rs. 12,00,000 had also been deposited by these persons in terms of the order dated may 17, 1985 of the court which amount was towards cost of land and building of the company at Faridabad. Lastly, it is mentioned that the company owned a sum of over Rs. 60lakhs to Punjab national Bank and that now a settlement has been arrived at between the bank and the applicants to the effect that the applicants would pay a sum of Rs. 19,18,000 in full and final settlement of the claim of the bank and that an amount of Rs. 15 Lakhs already been paid to the bank. The, it is mentioned that the balance amount of Rs. 4,18,000 was to paid in three years period from the date of settlement or two years from the date of sanction of the scheme, whichever was earlier. A letter of Punjab National Bank dated September 4, 1985, addressed to Seth with a copy to Misra recording the aforesaid arrangement was also filed. There are on record replies filed by Kelvinator of India Ltd. and Seth. Notice of this application was issued only to the official liquidator as well as to Punjab National Bank. They did not file any replies. The reply by seth, though dated November 5, 1985, was filed on January 28, 1986. With this reply, Seth filed a copy of the letter dated September 4, 1985, of the bank as well as his reply thereto. The bank letter referred to discussions held with Misra and Arneja and acknowledged receipt to discussion held with Misra and Arneja and acknowledged receipt of Rs. 15 lakhs from them. The bank also mentioned that the balance of Rs. 4,18,000 should be made to be secured under the consent decree in the suit filed by the bank against the company and the guarantors. The bank, thereforee, suggested that a suitable guarantee/security be provided to it by Misra and Arneja and securities/guarantees held by the bank at present could be released thereafter. Seth, in this reply letter to the bank, suggested that the official liquidator be approached for the proposed of getting a consent decree. He also said that he was trying with Misra and Arneja to give to the bank a bank guarantee for payment of the balance amount of Rs. 4.18 lakhs 'which will obviate the need of any consent decree by the official liquidator'. Seth wanted some time for the purpose. A copy of this reply letter was also endorsed to Misra and Arneja with a request to arrange for a bank guarantee.
22. CA No. 963 of 1985 is an application by Misra and Arneja filed on October 4, 1985, praying that the official liquidator be directed to register transfer of 13,000 equity shares and 2,000 preference shares in their favor under the provisions of section 536(2) of the Act and the official liquidator be further directed to challenge the demand of Tahsildar (Sales) cum-Managing Officer, Faridabad, wherein he has calculated the amount of interest in pursuance of the order dated January 15, 1985, of the Division Bench in LPA No. 109 of 1974. A prayer was also made made that the official liquidator be directed to furnish copies of the claims which he might have received in response too publication of noticed as per the order dated July 25,1985, in CA No. 26 of 1985. This application is pending only as regard the request of Misra and Area under section 536(2) of the act. Again, Kelvinator of India Ltd. Seth have submitted their replies. the reply of Seth though dated November 5, 1985, was filed only April 5, 1986.
23. CA No. 1016 of 1985 was filed by Misra and Arneja on October 30, 1985, proving that the official liquidator be directed to file a writ petition in the High Court at Chandigarh to challenge the land acquisition proceedings in terms of earlier order of the court and further to file a caveat in the Supreme court in respect of the S.L.P. filed by the Union of India against the judgment dated January 15, 1985, in LPA No. 109 of 1974.
24. In CA No. 1017 of 1985 also filed by Misra and arneja, more direction s were sought to be issued to the official liquidator. Both these applications were disposed of by order dated May 8, 1986, and the official liquidator was directed to take expeditions steps in the matter and move the Punjab and Haryana High court. A similar application (CA No. 340 of 1986) was also filed by Kelvinator of India Ltd. and was disposed of by order dated May 8, 1986. Both Kelvinator of India Ltd. and Misra and Arneja were to assist the official liquidator in filing writ petition in the High court at Chandigarh and they were share the costs equally.
25. Before I deal in detail with CA No. 26 of 1985 filed by Seth as shareholder of the company under section 391 of the Act and other applications pending decision including those of Kelvinator of India Ltd., I will note that have been other applications filed by Misra and Arneja on which order were made by the court from time to time. All this would show that Misra and Arneja have been actively associated in these proceedings and they have described as profounder of the scheme of arrangement mentioned in CA No. 26 of 1985 though they have not been recognised either as creditors or as shareholders of the company. On filing of CA No. 26 of 1985, notice was issued to the official liquidator as well as to Punjab national Bank. Thereafter, the matter had been kept pending for the purpose of arriving at some arrangement between ther claimed by the bank. The expenses for advertisement were to be borne by the propounder i.e. Misra and Arneja.
26. Meanwhile, kelvinator of India Ltd. also filed on April 29,1985, an application (CA No. 414 of 1985) under section 391 of the Act proposing a schemes of arrangement. The scheme was annexed with the application.
27. By a detailed order dated April 10,1986, the court directed holding of the meetings of the members and unsecured creditors of the company for the purpose of considering the scheme of arrangement propounded in CA No. 26 of 1985. Various directions were given for the holding of both types of meetings. By thus time, Seth and Misra and Arneja had fallen out and so, it appears, the necessity for directions arose.
28. By a separate order dated April 15, 1986, meetings of the members and creditors of the company were also ordered to be held to consider the scheme propounded by Kelvinator of India Ltd. in CA No. 414 of 1985, H.R. Khera, who claimed to be a member of the company, had earlier been imp leaded by an order in CA No. 58 of 1986 as a co-petitioner and propounder of the scheme in CA No. 414 if 1985 of Kelvinator of India Ltd. Mr. Khera, thereforee, became a co-petitioner and propounder in that. Again, detailed directions were issued for the holding of the meetings.
29. No meetings could be held as ordered and the chairman of the meetings, Mr. Justice Prakash Narain, a former Chief Justice of this court, submitted his interim report dated July 12, 1986. The chairman said that there was difference of opinion regarding the lists of shareholders and creditors which , he said was not within this power to decide or adjudicate upon. Thus, in effect, the chairman desired direction regarding the shareholders and creditors to whom the notices had to be issued. This opened a Pandor's box. The question which were left undetermined by order dated April 10,1986, in CA No. 26 of 1985 and that dated April 15, 1986, in CA No. 414 of 1985 now fell to be decided.
30. On July 16, 1986, Misra and Arneja filed application (CA No. 1818 of 1986), for setting the lists of creditors and shareholders and for fixing a date for the holding of meetings of the creditors and shareholders.
31. Then, on March 2, 1987, one Subash Chander, claiming to be a shareholder of the company, filed an application (CA No. 158 of 1987), praying that the schemes proposed be rejected and the proceed of winding up be expedited as it would be more beneficial to the members, creditors and even the Government. In the alternative, it was prayed that the assets of the company be sold through public notice. Yet another alternative suggested was that a portion of the area of the land of the company be sold and the money released be used for paying off the liabilities of the company and the balance utilised for rehabilitating the business of the company. On Notice being issued, the Official liquidator, Misra and Arneja and Kelvinator of India Ltd. filed replies. No reply was filed by Seth.
32. By CA No. 277 of 1987, filed on March 30, 1987, Misra and Arneja brought on record the fact of settlement of the suit filed by Punjab National Bank against the company and the guarantors stating that the whole of the amount of Rs. 19.18 lakhs in full discharge of the liability of the company was paid by them that on making all these payment the suit has been withdrawn by the bank. This application contained an endorsement by Mr. S.R. Yadav, learned counsel for Punjab National Bank, to the effect that the entire amount of Rs. 19.18 lakhs been paid Misra and Arneja.
33. Misra and Arneja filed yet another application (CA No. 280 of 1987) on April 1, 1987, bringing or record a letter dated February 11, 1985, written by Seth to them, the terms of which were confirmed by Misra and Arneja on February 11, 1985, itself. It was mentioned in this letter that in pursuance of the agreement dated November 28, 1984, Seth had already handed over 4,038 equity shares of the company to Misra and Arneja which they has already submitted to the court for transfer. It was further stated documents for transfer in respect in respect of the remaining 8,962 equity shares and 2,000 preference shares has been delivered to Misra and Arneja on February 11, 1985. Seth confirmed having received payment of 'agreed' consideration of Rs. 51,000 on November 28, 1984, and the balance of Rs. 2,69,000 on February 11, 1985, 'in full and final settlement due against the said 13,00 equity shares and 12,00 preference shares.' Seth also mentioned in this letter that 'for effecting the transfer of these shares you may please file the same with the Hon able High Court, Official liquidator'. The following para in this letter would be quite relevant.
'I further assure you that to facility the transfer of shares, I hereby undertake that if for the registration of t5answer of the shares, any further or additional document (s) is/are asked for by the Hon'ble High Court of Delhi/official liquidator. I shall furnish the same on demand without any hitch and hindrance. in case the High Court does not agree for the transfer of shares, I undertaken to refund the amount of Rs.3,20,000 on return of the aforesaid 15,000 nos. shares and connected documents given by me to you.'
Lastly, Seth hoped that with the co-operation of Misra and arneja, he would take steps 'to get the revival scheme already filed in the High court approved from the the court.'
34. During the course of the horning of all matters, it was submitted before me that Misra was a non-resident Indian and could not hold shares in the company. Thus led to the filing, on March 31 ,1987 of an application by Misra, it being CA No. 779 of 1987. He stated that he became a non-resident Indian only with effect from April 1, 1985, while the agreement in question had been entered in to earlier to his date. Along with this application he filed photo copies of this letter dated February 12, 1987, to the Receiver Bank of India and the reply dated March 12, 1987, of the Reserve Bank of India thereto. In this letter dated February 12, 1987, Misra wrote that t he became a non- resident in the Year 1985 and that earlier he had then permission from the Reserve Bank of India to retains shares and directorship in Indian companies and in that connection he referred to a letter dated November 27, 1984, of the Reserve bank of India. Misra also wrote that the was under an impression that he was to obtain permission from the Reserve Bank of India only respect of shares in Indian companies, and that he had other assets and liabilities, a statement of which sent also with the letter. If reference is made to this statement, Misra has shown that a sum of Rs. 1,29,920 was lying in deposit with Seth and that this amount had been paid to Seth for the purchase of shares of the company which shares belonged to Seth and this group. It was mentioned that this payment was made to Seth when Misra was a resident and that, due to certain court case, these had not been transferred in the name of Misra. Misra,therefore, wanted that permission might be granted for such a transfer as and when the court allowed the transfers. Both Seth and Kelvinator of India Ltd. have their replied to this application. Their stand is that no permission from the Reserve Bank of India has been obtained by Misra for transfer of the shares and till such time that the Reserve Bank of India grants approval to the holdings of shares by Misra,the court cannot permit transfer of shares.
35. Also during the course of hearing, Kelvinator of India Ltd. also filed two applications and these may be referred to. In CA No. 94 of 1987, it wanted to place on record another scheme and it was stated that it was so because the contesting parties, during all this period, improved upon their original respective schemes. It was stated that the present scheme contained amendments too the original scheme proposed by the applicant. The other application is CA No. 281 and 1987. The applicant, Kelvinator of India Ltd, wanted the court to pass an order that,in case the scheme propounded by Seth along with Misra and Arneja was rejected and that pounded by the applicant was approved, it would deposit within one week of such sanction a sum sufficient too cover the refund of investment with respondent amount of interest to Misra and Arneja which amount in turn would be treated as a long term-loan to the company.
36. Seth also filed an application (CA No. 300 of 1987) wherein it was stated that in views of the improved financial position of the company,the scheme originally propounded be amended so as to offer more to the shareholders as well as to the creditors of the company.
37. It was the submission of Mr. Ved Vyas, Senior Advocate, in CA No. 158 of 1987, that the schemes propounded by Seth and Kelvinator of India Ltd., be rejected and the orders dated April 10, 1986, in CA No. 26 of 1985 and dated April 15, 1986, in CA No. 414 of 1985 convening the meetings he recalled. He said both the scheme were inherently bad and unsatisfactory, though that propounded by Kelvinator of India Ltd. was a shade better. He said that no proper project was put forward by Seth and there was no scheme as such which was to be considered by the shareholders and creditors of the company in their meetings ordered to be held by the court. Mr. Ved Vyas said that at least since after the decision of the Division Bench in LPL No. 109 of 1974, circumstances had vastly changed and the property of the company was valued at about Rs.3 crores and the company as such was able to pay off all the the creditors in full with interest at such rate as the court might fix. He also said the value of the shares has increased manifold and as per his estimate, the value of each equity shares of Rs. 100 would be around Rs. 1,100. He also pointed out that even of the land of the company could be sold to pay off all the creditors and the remaining land and the building could be utilised for revival of the company, if there was a proper scheme before the court. With reference to the scheme propounded by Seth, Mr. Ved Vyas did refer to certain defect therein to show that the scheme was not at all practicable and that the aim was only to grab the valuable property of the company without any intention to re-start the factory. Referring to the monies so far put in by Misra and Arneja, Mr. Ved Vyas said that their money could be returned with reasonable rate interest. He did, however, acknowledge the part played by Misra and Arneja in investing their monies and ultimately getting the sale deed of the land and building registered in the name of the company. Mr. Ved Vyas said that holding of the meetings as ordered by the court was an exercise in futility and everyone should be saved unnecessary expense. In support of his argument , Mr. Ved Vyas referred to a decision of the Calcutta High Court in Bengal National Textile Mills Ltd., In re [1986] 59 Com Cas 956, wherein it was said that the court had jurisdiction to consider the scheme before the meeting and to recall the order for calling the meeting. the court, however, on the fact of that case held it was not necessary to recall the order calling the meeting of creditors. In the present case before me, in CA No. 26 of 1985 and CA No. 414 of 1985, the court directed by detailed order holding of separate meeting of the members and creditors of the company. The matter, however, came to the court on the interim report of the chairman of the meetings for setting in effect the list of creditors and shareholders of the company. I do not find any pressing reason in the application of Subash Candaer (CA No. 158 of 1987) to recall the orders calling of the meetings. I need not, thereforee, discuss the merits or otherwise of both the schemes. No prejudice is likely to be caused to Subash Chander, if the meeting as ordered are held. After all, ultimately, it is court who is to sanction the schemes. At that stage, the applicant, Subash Chander, will have ample opportunities to contend that the proposed schemes should not be sanctioned and that he will be entitled to raised such objection to the schemes as are permissible under the law.
38. I will note that mr. Ved Vyas did get support from Mr. P.C. Khanna Senior Advocate, appearing for Seth. Mr. Khanna contended that at the time when the agreement dated November 28, 1984, was entered into between Seth on the one part and Misra and Arneja on the other, the company was insolvent, but when LPA No. 109 of 1974 was decided in favor of the company, the company had assets valued at more than its debts and that the company, though in liquidation, became solvent. He said anybody who could make full payment to the creditors with interest could not be said to be insolvent and there could thus be no need for any scheme or arrangement. He also said that the propounding of a scheme in terms is superfluous when a company is a solvent one. Mr. Khanna also acknowledged the amount spent by Misra and Arneja and agreed with Mr.Ved Vyas that these could be returned with interest. Mr. Khanna also said that not meetings should be held as ordered earlier as the company was no longer insolvent and that there was no question of any composition. It was difficult to appreciate the arguments of Mr.Khanna. He could not make a forthright submission that he was withdrawing his application, CA No. 26 of 1985. Even, according to Mr. Khanna, the company became solvent only after the passing of the order dated January 15, 1985, of the Division bench in LPA No. 109 of 1974 while CA No. 26 of 1985 had been filed on January 11, 1985. The company has already been ordered to be wound up. Mr. Chandreasekharan, learned counsel for Kelvinator of India Ltd., however, submitted that it was not a stage to recall the order directing holding of the meetings. he said even if some details were lacking, these could always be given at a later stage and while sending notice under section 393 of the Act even at the time of holding of the meetings. I would thereforee, dismiss the application of Subash Chander (CA No. 158 of 1987).
39. With reference to the application of Misra and Arneja (CA No. 963 of 1985) for direction regarding registration of shares under section 536(2) of the Act, Mr. Vohra said that there was no impediment and the court should, in the circumstances of the case, direct registration of shares of the company in the names of Misra and Arneja and their nominees as agreed to between the concerned parties. Sub-section (2) of section 536 of the Act is as under:
'(2) In the case of a winding up by or subject to the supervisions of the court, any disposition of the property (including actionable claims) of the company, and any transfer of shares in the company or alteration in the status of its members, made after the commencement of the winding up, shall, unless the court otherwise orders, be void.'
40. Mr. Vohra said that as between the transferor and transfers of the shares in question, the agreement was valid and proper consideration had passed. He said that the transfer of shares was in no way against the interest of the company or against another member or creditor and that there was no reason why the court should not validate the transaction. Mr. Vohra said that the court was given vast powers under sub-section (2) of section 536 of the Act in order that the interests of the company in winding up were not harmed in any way. He said that the idea was that the shares, which had not been fully paid up, should not be allowed to be transferred so that 'men of straw do not find a perch on the register of members.' He said this was not so in the present case as the shares were fully paid up and the association of Misra and Arneja in the proceedings in the case showed that they were in a position to revive the company and had already got substantial interest in the affairs of the company. Mr. Khanna, learned counsel for Seth, however, questioned the validity of the agreement dated November 28, 1984 itself and said it was the result of duress and undue influence exercised on Seth, inasmuch as at the relevant time, Seth was in dire circumstances and wa not in a position to exercise his free will. According to Mr. Khanna, Misra and Arneja were in a dominate position and in any case, he said, the agreement was only contingent and the necessary conditions not having been achieved, the agreement was to be avoided. As to how the agreement dated November 28, 1984, was not in the interest of the company, Mr. Khanna submitted that it was Seth who had nurtured the company from its very beginning and when today the company could not be said to be insolvent, it would be Seth who had nurtured the company from its very beginning and when today the company could not be said to be insolvent, it would be Seth who would be best equipped to revive the company. Mr. Khanna also said that the land of the company was so valuable that a parte of it could be sold to pay off all the creditors. He also questioned the motives of Misra and Arneja in investing their monies in the company till now, and he said they could also be paid off with interest.
41. It could not be disputed that as between transferor and transfer, a transfer of shares executed after the commencement of winding up was valid, whether it was executed in performance of a contract made before or after that time. A somewhat different note was, however, struck in Solvent v. Henderson (1973) 1 AII ER 48 . The court therein was examining the provisions of section 227 of the English Companies Act, 1948, which is akin to sub-section (2) of section 536 of the Act. It observed at pages 50-51 as under:
'It may thus be said that the plaintiff is seeking specific performance of a contract which statute has declared to be void unless the court (that is, the Companies Court) otherwise orders. Without canvassing the question of whether a judge of the Chancery Division, when not sitting for the purpose of exercising the court's company winding-up jurisdiction, could make an order under the section, or whether this is a fit case for such an order, counsel for the plaintiff contended that Re Onward Building Society (1891)2 QB 463showed that the word `void' in the section merely meant void quo the company and not void as between vendor and purchaser. He accepted, however, that even on this footing there may be grave reasons why no order for specific performance should be made in such a case. If before any question of a winding-up has arisen, V contracts to sell shares in a company to P, and than, after a winding- up order has been made, V sues P for specific performance, I thank that any court would be most reluctant to force upon P, who had agreed to take a fully effective transfer of the shares, a transfer that, although valid as between him and the vendor, would be void as against the company. Counsel for the plaintiff was not able to contend for any contrary view; and in may judgment it would require remarkable circumstances to support making a decree in such a case. This plainly is not such a case, and in may judgment the claim for specific performance must fail.'
42. Reference may, however, be made to a decisions of the Supreme Court in Vasudev Ramchandra Shelat v. Pranlal Jayanand Thakar (1975) 45 Com Cas 43 . In this case, a lady, Ruxmani, executed a registered gift deed donating certain shares in various limited companies to Vasudev, hr brother. She also signed several blank transfer forms apparently intended to be filled in by Vasudev so as to enable him to obtain the transfer of the donated shares in the registers of the companies and share certificates in his own name. Before the shares could be transferred, Ruxmani, however, died. A nephew of her late husband disputed the claim of Vasudev to those shares. A Division Bench of the Gujarat High Court held that the gift was incomplete for failure to comply with the formalities prescribed by the Indian companies Act, 1913, for transfer of shares. It also held that there was no equity in favor of Vasudev so that he may claim a right to complete what was left incomplete by the donor, Ruxmani, in her lifetime even though there could be no doubt that Ruxmani had intended to donate the shares to Vasudev. Two points which were raised before the Supreme Court by the respondent were as under (at page 48):
'(2) Although shares are `goods' as defined by the sale of Goods Act, yet they are `goods' of a special kind. Their transfer is not completed merely by the execution of a registered document or by delivery, but the correct mode of transfer is determined by the character of these `goods. Section 123 of the Transfer of Property Act lays down only a general mode of transfer by gift for goods in general but not for the transfer by gift of shares which are a special type of `goods' capable of transfer only in accordance with a special mode described by the Indian Companies Act of 1913, which was applicable at the relevant time. In other words, an adoption of the prescribed form of transfer is of the essence of a transfer for all purposes and not merely as between the share-holder and the company concerned.'
'(4) Since material portions of the transfer form given in regulation 19 of Table A of the First Schedule to the Indian Companies Act of 1913 were under filled in,d the doctrine of `substantial compliance' with the required form could not come to the aid of the applicant.'
The court observed that the wide definition of 'property' in section 6 of the Transfer of Property Act included not merely shares as transferable, movable property, but would cover, as a separable form of property, a right to obtain shares which might be antecedent to the accrual of rights of a shareholder upon the grant of a share certificate in accordance with the articles of association of a company. It also observed 'that a share certificate is a prima facie evidence under section 29 of the Act, of the title to a share. Section 34 of the Act does not really prescribe the mode of transfer but lays down the provisions for `registration' of a transfer. In other words, it presuppose that a transfer ha]s already taken place. The manner of transfer of shares, for the purposes of company law, has to be provided, as indicated by section 28, by the articles of the company, and, in the absence of such specific provisions on the subject, regulations contained in Table `A' of the First Schedule to the Companies Act apply.'
43. The court also observed as under (at page 52):
'The requirements of form or mode of transfer are really intended to ensure that the substantial requirements of the transfer have been satisfied. They subserve an object. In the case before us, the requirements of both section 122 and section 123 of the Transfer of Property Act were completely met so as to vest the right in the done to obtain the share certificate in accordance with the provisions of the company law. We think that such a right is in itself`property' and separable from the technical legal ownership of the shares. The subsequent or `full right of ownership' of shares would follow as a matter of course by compliance with the provisions of company law. In other words, a transfer of `property' right in shares, recognised by the Transfer of Property Act, may be antecedent to the actual vesting of all or the full rights of ownership of shares and exercise of the rights of shareholders in accordance with the provisions of the company law.'
44. The observations of the Supreme Court are with reference to the Indian Companies Act, 1913.
45. Thus the court held that on a correct interpretation of the gift deed and other facts of the case, it was of the opinion that the right to obtain a transfer of shares was clearly and completely obtained by Vasudev, the done. It was also held that there was no question here of competing equities because the done was shown to have obtained a complete legal right to obtain shares under the gift deed and an implied authority to take steps to get his name registered.
46. Thus, if I look at the agreement between the parties for transfer of shares, it is quite in order. I cannot accept the contention of Mr. Khanna that Misra and Arneja were in a dominant position to dictate terms to Seth. There was no inequality of bargaining power between the parties and the events which I have narrated above would show that the agreement was entered into of the free will and accord of the parties. Seth has taken full advantage of the agreement. The agreement has been referred to in various orders in these proceedings and at no point of time did Seth plead invalidity of the agreement on any ground. In fact, he had been supporting the agreement and receiving payments there under even after the decision in LPA No 109 of 1974. He even got his immovable property released from the mortgage which he had given as security for the loan given by Punjab National Bank to the company. I repeatedly asked Mr. Khanna as to at what point of time did it dawn upon Seth that the agreement for transfer of shares and assignment of credits was in any way illegal. There was no specific answer and the record shows that it was some time only in January, 1986, that Seth had second thoughts. Mr. Khanna referred to a decision of the Supreme Court in Central Inland Water Transport Corporation Ltd. v. Brojo Nath Ganguly (1986) 60 Com Cas 797, to contend that the court should step in and set aside the agreement on the principles laid down in that judgment. I am afraid I cannot agree. Though this judgment of the Supreme Court is a landmark and sets a different trend in the law of contract. yet the p[principles laid down therein cannot be applied to the present case. The following observation in para 90 of the report would be relevant and are as under (at page 857 of Comp Cas):
'This principles is that the courts will not enforce and will, when called upon to do so, strike down an unfair and unreasonable contract, or an unfair and unreasonable clause in a contract, entered into between the parties who are not equal in bargaining power. It is difficult to give an exhaustive list of al bargains of this type. No court can visualize the different situations which can arise in the affairs of men. One can only attempt to give some illustrations. For instance, the above principle will apply where the inequality of bargaining power is the result of great disparity in the economic strength of the contracting parties. It will apply where the inequality is the result of circumstances, whether of the creation of the parties or not. It will apply where a man has no choice, or rather no meaningful choice, but to give his assent to a contract or to sign on the dotted line in a prescribed or standard forms or to accept a set of rules as part of the contract, however unfair, unreasonable and unconscionable a clauses in that contract or form or rules may be. This principle, however, will not apply where the bargaining power of the contacting parties is equal or almost equal. This principle may not apply where both parties are businessmen and the contract is a commercial transaction. In today's complex world of giant corporations with their vast infrastructural organizations and with the State through its instrumentalities and agencies entering into almost every branch of industry and commerce, there can be myriad situations which result in unfair and unreasonable bargains between parties possessing wholly disproportionate and unequal bargaining power. These case can neither be enumerated nor full illustrated. The court must judge each case on its own facts and circumstances'.
47. There could be thus no challenge to the agreement between Seth, Misra and Arneja regarding transfer of shares and assignment of credits. On second thoughts, I think that the whole of the discussion on this point was unnecessary as Seth did not challenge the agreement at all as various order in the proceedings as reproduced above would go to show. Seth took full benefits under the agreements and on payment made by Misra and Arneja to Punjab National Bank even got his immovable properties released which were mortgaged with the bank by way of security. In fact, I should not have permitted Mr. Khanna to address arguments on the question of validity of the agreement. Certainly, the agreement was entered into before LPA No.109 of 1974 was decided, but even thereafter, the parties acted on the agreement. If the agreement is looked into, it was with reference to the scheme proposed in CA No. 527 of 1983, which was, as noted above, withdrawn as the new scheme was filed with CA No. 26 of 1985. So much so that, earlier, under the agreement, Punjab National Bank was to be paid Rs. 14 lakhs in settlement of its dues from the company, but ultimately Misra and Arneja had to pay Rs. 19.18 lakhs to settle the suit of the bank against the company and others which was for recovery of Rs. 24,87,547.95. Seth had been the direct beneficiary of this settlement with the bank. On receipt of this amount, the suit of the bank was satisfied and the guarantors including Seth were released from their liability and their documents of title returned to them. It was contended by Seth that he would stand subrogated in place of bank in respect of the property of the company for which the bank was mortgagee. This contention is quite meaningless. No particulars of the mortgagee property were given. If reference is made to the bank suit, it will be seen that only some items of the machinery of the company had been mortgaged to the bank. Moreover, it is quite clear that the credits held by the bank were to be assigned to Misra and Arneja. There was in fact a tripartite agreement between the bank, Seth, Misra and Arneja under which Misra and Arneja became creditors of the company in respect of the amount due to the bank. It appears to me that the agreement was entered into bona fide and in the interest of the company. It is just that when now prices of land have gone up and other shareholders and creditors are likely to get more under the two schemes than what Seth got under the agreement dated November 28, 1984, that he now wants to extricate himself from the agreement. This he cannot do. He may at this stage repent or may consider himself unfortunate, but then, the agreement is a 'commercial transaction.' Nothing has been shown either in law or on facts to invalidate the agreement. In the application (CA No. 26 of 1985), Seth has described the state of affairs of the company but stated that despite its liabilities, the company had potentialities and the six industrial unit could be rehabilitated under the direction and supervision of the court. He was, thereforee, proposing the scheme of arrangement which envisaged payment of the amount of 50% to the creditors and 20% of the amount on equity shares and 30% on the preference shares with no arrears of dividend payable on the preference shares. He said that the rehabilitation of the sick industrial unit in question was not only in the interest of its creditors and contributories but also greatly in public interest. Again, he said that Punjab National Bank, though claiming to be a secured creditor. He said that the bank was to be paid Rs. 14 lakhs in full and final settlement of it s dues from the company and that the financiers, namely, Misra and Arneja, had agreed to pay all the amounts under the scheme for the revival of the company. The application also described as to how Misra and Arneja were in sound financial conditions and their experience to run the company when revived. it was also mentioned in the application that subject to the approval of the court, Seth had undertaken to secure the transfer of the controlling block of shares (13,000 equity shares and 2,000 preference shares) in favor of Misra and Arneja at the rate of Rs. 20 per equity share and Rs. 30 per preference share. It was then ;mentioned that after the requisite sanction, it was proposed that the shares would-be registered in the names of Misra and Arneja in the books of the comp[any after receipt of the agreed consideration by the applicant. Other details regarding land and building sheds of the company at Faridabad and the pendency of the Letters Patent Appeal were also given, bust these have already been referred to above. The fact remains that the agreement dated November 28, 1984, was varied and, I would say, to the advantage of Seth who received whole of the amounts under the agreement and Misra and Arneja had to meet more, liabilities than was agreed to under to agreement. The objections of Mr. Khanna to the agreement are absolutely of no avail.
48. The question then arises whether a direction is to be issued to the official liquidator to register the transfer of shares in question. As noted above, it has to been pointed out whether transfer of such shares would be against the interest of the company in any way. Rather it is apparent that the agreement was entered into between the parties honestly and in the ordinary course of business. The laws which makes transfer o shares and alteration in the status of members void operates for the benefit of the company and its creditors and not for the benefit of any third party. There has not been any opposition by the official liquidator to such a transfer of shares being registered. In fact, he himself sought directions on the request of Misra and Arneja regarding transfer of shares in third names. After the passing of the winding up order,the effectual liquidator is to conduct the proceedings in winding up the company and perform such duties in reference thereto as the court may impose (sub-section) (1) of section 451) .section 457 of the Act describes the powers of the liquidator. An order of winding up is also notice of discharge to the officers and employees of the company except when the business of the company is continued (sub-section )(3) of section 445). It thus, appears that on making a winding up order, officers including the directors and employees of the company would cease to act as such. There would be thus no board of directors of the company and the provisions of Part IV of the Act, which, to may mind, apply to a company not in winding up, would in fact become inapplicable. Mr. Gower, in his book Principles of Modern Company Law, Fourth edition, describes the status of the official liquidator in the following words (pages 726-727):
'The exact legal status of the liquidator is difficult to define. The closets analogy seems to be that of directors, whose function he assumes on appointment, and like them he is probably best described as a fiduciary agent of the company. Again, like directors, he is often described as a trustee, but this appears to be equally inaccurate i this case. As already mentioned, the property of the company does not vest in him; the company continues in existence and when he makes a contract, he does so on behalf of the company. Unlike the receiver for debenture-holders, the liquidator is, thereforee, not normally personally liable on his contracts.
On the other hand, the liquidator has special statutory duties imposed on him and is in a fiduciary relationship not only to the company but also to the creditors as a body, though not to individual creditors.'
49. According to the learned author, perhaps the most important rule of all is the basic principle of company liquidation, namely, that on wining up, the board of directors 'becomes functus office and its powers are assumed by the liquidator.'
50. It appears to me that the court has full discretion in the matter of transfer of shares where the comp[any is being wound up and that the exercise of discretion of the court would be controlled only by the general principles of justice and fairness. Reference may also be made to the provisions of section 426, sub-section (2) of section 446, section 467 and sub-section (2)of section 526 of the Act. In Mannalal Khetan v. kedar Nath Khetan (1977) 47 Com Cas 185 , it was held that provisions contained in section 108 of the Act were imperative. The court held that the words 'shall not register a transfer of shares' appearing in sub-section (1) of section 108, were mandatory in character and that the mandatory character was strengthened by the negative form of the language. The court was, however, dealing with the question thus raised with reference to a company which was not in winding up. The Act thus does not prescribe any principles for the court to register the transfer of shares in the case of a company in winding up. Nevertheless, I am of the opinion that the principles as contained in section 108 of the Act regarding execution of the instrument of transfer and payment of stamp duty in general should be applied. One argument of Mr. Khanna was that the instrument of transfer of shares should have been lodged within two months as provided under section 108 of the Act. This could not be so inasmuch as the agreement for transfer of shares qua the company is in itself void and unless the court validates, there will be no question of lodging the transfer deeds within the stipulated period of two months. All these provisions would be applicable in. the case of a working or running company. Misra and Arneja have filed the transfer deeds but these have not been accompanied with certificates relating to the shares final cases as it is stated that some of the share certificates were not available with Seth, having been lost. Duplicate share certificates should be issued,but the absence of shares certificates, to my mind, cannot come in may way in directing the official liquidator to register the transfer.
51. I would, thereforee, direct the official liquidator to register the transfer of shares in terms of the instruments of transfer filed in court subject, however, to that tin case of Misra, who is stated to be a non-resident, he will produce a specific permission relating to these shares from the Reserve Bank of India. In Life insurance Corporation of India v. Escort Ltd., (1986) 59 Com Cas 548 , it is held that even ex post facto permission could be granted. I do not find an other bar in the Foreign Exchange Regulation Act, 1973, to invalidate the transaction in spent of the contentions of Mr. Khanna and mr. Chandrasekharan to the contrary.
52. It is correct that by order dated July 25, 1985, this court in CA No. 26 of 1985 did order, on the suggestion of counsel for the 'Propounder', that an advertisement might be published in. the newspapers inviting claims so as to have a fair idea of the indebtedness of the company apart from the amount claimed by the bank. The advertisement is stated to have been published in the Indian Express and Tribune. The expenses of the advertisement were to be met by the 'Propounder.' These were met by Misra and Arneja. On that day, Mr. Vohra had appeared for the applicant (which was perhaps Seth) and Mr. S.R. Yadav for Punjab National Bank and mr. J. Kishore with Mr. Baldev Raj for Kelvinator of India Ltd. Reference to counsel for the propounder would thus appear to mean Mr. Vohra and that too rightly so, as at that time, Seth was supporting Misra and Arneja. Some claims were received in pursuance of the advertisement but I do not think that they have nay validity in law inasmuch as the advertisement was not put in pursuance of the Companies (Court) Rules.1959. As stated in the order, the advertisement was put in just to get a fair idea of the creditors of the company and the amounts due to them. Under rule 154, the value of all the debts and claims against the company shall, as far as possible, be estimated according to the value thereof on the date of company. Direction given at the hearing of summons under rule 69 are to be drawn up in Form No.35. It says that the value of each member or creditor shall be in accordance with the books of the company, and, where the entries in the books are disputed, the chairman shall determine the value for purpose of the meeting. It is not disputed that the statement of affairs as required under sub-section (1) of section 454 of the Act was filed giving the details of the debts and liabilities of the company. I am of the view that the creditors named in the statement of affairs be taken to be the creditors for the purpose of the meetings in question except where the credits have been lawfully transferred. In the present case, there is no dispute that the credits amounting to Rs.4,88,996.24 as mentioned in annexure 'D' to the agreement dated November 28, 1984, were rightly transferred to Misra and Arneja. This has been admitted in the replies filed by Seth in Case No.946 of 1985 and 963 of 1985. Misra and Arneja will have to be treated as creditors in place of the persons whose names ar mentioned in annexure 'D' to the agreement with the amounts shown against their names. Reference was made to an order dated February 12, 1985, in CA No.49 of 1985 which has been mentioned in detail above, that Misra and Arneja would be allowed to participate in the meeting of creditors without exercising the right to vote. To contend that Misra and Arneja would be debarred from voting in the meeting of creditors, I am afraid, I cannot agree. This order was made on the basis of the agreement between Seth and Misra and Arneja and at a time when they were having goods relation and in fact Seth was quit keen to have the shares even transferred in the names of Misra and Arneja. Seth would have certainly voted in the meeting of creditors at the behest of Misra and Arneja. Now that they have fallen out, the above quoted order cannot stand.
53. When order dated April 10, 1986, was being made in CA No.26 of 1985, it was submitted by Mr.Vohra, counsel for Misra and Arneja, that in the scheme as proposed and filed in court, and amendment should be made to the effect that the creditors would be paid 100 of the principal amount due to them plus such interest as the court might propose. The court noted the statement of Mr.Vohra but observed that the scheme which has been filed did not provide for payment of more than 50 and that the scheme was to be put to the creditors and might be passed with or without modification. The court observed that ar the meeting it was open to anyone who was entitled to be present in the meeting to move for an amendment of any of the terms of the arrangement proposed and that such an amendment, it was suggested by Mr.Vohra, could be considered in the meeting. The same would, thereforee, apply in Case Nos.94 of 1987, 281 of 1987, both of Kelvinator of India Ltd. and CA No.300 of 1987 of Seth.
54. It may also be noted that Kelvinator of India Ltd. also claimed to have purchased certain credits and shares in the company and also wanted their transfer in its name, though no specific prayer was made.
55. I will note that it was also the contention of Mr.Chandrasekharan that the scheme of arrangement propounded by Seth took into account transfer of shares by Seth to Misra and Arneja and he, thereforee, said that transfer of shares in the names of Misra nd Arneja could not be examined in isolation and that transfer of shares was interwoven with the sanctioning of the scheme. I am not able to agree with his submission in view of what I have discussed above.
56. I would, thereforee, direct as under:
1. The official liquidator will substitute the names of Misra and Arneja and their nominees as per the transfer deeds on record in place of the members as per annexures A and B to the agreement dated November 28, 1984, in the register of members of the company subject, however, that Misra will produce requisite permission from the Reserve Bank of India for his being brought on record as a member of the company.
2. Misra and Arneja will be treated as the creditors of the company in place of those mentioned in annexure D to the aforesaid agreement as well as in place of Punjab National Bank in respect of the debts as appearing in the statement of affairs filed under section 454 of the Act.
3. The members appearing in the list of members of the company and the creditors as given in the statement of affairs and as amended as per (1) and (2) above will be the members and creditors entitled to vote. These lists of members and creditors shall be submitted by the official liquidator to the chairman.
4. Meetings of the members and shareholders of the company for considering the scheme propose by Seth will he held on July 10, 1987, and in respect of the scheme proposed by Kelvinator of India Ltd. these meetings will be held on July 11, 1987.
5. Notices of the meetings to be sent to the shareholders nd creditors of the company shall be settled by the chairman/alternate chairman with the Registry.
6. Subject to the above direction, other directions as given in the orders dated April 10, 1986, in CA No.26 of 1985 and dated April 15, 1986, in CA No.414 of 1985 as modified by order dated May 5, 1986, shall remain the same.
7. The chairman and the alternate chairman shall respectively be paid further sum of Rs.1,000 and Rs.500 in respect of each of the four meetings for the work down by the earlier for taking steps in settling the lists of shareholders and creditors as per the interim report dated July 12, 1986, of the chairman.
8. A copy of these directions shall be forwarded to the chairman/alternate chairman by the Registry.
57. No further orders are required. Case Nos.26 of 1985, 414 of 1985, 699 of 1985, 844 of 1985, 855 of 1985, 949 of 1985, 963 of 1985, 63 of 1986, 1818 of 1986, 94 of 1987, 158 of 1987, 279 of 1987, 281 of 1987 and 300 of 1987 stand disposed of.