9911796707
TMI Blog1931 (7) TMI 17X X X X Extracts X X X X X X X X Extracts X X X X ..... ingly involved the supersession of all proceedings in a liquidation which as a result of it had then been in operation for more than eight years. To this fact are attributable the grave difficulties which have confronted the Board in disposing of the appeal. The company was constituted in 1882 for the purpose (1) of erecting a cotton pressing factory at Raichur in Hyderabad, and (2) of erecting a sugar factory at Hospet in the Madras Presidency of British India. It was registered in Madras solely because part of its business was to be carried on in British India. But for the Hospet project it would have been registered in the Nizam's Dominions. And the Hospet factory did not materialise. It was definitely abandoned as a project in 1909. The company has never done any business in British India. Its sole activities have been centred at Raichur in connection with the factory which in due course was erected there. The fact that the fixed property of the company and its business have thus been in one jurisdiction and its place of incorporation and statutory obligations in another has always been a source of difficulty. It hampered the company in its competition with local rivals : it e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rial also to note that under the arrangement the firm was called upon to discharge the duties which had therefore devolved upon the secretary, treasurer and agent combined, and that in any advantage that might accrue to it from the fact that, like a banker, it was not required to pay interest on the company's balances, was to be found the only counterpart for the 10 per cent. on profits which, under the superseded arrangement, had to be found by the company. The firm K. U. S. Ramachander & Co., was the family firm of Venkata Rao. From 1910 and earlier he had been at its head. In 1922 he was 73 years of age. It is impossible to read the record without seeing that even at a later date, he remained a man of outstanding ability and strong personality. From 1910 his was undoubtedly the predominant influence in the firm, although he was only one of nine members, as also in the directorate of the company, although the evidence is clear to show that no duly qualified shareholder who desired a seat on the Board was ever excluded therefrom. His influence, real, and, for anything that appears, thoroughly well deserved, was not, at all events, unwelcome. Everything points to the conclusion th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on the 27th August, 1921, to confirm the resolution, he proposed an amendment to the effect that the company should be wound up voluntarily. And his amendment was carried by a bare majority of the members present, and Venkata Rao's original resolution was therefore lost, although the amendment was not, of course, affirmatively effective. From this incident must be dated the movement, such as it was, headed by Sabapathi Rao, culminating in the petition and ultimately in the winding up order which is now under review. The petition, as has been said, was presented on the 1st May, 1922. There were six petitioners, Sabapathi Rao is one ; his brother, Lakshmikantha Rao, holding two shares, is another ; a third has since died ; and a fourth, Sidbasappa, sold his 21 shares in the company on the 2nd November, 1924, before the winding up order was made. The whole six petitioners between them held no more than 32 shares out of the total of 200. Only one other shareholder, the respondent. Madam Venkayya, supported them. The company, in its opposition to the petition, respresented the views of a preponderant majority. It was amply solvent. Creditors were in no way interested, if they existed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... st meeting of the Company, defeated by a majority vote in favour of voluntary liquidation. Again, in contrast with a charge in paragraph 10 that the treasurer firm improperly retains the Company's balances for its own advantage-the main burden of the petition-the complaint of paragraph 11, inconsistently enough, is that Venkata Rao is proposing to invest Rs. 30,000 of presumably these very balances in the purchase of machinery for the Raichur mill-a purchase from which it is not suggested that, except as shareholders, any advantage could accrue either to himself or his firm. These contradictions are important in a petition whose remaining charges, when supported by any evidence at all, and when not based upon facts distorted in statement beyond recognition, are either vague or out of date. But as there is one charge-trivial enough, for service on such a petition, but upon the supposed proof of which the learned Judges of the High Court appear mainly to have proceeded in making the winding up order-it will be convenient to deal with it in detail now. It is typical also of other charges. It is alleged in paragraph 8 that six years before, i.e., in 1916, Venkata Rao threatened to ca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s does not enter into the later threat at all. But that this second threat was ever made again depends on the statement of Sabapathi Rao alone-a witness, Audimulam Pillai, evidently called to corroborate his story failing to do so (Appendix, Part I, p. 43). The learned Judge found that none of the charges against Venkata Rao had been established. So far as these, in particular, were concerned, there was surely no room at all for any other conclusion. Upon the evidence, this is one of the reckless unsubstantiated allegations by which the petition is discredited. It is unfortunate, indeed, that the winding up order should to any extent have been rested on the assumption that it had been proved. It would be tedious further to detail the charges in the petition, the alleged delay in payment of dividends and the like. It will suffice to take these from the learned Trial Judge's judgment. But there are two matters further affecting the good faith of the petition as a whole which cannot properly he passed over in silence. The first of these are the words in paragraph 10, in which the position of the firm as treasurers under the special resolution of 1910 is attacked: "Under the pretext ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of these grave allegations, or any of them. With regard to the charge against Venkata Rao, Sabapathi Rao sought in evidence to justify its insertion in the petition on the ground that it was based upon information given to him by an unnamed ex-official of the company, who was not, however, going to be called as a witness. And not even by a question put to Venkata Rao, in the course of his prolonged cross-examinations, both on the petition and in the course of the liquidation, has this accusation of fraud against him ever been again referred to or revived. So far as the auditor is concerned, the charge, without the slightest evidence to support it, is even more culpable. Its recklessness may be judged by the fact that not only were the audited accounts invariably accepted in each year with unanimity by the shareholders at meetings, several of them attended by Sabapathi Rao and other petitioners, but the audited accounts after eight years still remain undisturbed. And the auditor is now dead. These grave allegations of personal dishonesty with no available evidence to support them make it incumbent upon every court to approach the other allegations of the petition with the greatest ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the treasurers in retaining the moneys they did retain or on the part of directors in recommending their retention. The balances were, in fact, the working capital of the company, even although some portion of them might without illegality or even inconvenience have been distributed as dividend had the shareholders so insisted. The petitioners appealed to the High Court by notice, dated the 17th November, 1922. For some unexplained reason the appeal was not disposed of until the 13th November, 1924-nearly two years later. There were no new materials placed before the Appellate Court to account for this loss of time, which would not have been possible in England, where winding-up appeals are placed in an interlocutory list in order to be beyond any such risk. Their Lordships hope that this case is, in this, as in so many other respects, exceptional. But this delay ought to have weighed with the learned Judges in reaching a decision. The difficulties created by a winding-up order in November, 1924, with effect from the 1st May, 1922, which so soon became manifest in the liquidation, might have given them pause. It does not appear that those difficulties were even present to their m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s has been stated, has before this judgment of the High Court, sold his shares. In active support of the petition, therefore, if Venkata Rao has sworn truly, there remained, at the date of the winding-up order, only Sabapathi Rao and his brother, holding three shares between them, and Madam Venkayya, who had never even verified its allegations. A striking comment on the observations of the High Court when read in the light of the history already set forth. But, presumably, these petitioning casualties were not-at least, all of them-known to the learned Judges and Venkata's statement of them may have been exaggerated. Even so, the conclusions of the Appellate Court cannot, in their Lordships' judgment, be supported. Their own examination of the petition leads them, on the evidence, to the inevitable conclusion that its allegations, so far as these were offensive, were entirely unproved. Its proper fate was the dismissal which it met with at the hand of the Trial Judge. The winding-up order on the materials before the High Court ought not to have been made. But many further considerations emerging in subsequent events have to be weighed before it can be properly disposed of. To the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al Liquidator alone has appeared to oppose. He has taken it upon himself to contest the appellants' case ab initio-the remaining respondents, with Madam Venkayya, their unpledged supporter, being all who remain of the original petitioners. They have kept themselves in the background throughout, doubtless by arrangement. The Official Liquidator in his printed case and at the Bar has said for them all that they could have said for themselves. Moreover, he has had printed and included in the record 364 pages of the proceedings in the winding-up, including a verbatim transcript of the depositions that have been taken in the course of it. What has really been attempted by this procedure is that the opposition to the appeal-the petitioners' business-shall be conducted even if it fails at the charge of the assets of the Company. Such unusual partisan activity on the part of an Official Liquidator in relation to such an appeal clearly called for some justification, and this was sought to be supplied by referring to an order of the 14th November, 1928, by the Judge in winding-up, which directed the Liquidator to oppose the appeal and do all the above things. Their Lordships have noted that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... interpret with an excess of liberality an order which has enabled him of expense to the petitioners, in relief of their responsibilities, and already at a cost far in excess of any possible interest of theirs in assets, to fight their battle, with, as will be seen, no success and at what, except as to a trifling amount, must be the inordinate expense of their opponents. It is to be hoped that orders like that of the 14th November, 1928, will not in future be lightly made in the course of an Indian winding up. The only results of the order in the present instance have been excessive delay and utterly useless expenditure, both of which will, like the delay already referred to, be found to have been operative to the prejudice of the appellants, in absence of whom the order was made. It was upon these appendices and their contents that the real opposition to the appeal was based by the Official Liquidator. When examined, they strike their Lordships as being for the most part quite irrelevant to the conclusion which he asked the Board to draw from their perusal. It is quite true that there are found in them instances of grave disobedience by Venkata Rao to orders for payment into Cour ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... m of association of every trading company, and very easily implied in the skeleton form in use and adopted for this company in 1882. His answer as to the lease of the gins was that it amounted to the completion of the lease of the mill at Raichur which had been made with the shareholders' assent as from the previous January. It is unnecessary for their Lordships at this stage to go into further detail. The acts were long after the petition and it is, moreover, well settled that an ultra vires transaction on the part of directors, if this was one, is of itself no ground for a winding-up order. A shareholder has his complete remedy in other directions. Accordingly, their Lordships have reached the conclusion that the proceedings in the liquidation, the details of which -at such great expense-the Official Liquidator has introduced into the appeal, do not, in any way, help the case he has sought to make. On the contrary, they operate further to imperil it. For what, in their Lordships' judgment, these proceedings do show is that, owing to the mistaken principles upon which the liquidation has been conducted, doubtful orders have been made in the past and that, unless the methods hith ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... no regard was had to the law of the Nizam's Dominions, where the validity or otherwise of the lease would have been determined without any reference whatever to section 227(2). They say nothing of all that followed therefrom. They are concerned now only to point out that the later disasters flowed from the initial failure of these responsible to appreciate that no one had been or remained interested in the factory except the shareholders, who had by an unopposed resolution approved the lease, and that so far from declaring it void under the section, it was a transaction to be confirmed almost as a matter of course. The second typical example of failure in the same respect is disclosed in the proceedings with reference to a dividend of Rs. 40 per share in respect of the profits of the company for the years 1922 and 1923, declared unanimously at a meeting of shareholders, or more accurately of contributories, held on the 27th December, 1924, as one to be paid on the terms that it would be repaid if called for. At that date the winding-up order had been made, but no Liquidator had so far been appointed. In point of law, under section 178(2) of the Act the company's assets were then c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was done was the original petitioner, Sidbasappa, then not even a contributory, acting through Sabapathi Rao (see second appendix, page 119), while the claimant against whom the irrelevant campaign was waged was I. Narayana Reddi, one of the directors. But there are other orders made in the liquidation, the terms of which are set forth in the Official Liquidator's appendices, and, on the face of them, at all events, so remarkable that it would not be very disconcerting to note their disappearance with the winding-up order, on which they depend. There are also cases, where, on the startling opinion judicially expressed in the order of the 4th March, 1925, "that in effect the treasurers are not very different from the director," orders have apparently without discrimination been made against "the directors" or "the treasurers," without anything whatever to indicate who are the persons so described. Their Lordships have been specially struck by the three orders following: (a)An order of the 19th April, 1928, whereby five named directors are apparently as for a misfeasance, and on a summons in chambers ordered to pay Rs. 7761-13-9-a sum which a debtor to the company had made default ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ught never to have been presented, for, even if not merely vindictive and malicious, the petition was entirely without proved merits. They find also that the winding-up order has in the liquidation been succeeded by a series of orders off-hand in form and on the face of them, at all events, made without full consideration of all relevant circumstances. Lastly, their Lordships find a liquidation in being which, if carried on as it has been begun, can, as they forecast it, and in nothing for the contributories but a call of all the unpaid capital to provide for payment of the costs and expenses. And for these disasters, one and all-with the exception only of the expense and trouble due to the recalcitrancy of Venkata Rao, the costs of which have already and rightly fallen upon him-the petitioners are mainly, if not indeed entirely, responsible. There is, therefore, so far, and even at this distance of time, everything to be said for the discharge of the winding-up order appealed against. But what would now be the consequences of discharging that order ? The business of the company has ceased for years : its undertaking has been broken up: its reconstitution except under new auspices ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... imilar to those which have led their Lordships to leave the winding-up order in being, and whether the accounts of the company for 1924 should not be taken on the best available materials and audited in order that on these accounts, as so taken, the actual amounts with which the treasurers are to be charged may appear as accurately as is now possible. Particularly, however, will it be for the learned Judge to determine if the liquidator should not be directed to consider, as a protection from all further litigation, whether the liquidation cannot be brought to an end by some scheme under which the whole remaining assets of the company would be taken over by the majority contributories on the terms of their providing for the authorised costs and expenses of the liquidation and a sum equivalent to the then existing value of the shares in the company of the remaining contributories; and whether, failing that the liquidator should not be directed in relation to the dividend declared on the 22nd December, 1924, and notwithstanding the orders on that subject previously made, either to complete its distribution out of the assets in his hands or enforce repayment from each recipient of the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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