TMI Blog1953 (10) TMI 31X X X X Extracts X X X X X X X X Extracts X X X X ..... of a provisional liquidator; and accordingly a provisional liquidator was appointed on that application by an order dated April 18, 1952. It may be mentioned that the company was ordered to be wound up in O.P. No. 112 of 1952 on September 29, 1952. After the appointment of the provisional liquidator on April 18, 1952 and prior to the order of winding up, the applicant bank is said to have advanced a. sum of Rs. 21,000 to the company. This company was under the management of managing agents known as the Aidco Ltd., of which one v. Butchiah Chowdary was the managing director. At a meeting of the board of directors of the company in liquidation held on January 25,1952, it was also resolved to borrow upto Rs. 10 lakhs from the andhra Bank Ltd., on the pledge of sugar, jaggery and gunnies of the company. It was also resolved to authorise the managing agents to execute the necessary documents to the andhra Bank Ltd. to give effect to the above resolution. On the same date, there was a meeting of the board of directors of the Aidco Ltd., when it was resolved to authorise the managing director, v. Butchiah Chowdary, to borrow on behalf of the Aidco Ltd., as managing agents for the Godavar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the loan obtained by the company from the andhra Bank was only Rs. 12,000. The accounts also show that the next day, April 26, 1952, a further sum of Rs. 9,000 was taken by the company by a self-cheque drawn by Butchiah Chowdary. Thus, the andhra Bank is said to have advanced, as loan to the company in liquidation, a sum of Rs. 12,000 on April 25, 1952, and a further sum of Rs. 9,000 on 26th April, 1952, on the security of sugar and gunny bags stated above. It will be seen that those two advances were made after the presentation of the petition for winding up, and indeed even after the appointment of the provisional liquidator, and prior to the order for winding up. This application is filed by the andhra Bank under section 227(2) of the Companies Act for validating the charge in their favour. That section provides that in the case of a winding up by or subject to the supervision of the court, every disposition of the property (including actionable claims) of the company made after the commencement of the winding up shall, unless the court otherwise orders, be void. In this case, there was a disposition of the sugar and the gunnies in favour of the applicant bank after the commen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was found by the learned Judge that that amount was advanced for the purpose of preserving the business as a going concern, and that if he had not done so, the wages would not have been paid and the business temporarily at any rate, would have had to be closed down. In those circumstances, it was held that the transaction was just the sort of transaction which Lord Cairns thought it was the object of the proviso to the section to preserve and which ought to be rendered valid by an order of the court. In that case, it was also argued that the power under the section ought not to be exercised in favour of a person who, at the date of the transaction in question, had knowledge that ;the winding up petition had been presented. In that case, the debenture holder was aware, when he agreed to advance the money, that a petition had been presented for the winding up of the company. That contention was repelled and Romer J. observed at page 832 : "If, therefore, I were to hold that no one who knows of presentation of a petition can safely enter into any arrangement with the company, I think I should be depriving the company of the benefit which, according to Lord Cairns, the provision of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... undamental principle of equality amongst creditors to be violated. To do so would in effect be to add to the preferential debts enumerated in section 230 a further category of all debts which the company might choose to pay wholly or in part." The learned Chief Justice also propounded at page 728 the following test for the proper exercise of the court's discretion: "and as the court's sanction is now asked for ex post facto, I think it a fair test to consider whether the court would have sanctioned the giving of these securities, supposing it had been asked to do so at the time." In official Liquidators, Gorakhpur Electric Supply Co. v. Siemens India Ltd. the learned Judge sums up the principle as well as the exception thereto in these words at pages 733 and 734: "There can be no doubt that the ordinary principle is that all creditors to whom money is due at the date of the petition for winding up, should be treated equally, with certain exceptions in favour of those who have priority under the express provisions of the Act. Where the company or its officers make preferential payments to some creditors, they are obviously acting in contravention of this rule. On the o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arized, if I may say so with respect, in Ramlal v. official Liquidator, Benares Bank Ltd.: "The principle must prevail, that is, the principle of pari passu distribution among the creditors. It was not a case of salvage, or real necessity, nor of the transaction having been the only means of keeping the company going." It may be that in this case the andhra Bank were bona fide in having advanced the said sums to the company without any notice of the presentation of the winding up petition. Merely because they were bona fide lenders, it does not at once follow that the transaction in their favour should be validated. This is a case in which one of two innocent parties has to suffer, the applicant bank on the one hand and the general body of creditors on the other. It is for the applicant bank to make out a case why they should be preferred to the general body of creditors and why the discretion of the court should be exercised in their favour under section 227(2) of the Act. That leads us to the consideration of the circumstances in which the loans were advanced by the bank to the company in liquidation. In Considering those circumstances, it is well to emphasise one i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... But it appears in his evidence that by that time the sugar-cane crushing season was over, as ordinarily it would be over by the end of March. The season is between October and March. It is therefore clear that in April 1952, there would have been no necessity to keep the factory only as a going concern, because the crushing season will commence on in the following October. Moreover the money was required, even according to the evidence of P.W.I, to pay off the wages of workmen who had finished the work and who were anxious to return home. The payment to those workmen were obviously not intended to keep them in the factory to as to keep it going. So also, the payments said to have been made to the sugar-cane growers who supplied sugar-cane cannot be for the purpose of keeping the factory as a going concern, for, the supply has already been made and the next supply will only be in the following October. It will also be seen that the evidence of P.W.I, in cross-examination shows that the only enquiry which he made in the factory was about its financial stability and that he pat no other question. In facts, he expressly admitted that so far as the second loan of Rs. 9,000 was concerne ..... X X X X Extracts X X X X X X X X Extracts X X X X
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