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TMI Blog1956 (2) TMI 32X X X X Extracts X X X X X X X X Extracts X X X X ..... , and the Himabhai Manufacturing Company Limited, Ahmedabad, hereinafter referred to as the Himabhai Company, submitted their tender on the 15th September, 1953, offering to purchase the same. The said offer was sanctioned by the court on the 22nd September, 1953, and an agreement was entered into between the liquidators and the Himabhai Company for the sale of the properties therein mentioned for a consideration of Rs. 12,68,000. Rs. 3,00,000 were to be paid in cash and the balance in 1936 shares of the Himabhai Company which were taken to be of the value of Rs. 500 per share. There were 484 shares of the National Mills held by 232 shareholders. It was then contemplated that, after the payment of all debts by the liquidators, these 1936 shares would be distributed amongst the contributories in the proportion of 4 shares of the Himabhai Company to 1 share of the National Mills. Clauses 5 and 6 of the agreement, however, provided:- "Clause (5 ). That the managing agents of the second party Sheth Chunilal Khushaldas by way of and in consideration of this agreement, agrees to purchase the shares to be issued by the second party from the contibutories of the first party as agreed at R ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , the liquidators secured letters of authority from contributories holding 277 shares in the National Mills representing 908 shares of the Himabhai Company, and, armed with these letters of authority, approached Chunilal at 7-30 p.m. on the 17th September, 1954, asking him to take delivery of the 1936 shares which had been allotted to them along with blank transfer forms duly signed by them. They purported to tender these shares under clause (5) of the agreement dated the 28th September, 1953, and called upon Chunilal to fulfil his obligation under the agreement dated the 3rd November, 1953. Chunilal, however, contended that the tender was not valid and he was not bound to accept the same. A letter and a telegram dated the 17th September, 1954, were addressed by the liquidators to Chunilal and he replied the same day denying that he had ever refused to accept delivery of whatever the liquidators wanted to deliver to him. He further called upon the liquidators to deliver to him that very day whatever they wanted to deliver. The liquidators replied on the 18th September, 1954, reiterating the position which they had taken up and insisted upon Chunilal fulfilling his obligation. They ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... surviving liquidators, hereinafter referred to as Trikamlal, offering to take the said 1936 shares. On the morning of the 29th July, 1955, there was an interview between one Ratilal Nathalal, a co-director of the Himabhai Company on the one hand and Trikamlal on the other in the office of Vasavda, a labour leader in, Ahmedabad, in the premises of the Majoor Mahajan. Trikamlal, at that interview, drafted a letter which he handed over to Ratilal Nathalal with instructions that, if a letter in those terms was addressed by Chunilal to the liquidators accompanied by a cheque for the full amount of Rs. 9,68,000, the said 1936 shares would be delivered to him. Chunilal accordingly addressed to the liquidators a letter on the same date in accordance with the said draft waiving all the objections to the tender made on the 17th September, 1954, and offering to take delivery of the said 1936 shares at the said rate in pursuance of the agreement dated the 3rd November, 1953. He sent a cheque for Rs. 9,68,000 along with the said letter and requested the liquidators to deliver the said 1936 shares to him with transfer forms duly signed by them. Matubhai, son or Chunilal, went along with the sai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ombay, and intimated that the liquidators would properly deal with the subject after Dave had been acquainted with the matter. Chunilal sent Thakersey N. Shah to Trikamlal on the 2nd August, 1955, along with his letter of the same date asking Trikamlal to deliver the said 1936 shares to him and also 20 transfer forms duly signed by the liquidators. He also asked for the stamped receipt for the amount paid by him in full settlement of the amount of the said shares. Trikamlal replied the same day stating that Dave had not returned from Bombay and, therefore, nothing could be done till he returned. He stated further that on the return of Dave, he, Trikamlal, would submit the correspondence between Chunilal and himself to Dave for further action. He, however, stated that, without prejudice to the rights of the liquidators and subject to the approval by Dave and subject to the sanction of the District Judge, he was sending the cheque for Rs. 9,68,000 drawn by Chunilal in favour of the liquidators to the bank for acceptance. This cheque was cashed by the bank and the amount was credited to the account of the liquidators. After Dave returned from Bombay and the liquidators had consultati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nder which he came to make his said offer and submitted that his offer being prior in time should be accepted in preference to the offer of Chunilal. The District Judge, after hearing the arguments advanced before him by the liquidators as well as Chunilal and Adhyaru, sanctioned the offer of Chunilal. He negatived the contention that Chunilal had committed a breach of the agreement dated the 3rd November, 1953, observing that the tender purporting to have been made by the liquidators on the 17th September, 1954, was not a valid tender. He took into consideration the circumstances under which Chunilal had come to write the letter dated the 29th July, 1955, and the events that had since happened in regard to Chunilal's offer to purchase these shares and observed that even if Adhyaru may be inconvenienced by reason of Chunilal's offer it would be unfair to penalise Chunilal and deprive him of the right to which he was entitled under the agreement. He, therefore, ordered that the offer of Chunilal be accepted by the liquidators and as the full price had already been paid by him the 1936 shares be delivered to him or his duly authorised agent together with the necessary transfer forms ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sed by the liquidators showing that one Pasavala had deposited with them an amount of Rs. 11,61,600 at the rate of Rs. 600 per share. Counsel appeared also on behalf of one Gangaprasad Puria offering to purchase the said 1936 shares en bloc at the rate of Rs. 625 per share. The High Court set aside the order of the District Judge and ordered that the said shares should be sold in the open market and that the offer made by Pasavala should be taken as the minimum offer made for the purchase of the shares in question. The amount of Rs. 11,61,600 deposited by Pasavala in support of the offer was ordered to continue in deposit with the liquidators until the public auction was held and the bid made at the public auction was sanctioned by the District Judge. Chunilal and Adhyaru were declared entitled to bid at the auction if they so desired. Adhyaru was declared to be at liberty to withdraw the additional amount deposited by him with the liquidators. Each party was ordered to bear and pay his own costs. In the judgment which it delivered, the High Court laid great stress upon the observation of the District Judge that Chunilal was entitled to a right under the agreement. This position w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d a right under the agreement. He further contended that the offer made by Chunilal was really for Rs. 520 per share he having agreed to give to the liquidators the dividend sanctioned in the annual general meeting of the Himabhai Company for the year 1954 and was, therefore, higher than the offer of Adhyaru by Rs. 20 per share. He also contended that the District Judge was right in holding that the had not committed a breach of the agreement and had exercised his discretion properly in his favour. He, therefore, contended that the discretion exercised by the District Judge, not being in any manner whatever erroneous, should not have been interfered with by the High Court and the order made by the District Judge should have been confirmed. In regard to the order of the High Court directing a sale by public auction of these shares, he contended that throughout up to the 4th August, 1955, the market price for these shares had never gone beyond Rs. 427-8-0 or at the highest Rs. 450 per share, that the contributories had accepted the same position not only in their letters addressed to the liquidators between the 19th July and the 29th July, 1955, but also in the grounds of appeal whic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... onduct met with disapproval at the hands of the High Court and it was by reason of what the High Court thought of their attitude that even though the High Court refused to accept Chunilal's offer it also refused to accept Adhyaru's offer and directed that a sale by public auction of these shares should be held by the District Court as above stated. Counsel for the liquidators urged before us that they were no doubt guilty of an indiscretion in so far as they did not prominently bring to the notice of the District Judge the fact of the countermanding of their authority by the contributories and the further fact that if the said shares were sold en bloc in open market they might have fetched much more than Rs. 500 per share which had been offered by Chunilal and Adhyaru. He, however, endeavoured to justify the conduct of the liquidators in all other respects and urged that it was in the interest of the contributories that the order made by the High Court should be sustained. It is necessary to clear the ground by considering the two points which particularly weighed with the High Court, viz., ( i)that Chunilal had committed a breach of the agreement dated the 3rd November, 1953, and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rom Chunilal by offering 700 out of these 1936 shares which were allotted by the Himabhai Company in their names. They, therefore, set about obtaining letters of authority from the contributories and by the 14th September, 1954, succeeded in obtaining such letters of authority from the contributories to the extent of 908 out of these 1936 shares according to the version of Chunilal and 1236 out of these 1936 shares according to their own version. They appear to have considered that with the letters of authority in respect of the 1236 shares they would be entitled to tender the whole lot of 1936 shares to Chunilal and call upon him to pay the sum of Rs. 9,68,000 computed at the rate of Rs. 500 per share by the combined operation of clauses (5) and (6), they being entitled in their own right to submit 700 shares to Chunilal under clause (6) and they having letters of authority from the contributories to the extent of the balance of 1236 shares. These were the documents which they purported to tender to Chunilal on the evening of 17th September, 1954. The whole tender was a composite tender and Chunilal was not satisfied that it was a valid tender of these 1936 shares by the liquidato ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nilal would pay to them the price of these shares at the rate of Rs. 500 per share which price was certainly far higher than the price of the shares which obtained in the market at or about the times when the agreements were entered into between the parties. It was a distinct advantage which was stipulated for the benefit of the contributories and the liquidators and it was with a view to secure that advantage to themselves that the liquidators armed themselves with the letters of authority from the contributories such as were available to them and purported to make the tender of all the 1936 shares to Chunilal on the evening of the 17th September, 1954. The price of these shares quoted in the market was no more than Rs. 427-8-0 per share and in purporting to make this tender the liquidators wanted to secure a definite advantage to themselves and the contributories by trying to hold Chunilal to his obligation to pay Rs. 500 per share. It was contended that Chunilal committed a breach of the agreement and the agreement, therefore, came to an end. There was nothing, however, to prevent the liquidators from submitting to Chunilal 700 shares in exercise of their right under clause (6) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd others in the resolution which they were going to move at the annual general meeting of the Himabhai Company which was to be held on the 6th August, 1955, with a view to safeguard the interest of the contributories but these directions also were not calculated to do anything further than try to punish Chunilal for his alleged breach of the agreement. Adhyaru made up his mind finally on the 27th July, 1955, and he wrote a letter to the liquidators offering to purchase these 1936 shares at the rate of Rs. 500 per share subject to the sanction of the District Court. He gave a cheque of Rs. 1,00,000 as and by way of earnest which cheque the liquidators kept with themselves pending the sanction of the District Court. It was not cashed by them at any time. In the meanwhile, Chunilal, through his co-director Radial Nathalal, had an interview with Trikamlal in the office of Vasavda and Trikamlal gave to Ratilal Nathalal a draft of the letter to be addressed by Chunilal to the liquidators waiving his objections to the tender which purported to have been made by the liquidators to him on the evening of the 17th September, 1954, and offering to take delivery of the said 1936 shares for the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt transfer forms duly signed by the liquidators. This was what may well have been referred to by the District Judge in his judgment delivered on the 4th August, 1955, as a right. Even though both the offers of Chunilal and Adhyaru were placed before the court each offering no more than Rs. 500 per share for the purchase of the whole lot of 1936 shares, the District Judge was perfectly right in the exercise of his discretion in sanctioning the offer of Chunilal who was fulfilling his obligation under the agreement and was certainly entitled to better consideration at the hands of the court than Adhyaru. The fact that Adhyaru's offer was dated the 27th July, 1955, and Chunilal's offer was dated the 29th July, 1955, was neither here nor there. Both were in effect simultaneous offers for the purchase of this block of 1936 shares at the price of Rs. 500 per share as it appears to have been understood and if that was the position there was in the events that happened perfect justification for the District Judge exercising his discretion in favour of Chunilal in spite of the recommendation which had been made by the liquidators in their report in favour of Adhyaru. There was no erroneous ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h blank transfer forms duly signed by both the liquidators. There was thus no prospect at all on the 3rd August, 1955, when the application was made by the liquidators to the District Judge of obtaining anything beyond the said sum of Rs. 500 per share and there was also no question of giving any notice to the contributories in the matter of the said application. No contributory would have cared as the matters then stood to appear before the District Judge and we fail to understand what contention the contributories would have urged before the District Judge apart from that which was already urged by the liquidators in their report. There was no question also at that time of any competition between Chunilal on the one hand and Adhyaru on the other, much less between either or both of them and outside parties. Nobody at that time thought that the shares were capable of realising more than Rs. 500 per share which Chunilal or Adhyaru were willing to offer. As a matter of fact, Madhubhai, who was one of the biggest contributories of the National Mills, joined Adhyaru in the appeal which he took to the High Court against the judgment and order of the District Judge dated the 4th August, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urt that Adhyaru's offer also should not be accepted. Counsel for one Gangaprasad Puria also offered to purchase en bloc the 1936 shares at the rate of Rs. 625 per share. The High Court, under the circumstances, thought in the interest of the contributories a sale by public auction of these 1936 shares en bloc should be held by the District Court with Rs. 600 per share as the minimum offer for the purchase of the shares in question. It is clear from the above that there could be no question of the District Court giving any notice to the contributories and the District Judge was right in the circumstances of the case in considering the only two offers which were submitted before him and exercising his discretion and giving the sanction in favour of Chunilal as he did. If even the contributories whose interests were primarily to be safeguarded had not the slightest notion that anything more than Rs. 500 per share could be obtained by a sale of the shares in open market as is evident from the attitude of Madhubhai right up to the 25th August, 1955, much less could the liquidators or the District Judge himself have thought of having these shares sold in the open market. If that step h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e of these 1936 shares by public auction as it did. There is also a further consideration why the offer of Chunilal should have been accepted in preference to that of Adhyaru. By his letter dated the 29th July, 1955, addressed to the liquidators, Chunilal had offered to give to the liquidators the dividend sanctioned at the annual general meeting of the Himabhai Company for the year 1954. The directors of the company had recommended Rs. 20 per share as and by way of dividend and that dividend was to be declared at the annual general meeting which was to be held on the 6th August, 1955. The shares stood in the name of the liquidators in the register of shareholders of the Himabhai Company and, so far as the company was concerned the dividend would be payable to the liquidators in whose names the shares stood, unless by the time that the dividend came to be declared the shares were transferred in the register of shareholders to the name of Chunilal. The books of the company were to be closed from the 30th July, 1955, and unless the transaction had been completed and the shares transferred in the register of shareholders of the company to the name of Chunilal he would not have been e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hyaru were before the District Court and the moment the court sanctioned either of the two offers, the contract of sale would become complete. If the contract of sale thus became complete on the 4th August, 1955, before the declaration of the dividend at the annual general meeting of the Himabhai Company on the 6th August, 1955, as between the liquidators and the purchaser the liquidators would be entitled to recover the dividends from the company but would be bound to hand over the same to the purchaser. If Adhyaru's offer had been sanctioned Adhyaru would have got these dividends from the liquidators and the liquidators would not have been entitled to retain the same there being nothing to that effect in the terms of the offer given by Adhyaru to the liquidators on the 27th July, 1955. On the other hand, the liquidators would have been entitled to retain the dividends as against Chunilal because, by his letter dated the 29th July, 1955, he had agreed to give the dividends to the liquidators. In either view of the situation, the liquidators stood to gain Rs. 20 more per share if Chunilal's offer was sanctioned. They were thus in a position to realise Rs. 520 per share as against R ..... X X X X Extracts X X X X X X X X Extracts X X X X
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