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TMI Blog1930 (2) TMI 15X X X X Extracts X X X X X X X X Extracts X X X X ..... No. 28 of 1928) presented their petition for the compulsory winding-up of the company. At that date the Industrial Bank were unsecured creditors of the company for about ₹ 2,02,187. At that same date the Imperial Bank of India, Ltd., Ahmedabad Branch (hereinafter called " the Imperial Bank", who are the respondents in Appeal No. 29 of 1928), and Dungershi Harilal (who is the respondent in Appeal No. 30 of 1928), were also unsecured creditors of the company, the former for ₹ 3,86,428 and the latter for ₹ 40,278. 3. It is common ground that the petition, Exhibit 15/1, was advertised for hearing 'on July 26, 1924, but Appeal Exhibits AB and AC show that on June 21 the application of the petitioning creditors for a provisional liquidator supported by their affidavit (Exhibit 15/2) came on for hearing and was adjourned to July 26 with a direction to the company to put in certain balancesheets; and that on July 26 this application and also the main petition were adjourned to July 31 after some argument on a preliminary point of jurisdiction. On July 31, the Judge made an important order adjourning the petition to August 26,1924, and appointing Mr. Sharp, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ons from being void. It is urged that the Court should make that order because the dispositions were all bona fide and in the ordinary course of business, and because the company thereby gained time to consider schemes of arrangement or a sale as a going concern. As the learned Judge (Mr. Broomfield) accepted that view, it is necessary for this Court to consider and weigh his reasons very closely before arriving at any conclusion different from that which he came to. 6. As regards the subsequent proceedings, Mr. Sharp made his report on August 12 (Exhibit 15/9). On August 25 the Industrial Bank applied for an adjournment which was supported by other parties (Exhibit 15/8). This was granted by the Court by the order of August 27, which authorised a Mr. Blair to prepare a scheme for the consideration of a creditors' meeting on September 10 and a shareholders' meeting on September 13 and adjourned the petition to September 15, 1924 (Exhibit 15/10). The subsequent proceedings are recited in the order of October 6, (Exhibit 15/11), whereby Rao Bahadur Girdharlal was appointed an officer of the Court for the purpose of inviting schemes under the Court's directions and placin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e giving of these securities, supposing it had been asked to do so at the time as a condition for granting an adjournment under Section 170 of the Indian Companies Act, instead of making a winding-up order to which prima facie the petitioning creditors, the Industrial Bank, were entitled. 9. Applying then that test, what would have been the material circumstances for the Court to consider if such an application had been made on, say, July 26 or 31 ? In the first place, I think, it is fairly established that on those dates, it was considered in the interests of all parties that the Mill should not then and there be stopped, but that it should be continued as a going concern for a period sufficient to enable it to be ascertained whether the assets were sufficient to pay the debts, and whether a scheme of reconstruction should be adopted or a sale made. A sale as a going concern would prima facie fetch a better price than if work at the Mill had been stopped and all the staff discharged. To this extent then I respectfully agree with what the learned Judge has found. 10. On the other hand, it is in my judgment very pertinent co ask what could the respondents have done if they had not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lso dishonoured by non-payment the promissory notes for in all four lacs which were presented by the Imperial Bank on July 2 for payment and had stated by their letters of July 2 (Exhibit A 12/3, Exhibit A 12/5) that they had no cash on hand for immediate payment, and had requested the Imperial Bank to arrange to renew the loans temporarily. 13. I also appreciate that the Court is reluctant to grant long adjournments of a winding-up petition because of the complications that may be caused if afterwards a winding-up order is made. On the other hand, the powers of the Court under Section 170 are clear. It is accordingly stated in Halsbury's Laws of England, Vol. V, p. 412, as follows:- Adjournments for the purposes of enabling evidence to he completed, witnesses cross-examined, compromises arrived at, or reconstructions carried out are of frequent occurrence ; but long unconditional adjournments may do great harm, not only by paralysing the company, but by invalidating intermediate transactions if a winding-up order is ultimately made. 14. So, too, in Palmer, 13th Edn., Part II, p. 135, it is said :- " The Court sometimes directs or allows winding-up petitions to stand ov ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and the probability of only a small yield from the sums due by local Mills." The contention, therefore, before us of Mr. Thakor for the Industrial Bank that the business of the company itself was thoroughly a sound one, and that it was only brought down by its unfortunate advances to other companies in which the managing agents were interested, appears to be well founded. 16. But supposing one takes the other alternative and assumes that the Court would have refused any adjournment and made a winding-up order, would that necessarily have involved the immediate stoppage of the Mill, or vitally affected its continuance as a going concern ? The answer, I think, is in the negative, provided any necessary sanction of the Court was obtained. Under Section 179 (6) the official liquidator with the sanction of the Court would have power to carry on the business of the company so far as might be necessary for the beneficial winding-up of the same. And under Sub-clause (g) with the Court's sanction he could raise on the security of the assets of the company any money requisite. Further, under Section 234 he would have power with the Court's sanction to pay any classes of credit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ancial aid beyond the fact that they did not press for payment of their existing debts. Consequently, the company must have been financed in some way without their aid, and it may be that this was effected by the agents themselves, as was contemplated in the resolution passed at the shareholders' meeting of August 18, 1924, set out in para. 6 of the written statement of the Imperial Bank, which runs :- The shareholders are of opinion that the company should not be wound up and taken into liquidation as the agents Messrs. Whittle Maganlal and Sons are still existing agents of this company and the agents have agreed to hold themselves as security for lending and for borrowing moneys from time to time for Mills concerns and Companies under their control. The shareholders' views as to the financial condition of the agents may have been too optimistic, for we know that the agents had dishonoured their own promissory notes on July 2, and their general conduct had been attacked in the affidavit of June 12 (Exhibit 15/2). Also we were told by counsel that the agent Mr. Naginlal Maganlal eventually became insolvent and was convicted of some criminal offence. The rest of this resol ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ust the Court's powers under Section 179 (h) and (g). 23. As regards the actual running of the Mill, I quite appreciate that care would have been required to obtain a responsible liquidator. A business of this sort would require a man of experience and ability. It was suggested to us that possibly the Court might have allowed the managing agents to continue the management of the Mill under the supervision of the liquidator. But even if the Court was not prepared to do this in view of the affidavit of June 12, 1924, (Exhibit 15/2), to the effect that the company was heavily involved, and the agents were trying to create further complications which would jeopardise the interests of the creditors, and that in consequence of the financial difficulties of the company the managing agent was remaining out of Virarngam and the affairs of the company were left with subordinates and ordinary clerks and the interests of the creditors were suffering on that account, yet some other person of sufficient business competence might have been appointed as manager. 24. In short then the question whether a winding-up order was to be made did not rest wholly with the Industrial Bank, or the Imper ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a real necessity to the company, and that substantially the same object could have been attained without giving them any security at all. I would here point out that as regards the Industrial Bank and the respondent Dungershi, there is nothing to show that they were bound to hold their hands for any particular period. As regards the Imperial Bank, their written statement states in para. 3 (g) that the debentures were "deposited with the Bank by the agents of the company as security in consideration of the Bank granting time at its discretion for repayment of the advances." Legally, therefore, it would seem that all the three respondents, notwithstanding the fact that they had obtained security, might nevertheless have pressed for payment of their original debts within at any rate a short time. Probably they never contemplated such a long adjournment as to March 3,1925, but got caught in the confusion caused by the various meetings and counter schemes and High Court litigation. Much the same result might, however, have happened even if the Court had originally granted a month's adjournment despite their opposition. 27. I quite appreciate the force of the argument tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ourt has to exercise a judicial discretion of great importance under Section 170 as to what order it shall pass, and none the less so because it must frequently happen that a large number of persons materially interested are not actually before it, The Court may, therefore, reasonably expect to be told the material facts before coming to a decision, and I think that in a case like the present it might fairly say that this proposed or actual disposition in favour of the Industrial Bank should have been brought to its notice by that bank on or before July 31. 30. Further, as regards petitioning creditors, the Court has always set its face against them utilizing their petition in order to obtain some pecuniary benefit for themselves between the date of the petition and the actual winding-up order. Thus, in In re Liverpool Civil Service Association: Ex parte Greenwood (1874) L.R. 9 Ch. 511 a creditor presented a petition for winding up a company. The company paid a part of the debt, and promised to pay the remainder on a certain day. This was not done, and the creditor proceeded with his petition, and a winding-up order was made upon that petition and another petition. It was held by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vails himself of those proceedings cannot be allowed to receive more than his share of the assets, and must come in equally with all the other creditors. 31. So, too, in In re Repertoire Opera Co. (1895) 2 Manson 314 the headnote runs :<- In determining whether a payment made by directors pending a winding-up petition is to be validated by the Court under Section 153 of the Companies Act, 1862, the Court will be guided by the analogy presented by the protective sections in bankruptcy, it being desirable that the two systems of insolvent administrations in bankruptcy and winding-up should as far as possible be assimilated. In that case the Repertoire Company had acquired from Boosey & Co. certain rights in an opera on condition of paying over to Boose & Co. a percentage of the gross receipts within three days of each week of performance. Boose & Co. ' presented a winding-up petition for arrears of royalties. They were paid, and then another petition for winding up the company was presented by one Alias. Next a resolution to wind up voluntarily was passed, and on the same day the directors paid a further sum of £ 49-6-0 to Boose & Co. in respect of further royalties. Sub ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y judgment, aware of a petition having been presented. I can only treat the transaction as an attempt to get a preference over other creditors. The proposition that payment by a company, after the commencement of a winding-up, of a bona fide debt previously incurred will be affirmed by the Court under Section 153 is wholly untenable. I therefore hold that the respondents must repay the 175l. The payment, however, of the 13l. for goods supplied is one which can properly be affirmed'. 33. As regards the Imperial Bank and the respondent Dungershi, they were not the petitioning creditors, and therefore their position is different from that of the Industrial Bank. Now here as regards Section 227 (0) the Court has to steer a middle course between two extremes. On the one hand the words of the section are wide enough to include any sale or payment that a company may make after the date of the winding-up petition. On that basis any business would practically, have to be stopped if Section petition was presented, because it would be unsafe to dispose of any of the company's assets. For instance, a Mill company might not be able to buy a ton of coal for the use of its furnaces, or o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... with approval in other cases, viz., (p. 446):- The 153rd section no doubt provides that all dispositions of the property and effects of the company made between the commencement of the winding-up (that Is the presentation of the Petition) and the order for winding-up, shall, unless the Court otherwise orders, be void. This is a wholesome and necessary provision, to prevent, during the period which must elapse before a Petition/can be heard, the improper alienation and dissipation of the property of a company in extremis. But where a company actually trading, which it is the interest of every one to preserve, and ultimately to sell, as a going concern, is made the object of a winding-up Petition, which may fail or may succeed, if it were to be supposed that transactions in the ordinary course of its current trade, 'bona fide' entered into and completed, would be avoided, and would not), in the discretion given to the Court, be maintained, the result would be that the presentation of a Petition, groundless or well founded, would, ipso facto, paralyze the trade of the company, and great injury, without any counter-balance of advantage, would be done to those interested in th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... may nevertheless obtain money necessary for carrying on its business and so avoid its business being paralysed. If, therefore, I were to hold that no one who knows of the presentation of a petition can safely enter into any arrangement with the company, I think I should be depriving the company of the benefit which, according to Lord Cairns, the provision of the section was intended to to it. In the present case, however, there is nothing in the shape of any new advance for the purpose of preserving the company's business as a going concern. 36. The main authority relied on by the respondents was the decision of Vice-Chancellor Malins in Gibbs and West's Case (1870) L.R. 10 Eq. 312, which came before the Court of Appeal on another point in In re International Life Assurance Society (1876) 2 Ch. D. 476. The facts of that case require careful statement. In the first place there was an agreement by the Society, in July 1868, to transfer its business, assets and liabilities to the Hercules Insurance Company Ltd, On August 14, 1868, the directors obtained from the Society's bankers a loan of £ 5,000 secured by a charge made on a call of August 1868, and also by the j ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d against. (See same case 2 Ch. D. 476 at p. 482), 37. As regards the Vice-Chancellor's conclusion, I respectfully agree with his opinion that the Court must have regard to all the surrounding circumstances, and that counsel's proposition at p. 317 that "the sanction of the Court to such transactions must be obtained at the time of the transaction and cannot be given afterwards," was erroneous, for it was far too widely expressed, But it does not follow that because the Vice-Chancellor arrived at a certain conclusion on the facts of the case before him, we should arrive at a similar conclusion on the facts before us. The case before us is exceptional in that the Industrial Bank and the Imperial Bank were both before the Court on the dates when the securities were given. There was, therefore, no practical difficulty in informing the Court, or in trying to get its sanction. Nor on the facts of the present case was there any running account, which might necessitate further applications to the Court for sanction. On the other hand in the report of Gibbs and West's Case there is nothing to show that the banks) were before the Court, or had even entered an appearan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nding-up. There Mr. Justice Chitty said (p. 82s) :- Directors must be assumed to know the 153rd section ; and having made these payments, as far as I can see, without expressing any opinion upon them at this moment-at least, not upon any individual payment, but speaking of them generally-it appears to me that this was, having regard to the terms of the 153rd section, a most bold course on the part of the directors, because they must be taken to have known that all the payments they were making would be void unless the court should otherwise order. The effect of that section is this-that unless the court sanctions any of those payments they are void. Later on he said (p. 829):- Now, with regard to Section 153, where the payments are made honestly and in the ordinary course of business, it is usual for the court to allow them, and I should be disinclined in any way to limit the effect of that rule. The presentation of a petition embarrasses a company very much, and principally by reason of this 153rd section, and it becomes important for the directors of a company, when a petition is presented, to be on their guard with respect to what they do. But my decision in the present case ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the company to give to the respondent banks the securities now impugned, he thereby to that extent benefited himself. Supposing, for instance, no security had been given, and he had as surety paid the debts due to the respondent banks, he could only have stood in their shoes as unsecured creditor of the company. But when security was given by the company, then either on realisation of the security the debt and consequently his liability as surety would protants be reduced, or else if he paid the banks he would be entitled to an assignment of the securities they held, and in this way obtain priority over the ordinary unsecured creditors of the company. 43. I think, therefore, that it cannot always be taken, as has been argued before us in reliance on Gibbs and West's Case, above cited, that merely because a director gives his own personal security, that necessarily establishes the bona fides of the transaction and validates it. In the present case, the transactions in favour of the respondent banks were effected by the managing agent, and I think they were to his own pecuniary advantage as already indicated. As regards the Industrial Bank, there is no directors' resolution ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... after first considering the position of the Imperial Bank. 45. As regards the Imperial Bank their position is the strongest of the three respondents, because they were not petitioning creditors, and had by their letter of June 10, 1924, called on the company to execute the necessary documents with reference to a renewal of a demand loan as a demand cash credit, and them was subsequently a resolution of the directors in their favour for the Whittle debentures obtained in July. They had also disclosed such security by their letter of October 20, 1926, if not before, and had put in an explanatory answer prior to the hearing of the present application, although when the liquidator claimed these debentures by his letters of March 11 and May 11, 1927, they did not reply till May 27, and even then did not state " the) strong grounds" on which they relied for refusing to give them up. The strongest ground urged before us is the one I have already mentioned, viz., that this security was given to them bona fide in the ordinary course of business, and that we ought to follow Vice-Chancellor Malins' decision in Gibbs and West's Case (1870) L.R. 10 Eq. 312 as being closely i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... when Lord Cairns speaks of validating " transactions in the ordinary course of its current trade, bona fide entered into and completed." Giving this security to the Imperial Bank in respect of debts incurred in the past hardly seems to me to be in the course of current trade. Nor in one sense is it a completed transaction. All that is completed is the giving of security, and even as to that we have no details as to how precisely this has been effected. If fresh money had been borrowed for a necessary purpose, as in Park Ward & Co., In re [1926] 1 Ch. 828, the case would have been quite different. 49. I should add that before us some attempt was made by counsel for the liquidator to rely on Section 321 as to fraudulent preference. But as that charge was never put forward by him in the Court below, we declined to allow it to be raised here, notwithstanding that the answer of the Industrial Bank had erred technically in denying that charge although not in fact made against them. So too we declined to allow counsel for the Imperial Bank to show us a specimen of the "necessary documents" mentioned in their letter of June 10, 1924, which the agent would have been re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is that all unsecured creditors are to be paid pari passu, apart from certain preferential debts stated in Section 230, and in my judgment no adequate reason is shown why on the facts of the present case an exception should be made in favour of this Ahmedabad branch of the Imperial Bank. 51. Nor is the subsequent conduct of that branch bank free from criticism. The transaction in question was clearly void under Section 227 (2) unless the Court passed an order to the contrary. And yet the bank put obstacles in the liquidator's way by delay in answering his letters of demand, and then by not stating their grounds for the proposed order in their favour, and later on by further delay in putting in their written statement. The result >was that although, the bank succeeded in the Court below, the learned Judge ordered them to bear their own costs, and in my opinion rightly so. It should be borne in mind that the liquidator while so acting is an officer of the Court charged with the very duty of investigating the affairs of the company and the acts of its past managing agents and directors, and that he is entitled to be given all reasonable information as to past transactions. Any cr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ons of the property of the Viramgam Spinning and Manufacturing Company, Limited, after the presentation of the application for winding up the company, 56. On June 12, 1924, an application was made by the Industrial Bank of Western India, the respondent in First Appeal No. 28 of 1928, for winding up the company which culminated in an order for compulsory winding-up on March 3, 1925. The Imperial Bank of India, Limited, the respondent in First Appeal No. 29 of 1928, was a creditor of the company to the extent of four lacs of rupees, two lacs on demand loan No. 3/31, one lac on demand loan No. 8/35, and one lac on cash credit No. 3/7. On June 10, 1924, the Imperial Bank of India, Limited, wrote to the agents of the Viramgam Spinning and Manufacturing Company, Ltd., calling upon Mr. Naginlal Maganlal of the firm of the agents to execute fresh documents for the renewal of the same as a demand cash credit. On June 30, 1924, the Imperial Bank wrote a letter, Exhibit 12/2, calling upon the payment of the demand loan No. 3/31 for ₹ 2 lacs, and also demand loan No. 3/35, and cash credit No. 3/7 for Rs. one lac each falling due on that date. On July 2 the agents replied that they had n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... th the creditors, or to support or oppose the winding-up petition. The said suggestions were to be submitted along with the report of Mr. Sharp to the meeting of the creditors on August 23. (See Exhibit 15/7.) 58. Mr. Sharp made a report, Exhibit 15/9, on August 12, 1924, as regards the statement of affairs as on June 30, 1924, mentioning the assets and the liabilities of the company and showing a surplus of assets of about Rs. thirteen lacs and mentioning the pledge of the debentures of Whittle and Company in payment of the debts of the Imperial Bank and making no reference to the pledge of debentures in favour of the Industrial Bank of Western India and Dungershi Harilal, respondents in appeals Nos. 28 and 30, and referring to the Imperial Bank of India, Limited, as the only secured creditor, and giving an estimate that a winding-up would produce approximately fifteen annas per rupee based upon the valuation of the company's properties at Rs. fifteen lacs and the probability of only a small yield from the sums due by local mills to the extent of about Rs. eighteen lacs mentioned in paragraph 4. 59. On August 27 the matter was adjourned to September 15 by consent of the part ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er otherwise. The Court must exercise judicial discretion and the appellate Court can interfere in appropriate cases. In Kirani Ahmedula v. Subalhat (1883) I.L.R. 8 Bom. 28 it was held that when an appeal against an order based on facts is given from -a subordinate to a superior Court, the discretion vested in the former is absorbed in the latter, and it is the duty of the superior Court to weigh the facts which form the basis upon which the subordinate Court proceeds and arrive at its own independent conclusion: and this is so notwithstanding that the subordinate Court exercised its discretion after a proper inquiry and due consideration of the facts put before it and not capriciously or with prejudice. To hold otherwise would be to deny to the appellant the usual benefits of an appeal. If the opinion of the appellate Court is hesitating, it would, of course, not be justified in interfering with the exercise of discretion by the Court below. 62. It is urged on behalf of the appellant that the Court should not give special advantage to a creditor after the presentation of the application for winding-up, that there are only two exceptions under which the Court can validate such tra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of property, the Court-ought, under the discretionary power conferred by Section 153 corresponding to Section 227 of the Indian Companies Act, to confirm the transaction. The property having passed to the purchaser could not be applied pari passu for the benefit of all the creditors of the company. Lord Cairns L, J., however, observed (p. 446):- This (a. 153) is a wholesome and necessary provision, to prevent, during the period which must elapse before a Petition can be heard, the improper alienation and dissipation of the property of a company in extremis. But where a company actually trading, which it is the interest of every one to preserve, and ultimately to sell, as a going concern, is made the object of a winding-up Petition, which may fail or may succeed, if it were to be supposed that transactions in the ordinary course of its current trade, bona fide entered into and completed, would be avoided, and would not, in the discretion given to the Court, be maintained, the result would be that the presentation of a Petition, groundless or well founded, would, ipso facto, paralyze the trade of the company, and great injury, without any counter balance of advantage, would be done ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nting a petition for the winding-up of the company, receives a part of the debt, and gets a promise to pay the remainder, and failing to secure the payment of the remainder of the debt, brings his petition and obtains a winding-up order he is bound to pay back the money paid to him. Sir G. Hellish L. J. observes at page 512 :- But here the question is, whether the very creditor who has prosecuted the petition should be allowed to retain money which he has obtained by means of the petition, when the result of the petition is that the assets of the company are to be divided equally amongst its creditors. 69. Again at p. 513 he observes :- It appears to me that a creditor of this kind avers that he is willing to dome in and take an equal share with all the other creditors, and that he should not be allowed to take advantage of the Act, and get payment on the ground that the company is unable to pay its debts, and at the same time receive a greater proportion than the other creditors. In all bankruptcies and winding-up proceedings a creditor who successfully avails himself of those proceedings cannot be allowed to receive more than his share of the assets, and must come in equally w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The handing' over of the debentures is not mentioned in Mr. Sharp's report dated August 12, 1924, and though the debentures were handed over to him on July 31, the entry in the account books of the company is made on August 16 (See Exhibit 3/1 in appeal No. 30). Though the liquidator on March 15, 1927, gave him a notice Exhibit 3/2, and again sent a reminder Ex. 3/3 on May 11, 1927, no reply was given by him to the liquidator. No special circumstances have been proved, in my opinion, on his behalf to validate the transaction of the disposition of the debentures of the company in his favour. The transaction was in respect of a past debt and not for fresh advances, and was not necessary for carrying on the ordinary course of the business of the company. It appears to be a transaction secretly entered into by the company in his favour, and is not mentioned in Mr. Sharp's report and is entered into the books on August 16, some time after Mr. Sharp made his report. I think, therefore, that the discretion exercised by the learned Judge has not been properly exercised, and it follows from the principle mentioned above that a creditor who receives payment between the petition ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... creditors were incompetent to receive any benefit after the presentation of the petition for the winding-up of the company. They ought to have applied to the Court to have the arrangement between them and the company validated on July 31,1924, and though the liquidator sent them the letter, Exhibit 3/2, dated March 15, 1927, and the reminder, Exhibit 3/3, on May 11, 1921, they declined to give any information relating to their acceptance of the debentures as security for their past debts. The remarks of Sir G. Mellish L. J. in In re Liverpool Civil Service Association : Ex parte Greenwood (1874) L.R. 9 Ch. 511, at p. S13, :apply with equal force to the Industrial Bank of Western India:- If he had received payment, and had given up his petition, that, in my opinion, would have been a totally different thing. So, too, if the company had performed their promise, and had paid the whole of his debt, and then ha had withdrawn his petition, that also would be a different thing. 78. There would not, in the event of withdrawal of the petition, have been any pending application for winding-up which would have invalidated the disposition of the property in their favour under Section 227, C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d power under the 85th section of the Act to stop their action. Still as it was necessary to run the company in order to carry out the arrangement with the Hercules Company, and the company satisfied Glyn & Co. by giving them a security, the transaction was upheld on the ground that it avoided a state of things which would have been most detrimental to all concerned. With regard to the security which the directors personally gave to them, it was observed at page 323:- Now this certainly could not have been from any improper motive. No body of men would have rendered themselves liable to pay that considerable sum of money, unless they thought that there was some advantage to be gained. 81. I think, therefore, that the action of the agents early in July in agreeing to give a mortgage of certain of their immoveable properties and later on July 24 agreeing to give debentures of Rs. two lacs as collateral security, and actually handing over the debentures on July 26, five days before the case came on for hearing, and the resolution of the directors confirming the action of the agents on July 28 on the ground of giving time for repayment of the advances, are elements to be considered o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ve not rendered themselves liable, but have approved of the action of the agents who agreed to give the debentures of Rupees two lacs as collateral security for advances made by the bank. In giving the debentures neither the agents nor the directors rendered themselves liable with regard to any debt of the Imperial Bank of India, Limited, with regard to which they were under no personal liability up to that time. The action of one of the agents, Mr, Naginlal, also a director, in agreeing to give a mortgage upon certain of his immoveable properties was due to a desire to avoid a suit by the Imperial Bank on his personal liability on the demand promissory note passed by the agents in favour of the company which was endorsed by the company in favour of the bank. It does not appear from the record whether as ft matter of fact a mortgage was effected by the agents. But even assuming that a mortgage was effected by the agent in favour of the bank the action of the agent can be attributed more to a desire to save himself rather than the Mill. No inference, therefore, can be drawn in favour of the impugned transaction from the action of the directors and agents as was drawn in Gibbs and We ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assets of the company, and would not have been debarred in the meanwhile from considering any scheme for re-construction. As a matter of fact, the Mill's business was carried on without any further advance by the Imperial Bank. If an application had been made by the Imperial Bank on July 31 for validating the transaction in their favour, it would have been opposed by the other creditors and also by the depositors whose fixed deposits were of the value of rupees eleven lacs which were considerably in excess of the debts of seven lacs due to all the banks. Under these circumstances, I think that the Court would have refused to sanction the transaction in favour of the Imperial Bank. In Gibbs and West's Case it does not appear that Glyn & Co. were parties to the winding-up proceedings. The Imperial Bank in this case had engaged a pleader on July 28 and filed an appearance on July 26 and ought to have informed the Court of the disposal of the debentures in their favour. In Gibbs and West's Case the argument of Mr. Glasse that the sanction of the Court to such a transaction must be obtained at the time of the transaction and cannot be given afterwards was negatived by th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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