TMI Blog1973 (11) TMI 99X X X X Extracts X X X X X X X X Extracts X X X X ..... er annum on ₹ 1845-14-6 from the date of the suit, which, it is to be noticed, was of December 24, 1958. 4. Reference may be now made to some of the events which took place before the filing of the suit and the obtaining of the decree. 5. It is to be noticed that the goods were said to have been supplied by the judgment-creditor in 1955 and 1956. 6. At the instance of some of the creditors of the respondent-company a petition, that is to say, I.C. No. 84 of 1958, was filed for sanctioning a scheme of arrangement whereby it was infer alia provided that the unsecured creditors of the respondent-company would be paid 25 per cent, of their dues in cash and the balance 75 per cent, in the form of 6 per cent, third mortgage debentures. This scheme of arrangement was sanctioned by this Court on August 18, 1958. 7. The appellant was compelled to file the suit for recovery of the amount due to him because it would appear that the respondent-company was not admitting the debt. Unfortunately the written-statement filed by the respondent- company in the suit, being Regular Suit No. 832 of 1958, is not on record and the counsel for the respondent-company has also not been able ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... executing Court was whether at the date when the scheme of arrangement was sanctioned by this Court the judgment-creditor was a creditor within the meaning of the relevant provisions so that the scheme of arrangement may bind him notwithstanding his1 not having agreed to the scheme of arrangement. 12. It is to be noticed that the word creditor is not defined in the Companies Act, but in Section 390 of the Companies Act, which is a section with the heading Interpretation of sections 391 and 393 , it is provided in Sub-clause (c) that unsecured creditors who may have filed suits or obtained decrees shall be deemed to be of the same class as other unsecured creditors. Obviously the other unsecured creditors would only mean those whose debts are admitted on proof of debt. The suggestion would appear to be that unsecured creditors who had filed suits or obtained decrees did not constitute a separate class from those unsecured creditors who had not filed suits or obtained decrees. It will, therefore, have to be considered whether the appellant was a creditor at the date of the scheme of arrangement so as to be bound by the scheme. 13. There is a further event which requires ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ainst the garnishee and in favour of the judgment-creditor, the property in the moneys brought into Court had passed prior to the winding up order. It was suggested by Mr. Sukthankar that after the garnishee brought the moneys into Court pursuant to the garnishee order, the judgment-debtor went out of the picture and had no locus standi; the proceedings thereafter being between the garnishee and the judgment-creditor only. 17. The next proposition of Mr. Sukthankar is that the Court will take into consideration future events and adjust the rights and obligations of the parties in the light of the changed circumstances because the scheme of arrangement of the company ceased to be in force from the commencement of the winding up on August 30, 1963, which event occurred during the pendency of this appeal so that the scheme cannot now govern the rights and obligations of the parties. 18. Mr. Sukthankar also contended that the rights in security which have been effectually completed before the commencement of the winding up must still receive the effect which the law gives them and they are not affected by the winding up. 19. Mr. Buch, counsel for the respondent-company, made t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Act provides for application of Insolvency Rules in winding up of insolvent companies. Sub-section (i) of Section 529 may be conveniently reproduced: (1) In the winding up of as insolvent company, the same rules shall prevail and be observed with regard to-- (a) debts provable ; (b) the valuation of annuities and future and contingent liabilities; and (c) the respective rights of secured and unsecured creditors; as are in force for tile time being under the law of insolvency with respect to the estates of persons adjudged insolvent. 25. Mr. Sukthankar has contended that by reason of Section 529 of the Companies Act, 1956, Section 51 of the Provincial Insolvency Act is attracted and, therefore, the Court should consider the Insolvency Rules and in particular the fact that if the assets have already been realised then they would be beyond the grasp of the Official Liquidator and the judgment-creditor would be entitled to have the decree satisfied from the moneys already in Court as assets realised. 26. Mr. Sukthankar relies on Sub-clause (c) and says that his contention is that by reason of the garnishee order and the deposit of the moneys in Court by the garnishee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ode of Civil Procedure, 13th edn. p. 318, it is stated: Attachment creates no charge or lien upon the attached property. It only confers a right on the decree-holder to have the attached property kept in custoclia legis for being dealt with by the Court in accordance with law. It merely prevents and avoids private alienations; it does not confer any title on the attaching creditors. There is nothing in any of the provisions of the Code which in terms makes the attaching creditor a secured creditor or creates any charge or lien in his favour over the property attached. But an attaching creditor acquires, by virtue of the attachment, a right to have the attached property kept in custodia legis for the satisfaction of his debt, and an unlawful interference with that right constitutes an actionable wrong. 32. For this proposition the judgment of the Madras High Court in a case concerning insolvency law viz. Kristnasawmy Mudaliar v. Official Assignee of Madras (1908) I.L.R. 26 Mad. 673 is relied upon and a passage occurring therein may be set out (p. 678) : ...In our judgment the making of an order of attachment in favour of a judgment-creditor obtained under Section 268 of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... under the English writ of fieri facias and an attachment under the Indian law. 38. In our opinion, this difference arises because it is said that in England the sheriff seizes the goods and brings them to the Court, whereas in India attachment is in the form of a prohibitory order which basically restricts or restrains the alienation of the attached property. We shall presently revert to this aspect of the matter to show that on the facts of this case and by reason of the fact that the moneys had already been brought into Court the distinction between the English view and the Indian view will not prevail. 39. It is appropriate now to notice some of the authorities cited by Mr. Sukthankar. The first one to be noticed is Ex parte Joselyne, In re Watt. (1878) L.R. Ch. D. 327. This was a case where the judgment-creditor had before the filing of a liquidation petition by his debtor obtained a garnishee order nisi attaching debts due to the debtor and it was held that the judgment-creditor was a secured creditor within the meaning of Sections 12 and 16 of the Bankruptcy Act, 1869, and was, therefore, entitled to the attached debts as against the trustee in the liquidation. James L. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... writ of. fi.fa. is served by the sheriff. 42. Mr. Sukthankar then cited another English case, Culverhouse v. Wickens. (1868) L.R. 3 Court of Com. Pleas 295. That was a decision under Section 65 of the Common Law Procedure Act of 1854, which section is equivalent to Order XXI, Rule 46(3) of the Code of Civil Procedure and it was held that payment into Court by a garnishee under a Judge's order is payment within the meaning of Section 65 of the Common Law Procedure Act of 1854 and discharges the garnishee. The subsequent execution of a composition deed by the debtor will not prevent the debtor to pay the moneys in Court. 43. Willes J. observed (p. 298): ...Murray v. Arnold (1862) 3 B. Section 287, s.c. 32 L.J. (Q.B) 11, is an authority to shew that the payment into court was in effect a payment to the plaintiff. In that case the money was paid into court as a condition of the defendant obtaining an order to examine witnesses abroad. In effect, therefore, the defendant paid the money into court as a payment to the plaintiff if he was entitled to the money he was suing for.... The 65th section of that act must refer, I think, to all payments by the garnishee into court, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e proceeds: they ore secured in that way; they are not secured under contract. Persons holding security, whether under an execution or a garnishee order, or by judgment on tort, or by contract before judicial interposition, are secured creditors. (p. 588). 45. Mr. Sukthankar then cited a Kerala case, Varghese v. Varkey [1964] I Comp, L.J. 83, which was in relation to a winding-up. The facts in that ease were that there was a decree against the bank i.e. a limited company, and an attachment order was made in respect of a debt due by the garnishee to the bank. The order nisi was made final and absolute and only subsequent thereto there were proceedings for winding-up of the bank (limited company). The relevant dates were that the notice under Order XXI, Rule 46-A (as applicable to the Kerala High Court) was served on the respondent-garnishee on February 10, 1955; the respondent entered appearance; on April 1, 1955 the Court passed an order under Order XXI, Rule 46-B and directed warrant to issue to the respondent-garnishee. Upon this the respondent-garnishee made an application to the Court on October 6, 1955 for exemption from personal execution, and while this application for ex ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d, an order absolute in favour of the judgment-creditor had already been made. It is true that the order provided that 25 per cent, of the decretal amount would be paid in cash out of the moneys in Court and the balance decretal amount would be paid in the form of 6 per cent, third mortgage debentures. But that is another aspect of the matter which we will deal with at the appropriate time. 48. The next case cited was of Amrita Lal Kwndu v. Anukul Chandra Das (1915) 20 C.W.N. 358, which was also a decision in relation to winding up of a limited company. In this case a creditor of a company with limited liability and registered under the Companies Act got a decree against the Company in the Court of Small Causes at Howrah. He took out execution and attached and removed certain moveable property to Court and was about to put them up for sale. Subsequently the company went into voluntary liquidation, appointing the petitioner a liquidator of their assets. The liquidator sought to stay the sale and obtain release of the attachment by the Court. The Small Causes Court, in which the application was made, held that it would be unjust to stay the sale in a case circumstanced as above. T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 39; case, the facts were that on November 29, 1922 the decree-holder applied to the Ahrnedabad Court to execute his decree and on December 4, 1922 got an engine belonging to the company attached. An order for sale was made on January 31, 1923. On April 16, 1924 an attempt was made to sell the property but the engine could not be sold. 53. In the meantime, on January 28, 1923 the company passed a resolution for voluntary winding up and the liquidator applied to the Court on March 12, 1923 that the sale of the engine, which had been attached, be stayed, but this application was dismissed by the Court on February 21, 1924. 54. Thereafter another creditor of the company, one Mangaldas, who had also obtained a decree, attached in execution of the decree the whole of the company's property and the Court, to facilitate the sale of the property, made an order on March 14, 1924 in the following words: The whole property should be put up to sale. The value of the engine should be assessed separately. It would appear that on December 22, 1924 a creditor filed a petition for com-pulsory winding up of the company and obtained stay of the execution proceedings temporarily and ul ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g creditor. Marten C.J. observed as follows; (p. 1218): The result then of the whole case, in my opinion, is that even if the applicant fails to establish his claim to be a secured creditor--which technically he seems not to be--and if his real position was only that of an attaching creditor, yet he has apparently lost that position by reason of the events that have happened. The Court held that the proper remedy of the attaching creditor was to make an application to the Court to be allowed to proceed unrestrictedly, or on such terms as the Court might impose, with his application for execution after the winding up order was made. 57. On the facts and circumstances of that case it was held that the applicant was not a secured creditor although he had certain rights by reasons of his attachment. Now, it is to be noticed that at one stage Marten C.J. had said that it was unnecessary to decide whether an attaching creditor was a secured creditor or not, and indeed the question was not really decided. 58. In our view, this judgment goes to show that an attaching creditor who had obtained the bringing into Court of certain moveable property, viz. the engine, had certain rig ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... possible also for the Official Liquidator to get into possession of the property which may have been earlier attached without applying to the Court concerned and obtaining a suitable order on proving the necessary facts. 63. We have seen that an order of attachment simpliciter does not create any charge or lien on the property attached because such an order is invariably of a prohibitory nature. In the case of immoveable property it must obviously be so. In the case of moveable property it may ordinarily be so but need not be and as we have seen in Govardhandas's case, the engine being moveable property was brought to the Court and was in the physical custody of the Nazir. 64. But what happens when, after an order of attachment has been issued, a further stage is reached whereby the property and in the case before us very conveniently the money itself is brought into the Court? Can it be said that even though the money has come into the executing Court and as an asset realised is capable of being immediately and physically handed over to the judgment-creditor at whose instance the attachment order was made, the judgment-creditor has no specific rights in relation to that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t. In fact he takes all steps to obtain payment against the decree. Can he then be told by the judgment-debtor that all that may be to the good but the Court is holding money not for the judgment-creditor but for the judgment-debtor? In the ease, particularly of a garnishee order, the payment by the garnishee in the Court gives him complete discharge. In 'other words, the judgment-creditor can no longer proceed to recover that amount. To put it in different language, it may be said that the amount or property has gone from the judgment-debtor's hands and it is even now in the custody of the Court for the purpose of satisfying the decree of the judgment-creditor. Any other construction would lead to the undesirable result that inspite of diligence the attaching creditor may get no satisfaction of his decree whether the assets are realised or not, if some other person over whom he has no control obtains a winding up order of the judgment-debtor-company. 67. Our attention was invited by Mr. Buch to a decision of a single Judge of this Court in Sorabji Edulji Warden v. Govind Ramji (1991) I.L.R. 16 Bom. 91, to show that there was no difference between the assets realised and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cution Court on behalf of the judgment-debtor . There is no discussion as to how the Court had arrived at the conclusion that when the money is deposited by the garnishee in the Court it is held by the Court on behalf of the judgment-debtor. The point was never considered by the Court and with respect we are unable to consider this judgment as an authority for the proposition canvassed by Mr. Buch. 70. It is further to be noticed that the Travancore Cochin High Court proceeded on the view already discussed by us that the attachment does not create any charge on the attached property and that it merely prevents private alienation of the attached property. The Court does not appear to have taken into consideration the effect of the bringing of the money into the Court on the character of the money or the property. 71. In any event, assuming that this were to be the correct position of the law, it is not to be forgotten that in the present case before us there was a further stage and that was the final order made by the execution Court on November 13, 1961. By that order at least 25 per cent, of the decretal amount became the property of the judgment-creditor. Mr. Buch has not d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on of Section 73 of the Code of Civil Procedure. 77. So far as the English authorities are concerned, Mr. Buch has urged that they should be discarded because, according to him, the English law and the Indian law are different in material particulars. Now, we have already dealt with the relevant cases and shown how they are of value in assisting this Court to decide the main question before this Court. At this stage, Mr. Buch points out that Rules 46A and 46B of O.XXI of the Code of Civil Procedure were introdceed only in 1966. It may be so but, in view of O.XXI, Rule 46(5), we do not think that this can make any difference. 78. In these circumstances we hold that the appellant was a secured creditor and, therefore, stood outside the scheme of arrangement as well as the winding up. In view of this finding it is unnecessary for us to decide if the appellant was a creditor of the company at the date of the scheme of arrangement. 79. The other question that requires to be considered is the effect on the present proceedings, which are in continuation of the execution application, of the winding up order made in 1964 after the filing of this Letters Patent Appeal, which winding ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the judgment of the Court cannot be carried into effect because of change of circumstances the Court takes notice of the same. If the Court finds that the matter is no longer in controversy the court also takes notice of such event. If the property which is the subject-matter of suit is no longer available the court will take notice of such event. The court takes notice of subsequent events to shorten litigation to preserve rights of both the parties and to subserve the ends of justice. 82. If this is then the state of the law, this Court cannot ignore the fact that the scheme of arrangement has been cancelled and that if an order is to be passed today then it cannot be said that the judgment-creditor is only entitled to satisfaction of his decree by receiving 25 per cent, of the decretal amount in cash and 75 per cent, in the form of 6 per cent, third mortgage debentures. As a matter of fact, complications can arise because it will be noticed that by the order dated November 13, 1961 the judgment-creditor was to receive ₹ 793.67 out of the deposit amount of ₹ 3,701 and the 6 per cent, third mortgage debentures of the value of ₹ 2,000. Now that was the stage of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... company, is not tenable. So long as the scheme is in operation and is binding on the company and its creditors, the rights and obligations of those on whom it is binding are undoubtedly governed by its provisions. But once the scheme is cancelled under Section 392(2) on the ground that it cannot be satisfactorily worked and a winding up order passed such an order is deemed to be for all purposes to be one made under Section 458. It is not as if because the scheme has been sanctioned under Section 391 that a winding up order under Section 392(2) cannot be made. If the appellants' contention, that a winding-up order can only be made subject to the rights and obligations of the parties under the scheme, Were to be right, it would mean that where a company makes default in paying an instalment on the date prescribed by the scheme and a creditor files a winding-up petition, even though a winding-up order is made on the basis that the debt has become presently payable, still the creditor is bound by the scheme and his debt is to be payable by instalments as provided by the scheme. 86. Now, these observations of the Supreme Court, in our opinion, clearly show that when a winding u ..... X X X X Extracts X X X X X X X X Extracts X X X X
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