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1922 Supreme(SC) 49
Privy Council
Duff, Ameer Ali , Sir John Edge, Phillimore, Justice Dunedin, JJ.
Behari Lal-Bulaki Ram -Appellant
Versus
Kundan Lal and another -Resopndent
P.C.A. No. 17 of 1922
Decided On : 28-07-1922
Important Points
Subject
Company Law - Winding-up and Liquidation
Act Referred
Headnote
(B) Winding-up of Company - Sale of assets - Where assets are subject to leasehold rights and burdens, the court must determine the best course of action based on the actual state of affairs - If public tenders are conditional on immediate possession which cannot be legally granted due to existing lease terms, a sale to the existing lessees may be the most viable and reasonable option - An appellate court should not quash such a decision if it fails to face the fact that any purchaser would have to take the property with all existing burdens.
Facts of the case:
A company in liquidation leased its mills to parties for a fixed term. A notice to terminate the lease for the purpose of sale was later withdrawn and the terms were modified, removing the liquidator's power to terminate. A secured creditor protested this arrangement. The court attempted to sell the property via public advertisement, and while tenders were received, they were all subject to the condition that possession be delivered at an early date. Because the existing lease and subsequent arrangements prevented immediate possession, the tenders were useless. The court then offered the lessees an option to purchase, eventually sanctioning the sale to them at a negotiated price. The appellate court quashed this sale, criticizing the withdrawal of the original termination notice and the manner in which the sale was conducted.
Findings of Court:
The Additional District Judge had the jurisdiction to supervise the liquidation as the functions had been assigned by the District Judge. Regarding the sale, the appellate court failed to consider that any purchaser would have to take the property subject to the burdens of the lease and subsequent rights obtained by the lessees. Given these facts, the sale to the lessees was the best course of action.
Issues: Whether an Additional District Judge has the jurisdiction to make orders in the winding-up of a company and whether the sale of the company's assets to the existing lessees was proper given the leasehold encumbrances.
Ratio Decidendi: An Additional District Judge, when assigned functions by the District Judge, is deemed to be a District Judge for the purposes of the relevant Court Act. In the sale of assets during liquidation, the court must act based on the actual burdens affecting the property; if the property cannot be sold free of such burdens, a sale to the occupants may be the most reasonable course.
Result: Appeal allowed.
Legal Category Hierarchy
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company law
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winding-up
- asset disposal
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winding-up
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practice and procedure
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jurisdiction
- additional district judge
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costs
- appellant costs
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jurisdiction
Chester, Ranken Ford, Majid, De Gruyther
Lord Phillimore :-
This is an appeal from an order of the Chief Court of the Punjab made in the mater of the windingup of the Diamond Jubilee Flour Mills Company, and reversing an order of the Additional District Judge at Delhi.
In the course of the proceedings in the Chief Court a point was raised which the Judge thought it unnecessary to decide, but which in their Lordships' view should be decided. It was contended on behalf of the creditor objecting to the order in question, that the Additional District Judge had no jurisdiction, and that all orders made in the winding-up of a Company must be made by the District Judge. Their Lordships think that this is not so.
When this matter began, the Indian Companies Act of 1882 was in force, but as it progressed the existing Act, being the Indian Companies Act, 1913, came into operation. For this purpose, however, the two Acts are so similar that no distinction need be made.
It is not disputed that under the Act the District Court has jurisdiction, the only question is whether that jurisdiction is confined to the District Judge or can be exercised also by an Additional District Judge.
This matter appears to be settled by the Punjab Courts Act, 1888, which by Section 6 provides as follows :-
"The following section shall be added to the Punjab Courts Act, 1884, namely :-
75. - (1) When the business pending before any Divisional Court consisting of one Judge, or before the Court of any
District Judge, requires the aid of an Additional Judge for its speedy disposal, the Local Government may appoint to the Court an Additional Divisional Judge or an Additional District Judge, as the case may be.
(2) An Additional Judge so appointed shall discharge any of the functions of a Divisional Judge or District Judge, as the case may be, which the Divisional Judge or District Judge may assign to him, and shall, as regards the discharge of those functions and subject to the provisions of the next following sub section, be deemed, for the purposes of this Act, to be a Divisional Judge or District Judge."
There is no doubt that the District Judge had assigned to the Additional District Judge all the functions of supervising this liquidation. He discharged these functions apparently without any objection for a considerable time and made many orders; and no point was taken till this appeal was made at an advanced stage of the liquidation. He had jurisdiction, and the question which remains to be decided is the propriety of the order which he made.
The facts of the case are these. The Company was insolvent; it had as a large secured creditor the Bank of Upper India, which was also in, liquidation. The Company was ordered to be wound up on the 31st July, 1914. On the 16th September, 1916, the official liquidator with the sanction of the Judge let the Mills to the present appellants, for a term of three years from 1st January, 1917, at a rent of Rs. 16,000 per annum. In the lease it was provided that if the lessor at any time proposed to sell he should give a six months' notice, and pay Rs. 5,000 by way of compensation; and if the lessees wanted to put an end to the lease, they could take similar action.
On the 12th June, 1917, a notice in accordance with the lease lastly mentioned was given with the sanction of the Court, informing the lessees that it was proposed to sell and giving them notice to quit on the 31st December. When the liquidator of the Bank knew of this, he protested against the action of the liquidator of the Company, who thereupon entered into negotiations with the lessees for a withdrawal of the notice. The latter found themselves in a strong position. Having regard to what afterwards happened, it was probably to their interest that the lease should stand. On the other hand, if the lessors were hesitating and did not want to pay the Rs. 5,000 fine, firm action on the part of the lessees might extract very favourable terms. In the end, the liquidator arranged with the lessees that he should be allowe
