Back
1962 Supreme(P&H) 60
PUNJAB & HARYANA HIGH COURT
A.N.Grover, J.
S.Santokh Singh S.Udey Singh
Versus
Patiala Banaspati And Allied Products Co.Ltd.
Civil Original No. 58 of 1960,
Decided On : MARCH 16, 1962
Section 530 of the Companies Act, 1956, is exhaustive and a creditor cannot claim preferential treatment outside of that section.
Headnote:
COMPANY - WINDING UP - PREFERENTIAL PAYMENT - CLAIM BY PETITIONER WHO WAS JOINED AS CO-PLAINTIFF IN SUIT FILED BY COMPANY - WHETHER PETITIONER ENTITLED TO PREFERENTIAL PAYMENT - SECTIONS 529 AND 530 OF THE COMPANIES ACT, 1956 - SECTION 28(5) OF THE PROVINCIAL INSOLVENCY ACT - SECTION 88 OF THE INDIAN TRUSTS ACT, 1882.
Fact of the Case:
Petitioner, a co-plaintiff in a suit filed by a company, paid the entire amount of costs awarded against the company and the petitioner. The company was later ordered to be wound up. The petitioner claimed preferential payment of the costs paid by him, arguing that he was joined as a co-plaintiff to protect the company's interests and that he had a fiduciary relationship with the company.
Finding of the Court:
The court held that the petitioner's claim should be admitted as an ordinary creditor but not as a preferential creditor. The court found that Section 530 of the Companies Act, 1956, which deals with preferential payments, is exhaustive and that the petitioner could not claim preferential treatment outside of that section. The court also found that Section 28(5) of the Provincial Insolvency Act and Section 88 of the Indian Trusts Act, 1882, did not apply to the facts of the case.
Issues: Whether the petitioner was entitled to preferential payment of the costs paid by him.
Ratio Decidendi: The court held that Section 530 of the Companies Act, 1956, is exhaustive and that the petitioner could not claim preferential treatment outside of that section. The court also found that Section 28(5) of the Provincial Insolvency Act and Section 88 of the Indian Trusts Act, 1882, did not apply to the facts of the case.
Final Decision: The court held that the petitioner's claim should be admitted as an ordinary creditor but not as a preferential creditor.
1. This is a petition for directions to the Official Liquidator to admit the petitioners claim for preferential payment.
2. It is alleged in the petition that in the middle of 1946 the petitioner was approached by S. Sewa Singh Gill, who was his brother-in-law, to promote a Company for the establishment of a vegetable ghee plant at Doraha. The petitioner and S. Sewa Singh Gill raised money from their respective friends and relations and contributed large sums of their own to set up the factory. In order to secure the plants and machinery the petitioner and S. Sewa Singh Gill approached various Bombay dealers including Messrs. Jayems Engineering Company (hereinafter to be called the Engineering Company) who agreed to simply the necessary power plant and it accessories. On 26th November 1946 the petitioner placed the order with the aforesaid Company and paid a sum of Rs. 35,930/- out of his promotion account as 20 per cent advance under the terms of the agreement. In due course the machinery was delivered at Doraha.
In the meantime on 27th May 1947 a Company had been incorporated called the Banaspati and Allied Products Company Limited (to be referred to as the Company) and necessary arrangements had been made for the reception and storage of the machinery at the office premises at Doraha. The order, which had been placed by the petitioner, was duly adopted and confirmed by the Directors of the Company. On 16th November 1949 the Board of Directors acting on the report of certain Engineers to the effect that the steam alternator and some other machinery supplied by the Engineering Company were not according to specification, passed a resolution by which it was decided to file a suit against the Engineering Company. The suit was to be filed before 25th November, 1949, S. Sewa Singh Gill, the Managing Director, was empowered to file the cases on the Companys behalf.
A civil suit was filed in the Bombay High Court on the original side and the petitioner was asked by the Company to join as a co-plaintiff in order to forestall a possible technical objection by the defendants on the ground that the original order was placed with them by the petitioner and not by the Company.
On 21st October 1955 the Company was ordered to be would up by the Pepsu High Court and the Official Liquidator reported to that Court against further prosecution of the Companys suit at Bombay. The Court permitted him to withdraw the suit. The suit was allowed to be dismissed for default in 1956 and the Bombay High Court awarded costs against the Company and the petitioner, who were the plaintiffs, which were later on taxed at Rs. 6,929.19 nP.
According to the petitioner, he informed the Official Liquidator that the sole liability for costs was that of the Company and not of the petitioner and that he had been joined as a co-plaintiff merely to protect the interests if the Company. The Official Liquidator denied the full responsibility of the Company and obtained an ex parte order from this Court admitting the Companys liability to the extent of one half of the costs.
On 25th September 1957 the petitioner moved this Court for directions to the Official Liquidator to pay the entire amount of costs. The Official Liquidator admitted the claim of entire costs. But the payment was to be made pari passu with other creditors.
Later on, the Engineering Company took out execution against the petitioner and in order to avoid attachment of his property the petitioner had to make payment of the entire amount of costs to that Company in full settlement of its claim. This fact was duly recorded by the executing Court at Delhi by which the execution was consigned as fully satisfied on 5th March, 1960. The previous petition (L.M. 108 of 1957) which had been filed by the petitioner was dismissed by Falshaw J. (as he then was) on 9th February 1959 on the ground that it would be only after the execution that it could be seen whether the petitioner would be entitled to make a
