HIRALAL KALYANMALJI SETH Vs. GENDALAL MILLS LIMITED

JUDGEMENT

(1.) The appellants question the propriety of an order under Section 195 of the Indian Companies Act, 1913 made by the District Judge, Jalgaon on November 22, 1967 summoning the appellants before him for the purpose of examining them concerning the trade, dealings, affairs and property of the respondent Company, the Gendalal Mills Limited (in Liquidation), Jalgaon. The winding up of the Company had been ordered by that Court on November 3, 1954.

(2.) The relevant facts are these On December 31, 1953 the former Management of the Company executed in favour of the appellants and several other persons a Debenture Trust Deed for Rupees fifteen lacs:the immovable property of the Company its fixtures including machinery were given as security. On June 24, 1954 the Management of the Company executed an unattested Deed of Hypothecation to the tune of Rupees ten lacs in favour of the second appellant:the movables of the Company were hypothecated under this Deed. Some time in July, 1954 the debenture trustees proceeded to enforce the security and appointed the first appellant as Receiver on their behalf. The Receiver took possession of the entire property of the Company and worked the mill till July 29, 1954 when one Indulal Girdharilal Lakhia made an application to the court for the winding up of the Company. On November 3, 1954 the court passed the order for winding up. The debenture trustees had the properties of the Company sold in enforcing the security after the winding up order had been made. The official liquidator whom the court first appointed having resigned, the respondents before us were appointed joint official liquidator whom the Court first appointed having resigned, the respondents before us were appointed joint official liquidators on June 7, 1955. The impugned order under Section 195 of the Indian Companies Act, 1913 was made on the prayer of the official liquidators. In their application asking the court to exercise its power under Sec. 195, the official liquidators also alleged that the debenture trust deed was a sham document executed to defraud the unsecured creditors, and that the debenture trustees had the properties of the Company sold after the winding up order was made without the knowledge and permission of the Court.

(3.) On the application of the official liquidators containing the said allegations and the facts summarized above, the District Judge, Jalgaon made the impugned order Section 195 (1) on the view that the appellants were persons capable of giving information concerning the trade, dealings, affairs and the property of the Company. The appeal taken against this order was dismissed summarily by a learned single Judge of the Bombay High Court. The Letters Patent appeal preferred from the decision of the learned single Judge was also dismissed summarily but with certain observation. Referring to the contention raised on behalf of the appellants that the debenture trust deed could not be challenged by the liquidators at this stage, the learned Judges observed that it was not clear from the trial Court's order whether a finding on that point was invited, and directed the District Judge that if the question was raised he should allow the appellants to argue that the sale effected by the appellants could not be challenged in the liquidation proceedings. The High Court overruled the other contention that the application made by the liquidators asking the court to exercise its powers under Sec. 195 was mala fide. The learned Judges observed that on the allegations made by the liquidators in their application it was clear that the liquidators wanted to ascertain how the appellants, who were secured creditors, had dealt with the security, and whether any surplus remained for the unsecured creditors. The appeal before us is by special leave from the decision of the Bombay High Court summarily dismissing the Letters Patent Appeal.