J K BOMBAY PRIVATE LIMITED J K BOMBAY PRIVATE LIMITED Vs. NEW KAISER I HIND SPINNING AND WEAVING CO LTD:JUGGILAL KAMLAPAT BANKERS KANPUR

JUDGEMENT

(1.) These appeals, founded on a certificate, are directed against the order of the High Court of Bombay ordering the winding-up of Respondent No. 1 Company.

(2.) Prior to August 1965, the company was managed by Singhanias, (referred to hereinafter as the J. K. group), who held 25,625 out of 45,000 equity shares of the company. By 1965 the company was in a bad way, its liabilities having exceeded its assets and was not in a position to pay its unsecured creditors. On June 21, 1965 one of its creditors, M/s. Indulal and Co., filed a petition for winding-up. On August 2, 1965 the Court appointed a provisional liquidator. On August 6, 1965 the cotton textile mills of the company stopped working and the provisional liquidator took charge thereof. On August 16, 1965 an agreement was made between the J. K. group and Nandlal Jalan and two others, (hereinafter referred to as the Jalans), under which the latter agreed to take over the company's management on terms and conditions therein set out. The agreement provided that the J. K. Group should sell to the Jalans at Rs. 10/- per share the said block of shares held by the former, that the J. K. Group thereafter should resign as directors and accept as directors the nominees of the Jalans, that the company should execute a second legal mortgage of its fixed and other assets in favour of the J. K. Group and certain other unsecured creditors named in Sch. 'B' to the agreement in consideration of which those creditors agreed not to claim interest at more than 1/4 per cent and not to demand repayment of their debts except in the manner set out in the agreement and Sch. 'C' thereto, and that the transaction therein contained should be completed within one month from the date when the said petition would be withdrawn. The agreement recorded that the debts due to Sch. 'B' creditors amounted to Rs. 48.28 lacs Sch. 'C' to the agreement contained the terms to be included in second mortgage to be executed by the company. Term 3 provided that the said Rs. 48.28 lacs wee to be repaid two years after the date of the said mortgage by annual instalments an amount equal to 50 per cent of the profits made by the company or Rs. 6.50 lacs whichever was lower, provided, however that in any event the whole debt should be paid off by June 30, 1980. Term 4 (a) provided that in the event of the assets secured under the second mortgage being damaged or impaired or the first mortgagees enforcing their security or the company being wound up, the entire debt due under the second mortgage would immediately become due, Term 4 (d), contemplated the company obtaining loans from certain financial institution including the Central and the State Governments and securing them by a prior charge over its fixed assets and therefore provided that in such an event "security of the second mortgagees for the fixed assets shall be subject to" such first or prior charge. Term 4 (e) likewise permitted the company to obtain loans from any person, firm or company on a first or prior charge over its liquid assets so that the security of the second mortgagees over the liquid assets "shall be subject to the first or prior charge in favour of such lender". There was already a first mortgage in favour of the Punjab National Bank Ltd. (hereinafter referred to as the 'Bank') for securing advances made by it to the company.

(3.) The effect of the said agreement was twofold: (1) that the Jalans by purchasing the said shares could take over the company's management and (2) on the second mortgage being executed Sch 'B' creditors, who, in respect of the debts due to them, were unsecured creditors, would take precedence over the other unsecured creditors by becoming secured creditors. No doubt, they agreed to accept 1/4 per cent interest and to postpone the date of payment of their debts, nonetheless, in the event of the company being wound up the entire debt due to them would become immediately payable and they would have priority over the rest of the unsecured creditors.