VIVEK KUMAR Vs. PEARL CYCLE INDUSTRIES LIMITED

JUDGEMENT

(1.) By this Application, and connected Application being C.A. 144/80, u/s 446 of the Companies Act and C.As. 134 and 406/80, a former Joint Managing Director of a Company, in liquidation, and two members of his family, seek to challenge the validity of consent decrees passed against the Company in favour of a banking institution as early as the year 1966 and thereafter, inter alia, with a view to stall sale of the assets of the Company in execution of those decrees. C.A. 441/79 is by Vivek Kumar s/o. Surender Kumar, the former Joint Managing director of the Company. C.A. 144/80 is by Surender Kumar himself. By C.A. 134180, Kumud Kumar, respondent in C.A. 441/79, wife of Surender Kumar, seeks to be transposed as a co-petitioner in that application. By C.A. 406/80, Vivek Kumar seeks to transpose the Company, arrayed as a respondent in C.A. 441/79, as a co-petitioner. These applications were made in the backdrop of the following facts and circumstances.

(2.) Pearl Cycle Industries Ltd., in liquidation, was incorporated as a private joint stock company in 1955, as an enterprise of Raghunath Prasad, father of Surender Kumar. In 1960. the Company, which had been incorporated with the object of manufacturing bicycles and accessories, was converted into a public company. At all material times, the family had controlling interest in the Company. In the year 1966-67, the Company was faced with financial difficulties as a result of which. Mercantile Bank Ltd., which had advanced large amounts of money to the Company, as well as the Industrial Credit and Investment Corporation, called up their outstandings and a Suit, being Suit No. 175/66 was filed jointly by the Bank and the Corporation for the recovery of Rs. 40,50,000 in Delhi. The Suit was based on a mortgage of all the moveable and immovable assets of the Company. Surender Kumar sad his father was impleaded as defendants, in addition to the Company, in their capacity as guarantors. A consent decree was passed in the Suit in the year 1966 itself apparently because the plaintiffs waived claim to substantial amount due and payable on account of interest. In 1967, compulsory winding up of the Company was sought in the Circuit Bench of the Punjab High Court at Delhi but the petition was eventually withdrawn as the creditors had apparently been satisfied with the-funds made available by the Bank to the Company to enable it to tide over its difficulties. The Company was, however, unable to financially restore itself and the Bank was compelled to enforce another claim based on mortgage and got another consent decree against the Company based on an arbitration award in Suit No. 373/70 for a sum of Rs. 1,10,84,588.42P. The Company was eventually ordered to be wound up by an order of July 31, 1975 in Company Petition No. 94/73. The Bank, being a secured creditor is outside the winding up and is apparently the only creditor of the Company. The Bank sought the execution of the two decree in the Court of the District Judge, Gurgaon, within whose jurisdiction the land, building, machinery, plant and other assets of the Company were situated. At one stage the assets were being auctioned for a bare 18 lakhs. The execution proceedings were eventually transferred to this Court in view of the winding up of the Company. While settling the proclamation of sale, this Court found that the value of the land, building and machinery would be a little more than 60 lakhs and that amount was fixed as the 'reserved price'. The publication of the proclamation elicited offers for the sale of the entire assets ranging from Rs. 24 lakhs to Rs. 80 lakhs. In the open bidding in Court, ordered by this Court, K. C. Nahar's bid was the highest at Rs. 60 lakhs. It appears that during the pendency of the proceedings, possibilities were being explored by Surender Kumar and his associates to arrange funds to pay off the Bank or to enter into an appropriate settlement with the Bank so as to avoid distress sale of assets. It further appears that Surender Kumar was not successful in the effort and the sale of the assets for Rs. 60 lakhs seemed to be imminent. It is at this stage that C.A. 441/79 was filed by Vivek Kumar to annul the two decrees and to stall the sale of the assets in execution thereof apparently to get a little more time to arrange the necessary funds to pay off the Bank, wholly or partly, and seek a restoration of the Company to the family. C.A. 144/80 was filed by Surender Kumar during the pendency of the other application and C.As. 406/80 and 134/80 are intended to transpose the Company as well as the wife of Surender Kumar as co-petitioners. The Company and the Bank were impleaded as the respondents. Vivek Kumar also impleaded Surender Kumar, his father and his mother as Respondents. Surender Kumar in his application impleaded his wife and son as respondents in addition to the Company.

(3.) Vivek Kumar seeks to void the two decrees and to have them declared inexeautable on the grounds that the Board of Dirertors of the Company, including the Joint Managing Directors had not been duly constituted and were, therefore, incapable of giving consent to the claims being decreed and his father Surender Kumar had been acting against the interest of the members of the co-parcenary in getting the aforesaid decrees passed and was acting prejudicially to the interest of .the members of the family Surender Kumar seek to void the decrees on the ground that the Company had not given a valid consent for the decrees as he was incompetent to give such consent for and on behalf of the Company or to validly act for or on behalf of the Company and that, in any event, the consent to the decrees had not been validly ratified by or on behalf of the Company. Surender Kumar, Vivek Kumar and Kumud Kumar support each other but the Applications and the proposed transpositions are opposed by the Bank. The Bank resists the two Applications on the preliminary grounds of locus standi, limitation and maintainablility. The Official Liquidator has been indifferent to the proceedings.