M K RANGANATHAN Vs. GOVT OF MADRAS

JUDGEMENT

(1.) This is an appeal against an order of Balakrishna Aiyar J., dismissing Appin. No. 3542 of 1954 in O. P. nO, 419 of 1953. This was an application by the Official Liquidator of the Madras Electric Tramways to set aside a sale effected by a Receiver, appointed by the trustees for the debenture holders of the company, of certain assets of the company of which the latter, had taken possession.

(2.) It is necessary to set out in some detail the facts of the case giving rise lo this application before the points arising for consideration could be properly understood. O. P. No. 419 of 1953 is a petition for the winding up of the Madras Electric Tramways (1904) Ltd., under the Indian Companies Act, 7 of 1913. The company was incorporated in England for carrying on the business of running electric tramways in the city of Madras. The company was ordered to be wound up by this court of order dated 20-1-1954 on its own petition dated December 1953 on the ground that it was unable to pay its debts & the Official Receiver, High Court, Madras, has been appointed as the Official liquidator of the company. Notwithstanding the winding up order and the appointment of the Official Receiver as the liquidator of the company, no assets came into the possession of the liquitator. The reason was this: In or about October 1924 the company had issued debentures covering a very large sum of money which with interest on the date of the winding up, came to over Rs. 7 lakhs. These debentures were secured by a trust deed charging the fixed assets of the company by a first mortgage and there was also a floating charge by way of first charge in favour of the trustees in respect of the undertaking and all the other property and assets of the company for the time being, both present and future, including its uncalled capital to secure the payment of all monies for the time being owing on the security of the debentures. For reasons which it is unnecessary to state or discuss, the Madras Electric Tramways had to suspend the running of the trams on account of the fact that the company was incurring losses on a large scale for some years in succession. There was a default in the payment of interest due to the debenture holders and as in addition, the company suspended its operation in the way of running the trams, the trustees for the debenture holders appointed Mr. P. G. Brookes as receiver under the powers vested in them under the debenture trust deed, to take charge and possession of all the assets of the company which were the subject matter of the first mortgage as well as of the floating charge. Having regard to the comprehensive nature of the assets included in the floating charge which has been summarised above, the entirety of the property of the company was taken possession of by Mr. Brookes as receiver on 11-4-1953.

(3.) Even before Mr. Brookes took possession of the assets of the company as receiver for the debenture holders, there had been disputes between the workers of the tramways and the company regarding the terms of their employment including bonus etc., and the matter had been referred to the adjudication of an Industrial Tribunal. Subsequent to Mr. Brooke's taking possession of the assets of the company as receiver, he was impleaded in the labour dispute before the Industrial Tribunal in order to bind him also by the adjudication that might be passed in those proceedings. The Tribunal passed an award in July 1953 granting to the workers compensation which totaled about Rs. 7 lakhs. This amount has not yet been paid. Mr. Brookes was eager and desirous of effecting a sale of the assets which had vested in him for the purpose of realising the monies due to the debenture' holders on whose behalf he had taken possession. Meanwhile, however, the State of Madras filed a suit, C. S. No. 368 of 1953, on the file of this court claiming a sum of Rs. 9,26,183, as due to them for the value of electricity supplied to the Electric Tramways, and they claimed priority for the payment of this sum and they also put forward a contention that the debenture trust deed was legally ineffective to secure the charge in favour of the debenture holders in respect of the entirety of the assets covered by the floating charge, on certain legal 'grounds. Mr. Brookes -was made a defendant to the action and the reliefs were claimed as against him, since the claim was as against the assets in his hands. Immediately after the suit was filed, an application No. 4552 of 1953 was taken out for restraining Mr. Brookes from effecting a sale of the assets but no order of injunction was passed because of an undertaking given by Mr. Brookes on 14-12-1953 that he would not dispose of the assets of the undertaking without the specific orders of court. Mr. Brookes advertised for the sale of the assets in one copy of the Hindu, the Madras Mail, the Swadesamitran, the Hindustan Times, the Time's of India and the Andhra Patrika. These advertisements were inserted on or about the 23rd of the last week of January 1954. In this advertisement it was stated: