RAKA CORPORATION PRIVATE LIMITED IN LIQUIDATION AND OFFICIAL LIQUIDATOR Vs. RAKA CHEMICALS AND FOOD PRODUCTS LIMITED

JUDGEMENT

(1.) THIS is an application taken out by the official liquidator of Raka Corporation Private Ltd. , under section 535 (1) of the companies Act, 1956, read with rules 11 (b) and 263 of the Companies (Court)Rules, 1959. The applicant is seeking to disclaim a contract regarding the allotment of 11, 513 equity shares of Rs. 10 each in the Raka Chemicals and food Products Limited, the respondents herein, which according to the applicant, is an onerous contract. The Raka Corporation Private Limited, hereinafter called the company, was directed by an order dated April 8, 1966, passed in Company Petition No. 54 of 1965, to be wound up. On November 18, 1966, the respondents called upon the applicant to pay a sum of Rs. 46, 052 being the first call at Rs. 4 per equity share of 11, 513 shares of Rs. 10 each, which, according to the respondents, were allotted and held by the company in liquidation. The applicant, in his letter, exhibit R-1 dated december 27, 1966, expressed certain administrative difficulties and stated that he was not still aware of the exact position as to the affairs of the company and requested the respondents to furnish details of the allotment of 11, 513 shares to the company in liquidation. He has also stated as follows "in the circumstances, in order to obtain the directions of the High Court in the matter after ascertaining the particulars of the investment of Raka Corporation in your company, I request you to extend the time for payment of the first call by two months from January 1, 1967, the date prescribed in the notice, under article 65 of your articles of association. " *

(2.) APPARENTLY, on a reminder by the respondent company, the applicant again wrote exhibit R-2 dated February 17, 1967, stating that it will take some more time for him to examine the position with reference to the statement of affairs and asked for further time for payment of the first call towards the shares. The applicant points out certain discrepancies in the matter of the actual amount paid by the company to the respondents as and towards the share value; but this is a matter which is not very necessary for purposes of arriving at a conclusion in the main matter in controversy in this applicationthe applicant states in his report that the investment of 11, 513 shares of Rs. 10 each in the respondents is of no benefit to the company, its creditors or shareholders. The shares are not quoted in the stock exchange. According to him, the financial position of the respondents is far from satisfactory. There is no possibility of getting any return from the investment made. The applicant characterises the company as a holding company of the respondents and also avers that the company has been financing from time to time the respondent-company as well. After scrutiny of the statements of affairs filed by the ex-directors, the applicant states that the assets of the company are not sufficient to meet the claims of the creditors and as such, it is not feasible to make any further payment on calls to be made on the 11, 513 shares. The company has no sufficient funds even to pay its creditors in full and therefore the applicant is of the view that the future liability under the above contract is burdensome to the company. He therefore prays for permission to disclaim the onerous contract of the allotment of 11, 513 equity shares of rs. 10 each in the respondents on which Rs. 2 per share has been paid up and rs. 4 per share has been called up by the respondent s The respondents in their counter affidavit state that the application for disclaimer is not maintainable as the applicant by his letters, exhibits R-1 and R-2, has asked for extension of time on the basis of his adoption of the contract. One other contention of the respondents is that it increased its share capital as it was obliged to do so when applying for a loan to the Madras Industrial Investment Corporation and that the allotment of shares made in favour of the company was directly connected with their attempt to secure a loan from the Madras Industrial Investment Corporation and therefore the Madras Industrial Investment Corporation is a necessary party as a person interested. Respondents do not seriously dispute the statement of the applicant that the financial position of the respondent-company is not sound, but throws the blame on the company which promised help but did not in fact render such help. The respondents also state that they are debtors to the company and if the disclaimer is allowed, the respondents will not be able to adjust the said amount from the amounts which they expected the company to pay to them as a result of the contract of allotment as above. Their contention is that this application seems to have been filed only for the purpose of claiming the moneys due by the respondents and disown the liabilities of the company to the respondents. They conclude by saying that the contract to take shares is complete and there is a legal obligation on the part of the applicant to respect the contractthe official liquidator in his further report in reply reiterates what he has stated in the opening affidavit and contends that the application is maintainable. He is emphatic that, as far as he could gather, no information is available from the records of the company about any application to the Madras Industrial Investment Corporation for a loan to the respondents and thus he states that the Madras Industrial Investment Corporation is not a necessary party. As the interests of the body of creditors of the company is paramount to him, he states that the company should not be further burdened with any liability arising out of the onerous contracts The main issue which arises, therefore, for consideration is whether the contract is onerous and whether the applicant by any act of commission or omission on his part precluded himself from filing this application for leave to disclaim the contract and whether the Madras industrial Investment Corporation is a necessary party to this application If the Madras Industrial Investment Corporation, which is a public body, sanctioned a loan to the respondents on the foot of the company taking up shares in the respondents-company and without taking such other safeguards as are necessary for the advancement of the loan by them to the respondents-company, it is for the Industrial Investment Corporation to look to their interests; it appears to me that the Corporation has taken a heavy risk in making such investment. If a creditor advances moneys to a debtor on the representations made by the debtor along with persons who are interested in co-ordinating with him that they are financially sound and/or they would invest more moneys in the enterprise for which moneys were required from the creditor and if the creditor believes in the representations of the debtor and his confederates, it does not necessarily follow that the creditor would be a necessary party to proceeding in which the confederate who has become a bankrupt, seeks to avoid his obligation by adopting a process known to law. Under section 535 (3), the court, before or on granting leave to disclaim, may require such notices to be given to persons interested. The official liquidator says that from the records made available to him, he could not gather any information about any application to the Madras Industrial Investment corporation for a loan to the respondents. Factually also, there is no proof before me that any such representation was made by the company in liquidation and that the Corporation acted upon such a representation. The respondents have not taken any steps to file any document to substantiate their contention that the Corporation is a necessary party. They are pleading the cause of the Madras industrial Investment Corporation without placing before the court such necessary and essential material to satisfy this court that the Corporation has sanctioned loan on the strength of the company's representations or any acts on their part. Wild averments in a counter affidavit stating that the Corporation is an interested person by themselves would not suffice to bring to court the industrial Investment Corporation, who according to me, must have taken all necessary precautions at the time when they advanced the loan. The persons interested referred to in section 535 (3) should be persons who are not only commercially interested, but should also be interested directly and substantially in the issue raised in the application for disclaimer. It is not easy to conceive that the Corporation, at the time of granting loan to the respondents, relied mainly on the anticipated shareholding of the company in the respondents-company. I am not satisfied, on the evidence placed before me, that the Madras Industrial Investment Corporation is a necessary party or a person interested within the meaning of section 535 (3) of the Companies Actthe other contention of the respondents is that this application is not maintainable in law. They rely upon exhibits R-1 and R-2 and section 535 (4) in support of their contention. Section 535 (4) reads as follows "the Liquidator shall not be entitled to disclaim any property in any case where an application in writing has been made to him by any person interested in the property requiring him to decide whether he will or will not disclaim, and the liquidator has not, within a period of twenty-eight days after the receipt of the application or such extended period as may be allowed by the court, given notice to the applicant that he intends to apply to the court for leave to disclaim; and in case the property is a contract, if the liquidator, after such an application as aforesaid, does not within the said period or extended period disclaim the contract, he shall be deemed to have adopted it. " *