DEONARAYAN PRASAD BHADANI Vs. BANK OF BARODA LTD.

JUDGEMENT

(1.) The plaintiffs sue for a declaration that a first English mortgage on its properties and assets, created by defendant No. 2 company (the mills company) on Aug. 31, 1953, in favour of defendant No. 1 bank, to secure repayment of a sum of Rs. 25,00,000 advanced to the mills company by defendant No. 1 bank, after a scheme of reorganisation of the mills company was sanctioned by this court under section 153 of the Indian Companies Act, 1913, is ultra vires and of no effect. They also seek the consequential reliefs that defendant No. 1 bank may be ordered to deliver up the mortgage to be cancelled and for a permanent injunction restraining defendant No. 1 bank from taking any action under the mortgage or any steps to enforce and realise the mortgage. Plaintiffs Nos. 1 and 2 are shareholders of the mills company, which is public limited company. Defendants Nos. 3 to 5 and 11 to 20 are shareholders of the mills company. Defendants Nos. 3 to 10 are directors of the company. All the shareholders support plaintiffs Nos. 1 and 2 in this suit. Plaintiffs Nos. 3 and 4 are unsecured creditors of the mills company.

(2.) As most of the facts are not in dispute or really disputable, I shall first succinctly state the facts and history of the case and then summarise the contentions raised in the pleadings.

(3.) In Jan., 1953, the financial position of the mills company was far from satisfactory. Several creditors had filed petitions in this court for compulsory winding up of the mills company and for appointment of a liquidator. The company's liabilities were approximately Rs. 1,00,15,000. The Bank of India Ltd., to whom about Rs. 32,00,000 were payable were secured creditors holding an equitable mortgage on the properties and assets of the mills company. There were fixed deposits of about Rs. 23,00,000. : about Rs. 35,00,000 were due to large creditors and about Rs. 11,00,000 were due to small creditors (whose claims were less than a lakh of rupees). As against these liabilities the liquid assets of the mills company including outstandings were of the value of approximately Rs. 25,00,000 and the value of the fixed assets was said to be approximately Rs. 65,00,000. The directors of the company wanted to reorganise the business of the mills company with a view to retaining the fixed assets intact and paying off the liabilities in course of five years and propounded a scheme of reorganisation. The Bank of India had to be paid off in full before there could be any resuscitation of the mills company and a financial arrangement had been reached between the mills company and Bachhraj & Co. Ltd. whereby the latter had agreed to finance the mills company on certain terms mentioned, in an agreement dated April 30,1953.