NANDKISHORE BAJORIA Vs. GAYA SUGAR MILLS LTD

JUDGEMENT

(1.) This is a Letters Patent appeal from a decision of Imam J., dated 23-13-1952, on an application made by the Official Liquidator of the Gaya Sugar Mills, Limited (in liquidation) under the provisions of Section 185, Companies Act.

(2.) The material facts are the following. The Gaya Sugar Mills, Limited (hereinafter referred to as the company) was incorporated, in 1934 with an authorised capital of Rs. 7,00,000 divided into 7,000 shares of Rs. 100 each. For some years it was extremely successful; but in 1944 the company embarked on an ambitious scheme for the erection of a new factory at Warsaligunj, some fifty or sixty miles from Guraru where the original factory of the company is situate. In order to obtain the funds necessary for this very great expansion of the business, the authorised capital of the company was raised to 12 lacs in 1944, to 40 lacs in 1945 and to 1 crore in 1946. Out of this approximately 65 lacs were subscribed, and in order to obtain the balance, the directors in 1946 issued debentures of Rs. 1000 each to the value of about 25 lacs. The authorised capital of the company consisted of, amongst other shares, 2000 seven per cent, preference shares of Rs. 100 each fully paid up, and 28,000 five per cent. A-class preference shares of Rs. 100 each fully paid, minus certain arrears, the total of the capital raised by these A-class preference shares being in the neighbourhood of about 27 lacs. In or about 1947-48, a large block of machinery worth about four lacs which tile company had ordered from the United Kingdom reached Calcutta: but the company had no funds and the machinery was shipped back to the United Kingdom; the manufacturers cancelled the contract and claimed damages of about eight lacs. By this time the company had got into serious trouble, and on 24-10-1949, one Sohanlal Jajodia, a director and debenture-trustee of the company, filed a suit against Gurusaran Lal, the then Managing Director of the company, and others for several reliefs in respect of the management of the company. The suit was filed in the Calcutta High Court and was numbered 3803 of 1949. On 1-1-1950, an agreement was arrived at between Sohanlal Jajodia and Gurusaran Lal, the terms whereof will be found ha annexure A appended to the affidavit made by one of the appellants, Mahadeo Lal Jhunjhunwala. I shall advert to those terms in detail later in the course of this judgment. I may merely state here briefly that one of the terms was to pay off the preference share-holders in the following way: the company held some 42,200 shares of Ryam Sugar Company, Limited. These shares, it appears, were purchased in order to obtain a controlling interest in Ryam Sugar Company, Limited, and the reason why this controlling interest was sought was to enable the company to obtain the selling agency for the Ryam Sugar Company, Limited. This agency was obtained, but it was taken not in the name of the company but in the name of a firm which was the joint family business of Gurusaran Lal and bis son Arjun Prasad. One of the terms of the agreement was that the shares of the Ryam Sugar Company, Limited, would bo sold and the sale-proceeds would be utilised for paying off the preference share-holders; in addition to the payment of some amount in cash, the preference shareholders would gel; five per cent, taxable debentures of the face value of ten lacs and five per cent, tax-free cumulative, redeemable preference shares of live lacs in full payment of their dues on account of capital and arrears of interest. The agreement recited that two persons, Messrs. Nandkishore Bajoria and Maahadeolal Jhunjhunwala, who are the appellants before us and who, it appears, held about nine lacs of preference shares, were to be appointed as trustees for the purpose of carrying out the terms of the agreement. It further recited that steps should be taken for obtaining the sanction ol the Court and of the shareholders in giving effect to the terms of the agreement. On 9-1-1950, a meeting of the board of directors was held in Calcutta, and the agreement referred to was accepted. The minutes of the meeting stated:

(3.) As I have already stated, the present appeal is from the aforesaid decision of Imam, J. The principal question which has been urged before us in support of the appeal is a question of jurisdiction. It is argued that the word "trustee" in Section 185. Companies Act, means an express trustee, arid an order under Section 185 can be asked for only against the persons named therein, namely, contributories", trustees, receivers, bankers, agents or other officers of the company, and cannot be extended to other persons. The point taken before us is that the learned Judge, in passing the order complained of against the appellants, has exceeded the jurisdiction given to him under the provisions of Section 185, Companies Act.