MAJOR ANTHONY ULYSSES JOHN Vs. SETH SURAJ BHAN

JUDGEMENT

(1.) This is a first appeal by Major A.U. John and others, defendants, against a decree of the Civil Judge of Agra. A suit was brought by the plaintiff, Seth Suraj Bhan against defendant 1, the Agra United Mills, Limited, and defendants 2, 3, 4 and 5 members of the John family, and also two members of the family as trustees for the debenture, holders. This suit has resulted in a simple money decree for Rs. 31,000 and interest and a declaration that the amount is recoverable in priority over the debentures or other charges upon the property of the mills. The appeal is directed only against the declaration for priority, and it is not denied that the plaintiff has a claim for the amount decreed. The appellants are interested in the debentures and their claim is that the loan given by the plaintiff creates a debt which has not got priority to the debentures and therefore the debenture, holders are not concerned with that claim. As a matter of fact, the debenture-holders had brought a suit, No. 84 of 1927, for possession of the mills on their claim as debenture-holders and that suit has succeeded and the mills passed into their possession and have since been auctioned and purchased by the appellant, Major A.U. John. The question therefore arises as to whether the plaintiff should have a decree which would be of any value to him or not. The circumstances are that there was this suit pending against the mills and the managing agents were unable to pay the wages of the workmen and the workmen were likely to commit a riot and the building was under the charge of armed police under the orders of the District Magistrate. The Civil Court appointed a receiver, Mr. P.N. Raina, on 29 November 1927 to preserve the mills and manage it. On 1 December 1927, the Civil Judge authorized the receiver to borrow sufficient money to pay the wages of the labourers. The order appointing the receiver is on pp. 79 to 81 and it directs the receiver to submit plans for the payment of the mill- hands which was extremely necessary. The receiver made no delay in the matter and on 1 December 1927 he made a report that he was endeavouring to get Seth Suraj Bhan, the plaintiff, to advance money to pay the wages. On that report the Judge passed an order on the same date on p. 89 in which he decided: The money which will be paid by Messrs. Suraj Bhan and Kunwar Ganesh Singh or anyone else will confer on them the lien which the mill-hands have on the property which is in the mill premises.

(2.) Accordingly on 4 December 1927, the receiver borrowed Rs. 31,000 in cash from plaintiff and executed an agreement on page 93. That agreement states that the plaintiff is willing to advance to me at this time Rupees 31,000 in cash bearing interest at 12 annas per cent, per month on promise of paying back the amount after six months so that salaries of the employees and labourers may be paid and the said Seth Sahib may take away all the moveable properties...which are stated by the Seth Sahib to be owned and purchased by him. If these goods will be proved to be the property and to have been purchased or under lien of Seth Sahib aforesaid then within ten days of the said decision I shall hypothecate to Seth Sahib aforesaid to his satisfaction sufficient property worth at least Rupees 60,000. If these goods will not be proved to be the property or under lien to Seth Sahib aforesaid, then he will set off the sum of Rs. 31,000 towards the price of the said goods and Seth Sahib shall have the same right and lien in respect of this amount of debt and only to that extent as the employees and labourers have in respect of these goods according to law and justice.

(3.) The amount was not paid back by the receiver and he ceased to be the receiver and although he states in evidence that he was satisfied that the Seth Sahib had the lien on the property which he removed from the mills, he did not execute the mortgage although he intended to do so. There is another witness who has given evidence, one Balmukand, and he stated that he was a servant of the plaintiff and that all the commodities in the mills were the plaintiff's properties under an agreement of 9 November 1925. This agreement related to the financing of the mills by the plain, tiff and this is admitted. The lower Court, has come to the conclusion that the evidence for the plaintiff on this point in the absence of any evidence that the goods in the mills did not belong to the plaintiff, shows that these goods were goods of the plaintiff on which the plaintiff had a lien and that the plaintiff did not remove any goods other than those on which he had a lien. Therefore under the Agreement the plaintiff would have the right and lien in respect of the amount of debt that the employees and labourers would have in respect of those goods. Now the Court below has granted a decree of priority against all the property of the mills as set out in the plaint which comprises various items of immovable property. The question which has been argued before us was argued first on the ground that priority would only arise in winding up and that the case before the Court was not one of winding up and that the company has not in fact been wound up. That may he so, but Section 129, Companies Act, states as follows: Where either a receiver is appointed on behalf of the holders of any debentures of a company secured by a floating charge, or possession is taken, by or on behalf of those debenture-holders of any property comprised in or subject to the charge, then, if the company is not at the time in course of being wound up, the debts which in every winding up are under the provisions of Part V relating to preferential payments to be paid in priority to all other debts, shall be paid forthwith out of any assets coming to the hands of the receiver or other person taking possession as aforesaid in priority to any claim for principal or interest in respect of the debentures.