1941 (4) TMI 10 - HC - Companies Law

Judgment upheld on agreement validity and enforceability, appeal dismissed with costs

The court upheld the judgment and decree of the lower court, ruling that the agreement dated 17th January 1938, and the court orders were valid and ... Winding up - Liquidator to exercise certain powers subject to sanction Issues Involved:1. Validity of the agreement dated 17th January 1938.2. Validity of the court orders dated 17th January 1938, 20th June 1938, and 22nd August 1938.3. Allegations of mistaken belief regarding the ownership of the leasehold interest.4. Consideration for the guarantee.5. Allegations of fraudulent and benami transactions.6. Jurisdiction of the court to make and enforce the orders.Detailed Analysis:1. Validity of the Agreement Dated 17th January 1938:The plaintiff sought a declaration that the agreement entered into on 17th January 1938, was void and inoperative. The agreement included terms of settlement concerning the winding-up of a company and the appointment of an official liquidator. The court found that the plaintiff was not under a mistaken belief regarding the ownership of the leasehold interest in the colliery at the time of entering into the agreement. The evidence showed that the plaintiff was aware of the sales under the Public Demands Recovery Act and the subsequent ownership issues. Therefore, the agreement was entered into with full knowledge of the circumstances, and there was no basis to declare it void.2. Validity of the Court Orders Dated 17th January 1938, 20th June 1938, and 22nd August 1938:The court orders in question were related to the winding-up proceedings and the enforcement of the terms of settlement. The order dated 17th January 1938, included substantive provisions and confirmed the terms of settlement. The orders dated 20th June 1938, and 22nd August 1938, were related to the execution of the settlement terms and the payment of amounts due to the respondent. The court held that these orders were within the powers of the court under Section 234(1) of the Indian Companies Act, which grants wide jurisdiction to the court in winding-up matters. The orders were made with the consent of the parties, and the plaintiff had not appealed against them. Therefore, the orders were valid and enforceable.3. Allegations of Mistaken Belief Regarding the Ownership of the Leasehold Interest:The plaintiff alleged that the agreement was entered into under the mistaken belief that the company still owned the leasehold interest in the colliery. The court found that the plaintiff was aware of the sales under the Public Demands Recovery Act and the subsequent ownership issues. The plaintiff did not provide evidence to support the claim of mistaken belief, and the court concluded that the agreement was made with full knowledge of the circumstances. Therefore, there was no mistaken belief that could invalidate the agreement.4. Consideration for the Guarantee:The plaintiff argued that there was no consideration for the guarantee provided in the agreement. The court noted that neither absence nor failure of consideration was alleged in the plaint, nor was any issue framed on this point. The terms of settlement included various covenants in favor of the plaintiff, which constituted ample consideration for the guarantee. The court held that the suggestion of failure of consideration was an attempt to raise the issue of mistaken belief in another form. Since the agreement was made with full knowledge of the circumstances, there was no failure of consideration.5. Allegations of Fraudulent and Benami Transactions:The respondent alleged that the sales under the Public Demands Recovery Act were fraudulent and that the purchasers were benamidars of the plaintiff. The court found that the property of the company was purchased by persons acting at the instigation of the plaintiff on the company's behalf. As a result, the property still belonged to the company. The court agreed with the finding that the transactions were fraudulent and that the colliery remained the property of the company.6. Jurisdiction of the Court to Make and Enforce the Orders:The plaintiff challenged the jurisdiction of the court to make the orders dated 17th January 1938, 20th June 1938, and 22nd August 1938. The court held that the orders were within the powers of the court under the Companies Act. The court distinguished between the existence of jurisdiction and the exercise of jurisdiction, noting that the court had the authority to make the orders in question. The orders were made with the consent of the parties, and the plaintiff had not appealed against them. Therefore, the jurisdiction of the court to make and enforce the orders could not be questioned in a separate suit.Conclusion:The appeal failed on all points, and the judgment and decree of the lower court were upheld. The agreement dated 17th January 1938, and the subsequent court orders were valid and enforceable. The allegations of mistaken belief, lack of consideration, and fraudulent transactions were not substantiated. The court had the jurisdiction to make and enforce the orders. The appeal was dismissed with costs.