1956 (9) TMI 26 - HC - Companies Law

Appellant entitled to half salary, pending misconduct determination. Costs based on success and failure.

Jwala Prasad Versus Jwala Bank Ltd.

The appellant's appeal is partially allowed. The appellant is entitled to half of the salary due from 1st November 1950 to 30th June 1958, provided no ... Consequences of voluntary winding up and Winding up – Debts of all descriptions to be admitted to proof Issues Involved:1. Past salary from 1st July 1939 to 30th June 1946.2. Future salary from 1st November 1950 to 30th June 1958.3. Price of goodwill.Detailed Analysis:1. Past Salary from 1st July 1939 to 30th June 1946The official liquidators contended that Jwala Prasad had relinquished his claim for this amount. This assertion was substantiated by statements in the balance sheets of 1946, 1947, and 1949, signed by Jwala Prasad, indicating that he had forgone his salary, amounting to Rs. 1,92,000. Jwala Prasad admitted to these statements and their correctness. Under Section 63 of the Indian Contract Act, a promisee may dispense with or remit the performance of a promise made to him. Consequently, the salary once forgone cannot be reclaimed, even if the act of forgoing was without consideration. Furthermore, a significant portion of the claim is barred by limitation. Claims must be within time at the date of the winding-up order, which in this case is treated as 1st August 1949. The claim for past salary from 1st July 1939 to 30th June 1943 is barred by limitation, even if the limitation period is considered six years under Article 116 of the Limitation Act. The balance sheets do not acknowledge an existing liability and thus cannot extend the limitation period under Section 19 of the Limitation Act.2. Future Salary from 1st November 1950 to 30th June 1958The learned Company Judge opined that this salary could not be claimed as the contract had become void. However, it was argued that after a winding-up order, all property and assets of the company are in the custody of the court and the official liquidator (Section 178 of the Indian Companies Act). The company cannot transact business through its board of directors, and the order of winding-up acts as a notice of discharge to the company's servants unless the business continues (Section 172(3)). The winding-up order is considered a wrongful dismissal, entitling the servant or manager to recover dues for premature contract termination (Halsbury's Laws of England, Vol. 6, page 654). The principle applies to managing directors as well (R.S. Newman Ltd., In re [1916] 2 Ch. 309). The appellant's debt must be evaluated as of the winding-up date under Section 228 of the Companies Act, with deductions for the liberty to seek new employment. Justice, equity, and good conscience dictate a deduction of half the present value of the appellant's claim, to be determined by the learned Company Judge.3. Price of GoodwillThe appellant is not entitled to compensation for goodwill as the agreement did not stipulate any payment for it. If the goodwill was transferred, no compensation was agreed upon. If not, the appellant can still use it, and the official liquidators have no claim to it. Thus, the appellant is entitled to nothing on this account.ConclusionThe appeal is allowed in part. The appellant is entitled to half the amount of the salary due from 1st November 1950 to 30th June 1958, subject to the condition that he is not found guilty of misconduct leading to the company's winding-up. The determination of misconduct will be made in pending miscellaneous proceedings or by the learned Company Judge. The parties will bear costs according to their success and failure.