1957 (1) TMI 18 - HC - Companies Law

Arbitration Award Overturned for Violating Indian Companies Act, Emphasizing Equal Treatment for Creditors

Durga Das Nayyar Versus Bombay Thread Mills Co. Ltd.

The High Court affirmed the District Judge's decision, ruling that the arbitration award and decree were invalid as they contravened the Indian Companies ... Winding up – Avoidance of transfer, etc., after commencement of Issues:- Validity of an arbitration award and decree in a winding-up scenario under the Indian Companies Act of 1913.Analysis:The judgment by Justice Falshaw of the High Court of Punjab pertains to an appeal against an order of the District Judge regarding the validity of an arbitration award and decree in a winding-up context. The case involved the Bombay Thread Mills Company Limited, which went into voluntary liquidation in October 1952. Subsequently, a petition for compulsory winding up was filed and granted in December 1953. Prior to the liquidation, the company had entered into a partnership agreement with Durga Das Nayyar, forming the B.T.M. Tube Reeling Works partnership. An arbitration agreement was made between Nayyar and the managing director, R.L. Khosla, to resolve disputes, resulting in an award issued after the company's liquidation. The official liquidator challenged the award under section 231 of the Indian Companies Act of 1913.The District Judge found that the award and decree contravened section 227(2) of the Act by disposing of the company's property post-liquidation. The judgment highlighted that the award directed payments and established charges on the company's property, impacting the distribution of assets among creditors. Despite no evidence of fraud in the arbitration process, the court held that the award interfered with the company's winding-up process, preventing preferential treatment of creditors based on early knowledge or influence.Justice Falshaw affirmed the District Judge's decision, stating that the award's impact on the company's property after liquidation rendered it invalid. He rejected the argument to uphold parts of the award related to the partnership assets, emphasizing the need for equal distribution among creditors. The judgment concluded that the District Judge's direction, allowing Nayyar to prove preferential creditor status, was fair and appropriate. The appeal was dismissed with costs, endorsing the equitable treatment of all parties involved in the liquidation proceedings.