R.C. MEHTA AND CO. Vs. HIMABHAI MANUFACTURING CO. LTD.

JUDGEMENT

(1.) Himabhai Manufacturing Company Ltd. was incorporated as a company under the Companies Act, and the company was running a textile mill. On account of straitened financial circumstances in which the company found itself in Feb., 1968, the mills of the company was closed on 9th Feb., 1968. Thereafter two company petitions being Company Petition No. 33 of 1968 and 45 of 1968 were filed by the creditors of the company for an order for winding up the company. When these petitions were pending in this court, the Government of India stepped in and appointed the Gujarat State Textile Corporation (hereinafter referred to as the "corporation") as authorised controller under section 18A of the Industries (Development and Regulation) Act, 1951, by its notified order dated 9th Oct., 1969. On being appointed as the authorised controller, the corporation applied for being joined as a party to the aforementioned two company petitions; and by an order made by the company judge in Company Application No. 127 of 1969 on 13th Oct., 1969, the corporation was joined as a party to both the petitions. The corporation has made the present two applications for a permission to create two mortgages on the security of the immovable properties of the company, one in favour of the corporation itself for a loan of Rs. 11.85 lakhs and the other in favour of National Textile Corporation Ltd. for a loan of Rs. 12.10 lakhs. These applications were made under section 536(2) of the Companies Act. The applications are resisted by the petitioning creditors in the aforementioned two company petitions, inter alia, on the ground that this court has no jurisdiction at this stage to grant the permission prayed for; and alternatively it was contended that even if this court comes to the conclusion that the court has jurisdiction to grant it, the corporation has not put sufficient materials on the record to decide at this stage whether the permission sought for should be granted or not.

(2.) A narrow but really interesting question as to the interpretation of section 536(2) of the Companies Act, 1956, arises in these applications. A few facts relevant to the point may be noticed. Company Petition No. 33 of 1968 and 45 of 1968 have been filed by the creditors of the company for an order for winding up the company on the ground that the company is commercially insolvent and unable to pay its debts. These petitions were filed on Aug. 19, 1968, and Dec. 4, 1968, and are pending in this court. If the company is ultimately ordered to be wound up the winding-up proceeding would be deemed to have commenced from the date of presentation of the petition in view of section 441(2) of the Companies Act, and the mortgages now sought to be created by the authorised controller would be void having been made after the commencement of the winding-up proceedings unless the court otherwise directs in view of section 536(2) of the Companies Act. The corporation has, therefore, filed these applications for protecting itself in advance by seeking a direction from the court that in the event of the company being wound up the mortgages would not be void but will be valid and binding. That necessitates examination of the scope of the court's jurisdiction to act under section 536(2).

(3.) Sec. 536(2) of the Companies Act reads as under