CHAMUNDI THEATRE MYSORE TALKIES LIMITED Vs. S CHANDRASEKARA RAO

JUDGEMENT

(1.) THIS appeal is directed against the judgment of the learned Subordinate Judge, Coimbatore. The defendant is the appellant. On January 10, 1959, one G. P. Raju Mudaliar as a partner of a managing agency firm to the defendant-incorporated company, executed a simple mortgage for Rs. 10, 000 in favour of the plaintiff and mortgaged the immovable properties and all the other properties belonging to the company. The consideration as recited in the deed of mortgage, exhibit A-1, was that it was to pay for two money decrees obtained against the defendant-company by the plaintiff as proprietor of a concern known as "standard Commercial corporation, Coimbatore".

(2.) IN order to avoid execution of the decrees so obtained by the plaintiff, the managing agents executed the above mortgage and, according to them, averted further proceedings in execution of the money decrees. After the said mortgage was executed moneys were paid thereunder. The plaintiff unsuccessfully made a demand under exhibit A-9 for the repayment of the amount and, thereafter, instituted the action. The defendant-company denied liability under the mortgage and put the plaintiff to strict proof of the execution of the same. Their second contention was that G. P. Raju Mudaliar did not have the competence to execute the same and, therefore, it is not binding on the company. IN support of this contention, it was alleged that on the date when the mortgage was executed, one Mallikarjuna Iyer was in custody and control of all the properties of the company as "provisional liquidator" appointed by the High Court, Madras, in O. P. No. 82/56. Since the provisional liquidator was so functioning on the date when the mortgage was executed in favour of the plaintiff, the mortgage deed is assailed on the ground that it does not bind the company. It was also sought to be made out that there was no resolution by the board of directors of the company which authorised G. P. Raju Mudaliar to execute the said mortgage. The learned subordinate judge after discussing the factual and legal contentions came to the conclusion that raju Mudaliar had competence to execute the said mortgage and that the mortgage was true and valid in the sense that it was supported by consideration. The court also noticed exhibit A-7 which was a letter written by the counsel for the defendant in a contemporary proceeding filed by the Syrian Bank, coimbatore, against the defendant-company in and by which the defendant stated that he was not disputing the suit mortgage. The learned judge was inclined to accept the argument that after having stated so in exhibit No. A-7, it is no longer open to the defendant to contest either the competence of G. P. Raju Mudaliar to execute the mortgage or the validity or truthfulness of the mortgage in other respects. The lower court also found that there was a valid notice convening the general body meeting and that Raju Mudaliar, as managing agent of the company, did execute the mortgage deed in conformity with the provisions of the Act and in pursuance of the resolution passed in the said meeting. IN the result, a preliminary decree was passed as prayed for by the plaintiff. It is as against this the present appeal has been filed. Mr. Nainar Sundaram, the learned counsel for the incorporated company, does not seriously contend that the mortgage is not supported by consideration. As a matter of fact, he would fairly concede that the resolutions disclosed that the mortgage was to avert the execution of money decrees obtained by the plaintiff as against the company and in this sense, exhibit A-1 is not assailable as not being true or binding on the company. But the sheet-anchor of his contention is that on January 10, 1959, when the managing agents, represented by G. P. Raju Mudaliar, executed this mortgage, there was a provisional liquidator functioning under the orders of court and that the managing agents not having secured possession of the properties from the provisional liquidator on the date when the mortgage was effected and as the matter should be deemed to be still lis pendens on that date or that the properties of the company were in custodia legis, exhibit A-1 was not competently executed by the managing agents and, therefore, not a valid and enforceable instrument in the eye of law. To appreciate this contention, it is necessary to refer to a few relevant facts which happened during the pendency of the application for winding up filed by a creditor against the company. One Kalappa Chettiar filed an application, O. P. No. 82/56, on the file of this court praying that the company may be wound up for the reasons stated by him in his petition and contemporaneously in an Application No. 774/55, sought for the appointment of a provisional liquidator pending disposal of the main application for winding up. Balakrishna Iyer J. , dealing with the said application, ordered that Mr. M. Mallikarjuna Iyer, Advocate, Coimbatore, be appointed the provisional liquidator of the company and that he do take possession of, collect and protect all the properties, effects and actionable claims to which the company above named appears to be entitled to, but not to distribute or part with the same until further orders of court. This order is dated March 27, 1956. On November 27, 1958, the petitioning creditor did not press the main application for winding up. Subramanyam J. disposed of O. P. No. 82/56 by passing the following order : "this petition is not pressed. The provisional liquidator will convene a general meeting of the members of the company within six weeks from this date, after giving the requisite notice for the purpose of electing a board of directors consisting of three directors. Immediately after they are elected, the directors will elect a managing director. The provisional liquidator will hand over charge of the company and its affairs to the managing director so elected. The provisional liquidator will, out of the funds of the company, meet such liabilities as are incurred during his term of office as such liquidator and will appropriate out of the funds in his hands, money due to him on account of the remuneration and otherwise. Any further sums payable to him will be paid to him by the managing director out of the funds of the company after he assumes charge. The provisional liquidator will have liberty to apply in this petition for payment by the company in the event of such payment not being made out of court. Subject to these observations, this petition is dismissed."

(3.) SIR G. Mellish L. J. in In re Oriental Inland Steam Co. , ex Parte Scinde Rly. Co. observed that: "winding-up differs from bankruptcy in this respect, that in bankruptcy the whole estate, both legal and beneficial, is taken out of the bankrupt, and is vested in his trustees or assignees, whereas in a winding-up the legal estate still remains in the company. " * These well-known propositions were accepted by the learned judges of the Travancore-Cochin High Court. Following these principles which are well laid and stated, we have no hesitation in accepting the contention of the learned counsel for the respondent that, even though there was an application for winding up pending and even though there was a provisional liquidator appointed to look after the affairs of the company in terms of the order under which he was appointed, in the instant case, in particular, and, generally, in all such cases, the properties of the company cannot be said to have vested in the provisional liquidator which requires a divesting at some future point of time to enable those in charge of the affairs of the company to deal with them in a manner known to law. To be more specific, by Mr. Mallikarjana Iyer's appointment as provisional liquidator the managing agents'right to deal with and the right to retain possession of the properties in its custody for the benefit of the company is not automatically taken away as there is no vesting of the properties in the provisional liquidator, eo instanti he is appointed in a pending application for winding up. Whatever may be said of the rights of the official liquidator after an order for winding up is made and which is also circumscribed by the various and strict provisions under the Companies Act, these do not apply, as a matter of course, to the office of the provisional liquidator. It is always controlled by the instrument which appoints him and he is equated for technical purposes with the official liquidator. His office is not an equation to that of an official liquidator but he is an officer of court who has to take directions of court in the matter of exercise of his powers attached to his office and he cannot assume the role of an official liquidator and invoke the provisions of the Companies Act and the rules made thereunder and claim that he is a receiver and in physical, juridical and sole custody and control of the properties of the company and that no one can interfere with such alleged possession of his and create instruments such as mortgages to his prejudice and to the prejudice of the company. Here it is conspicuous to note that on November 27, 1958, there was no application for winding up at all since it was withdrawn as not pressed by the petitioning creditor. In these circumstances, we are of the view that on january 2, 1959, G. P. Raju Mudaliar as a partner of the managing agency firm should be deemed to be in lawful custody of the properties and affairs of the company and that the mortgage created by him as such managing agent and pursuant to the resolution of the general body on January 10, 1959, in exhibit a-1 is a valid instrument which is enforceable in a court of law. We have already held, agreeing with the court below, that the mortgage is true and binding in the sense that it is supported by consideration. The decree and judgment of the court of the learned subordinate judge is, therefore, unassailable. The appeal, therefore, fails and it is dismissed. There will be no order as to costs.