Case: M. K. Ranganathan And Another Vs. Government Of Madras And Others

2. The appellants are the Secretary and President respectively of the Madras Tramways Workers Association (Regd. No. 1253) a Trade Union registered under the Trade Unions Act. The workmen employed by the Company are entitled under the award of the Special Industrial Tribunal, Madras in I. D. No. 9 of 1953 published in the Fort St. George Gazette, dated 8-7-1953 being G. O. Ms. No. 3024/53 to a payment of nearly Rs. 7,00,000/-out of which the workers belonging to the Madras Tramways Workers Association alone would be entitled nearly to a sum of Rs. 4,35,000/. and be thus the major creditors of the Company.The Company was incorporated in England with its principal office situated at No. 1, Rundalls Road, Vepery, Madras-7 and was running the Tramway Service in Madras with licence issued to it by the Government under the Tramways Act. It had issued 1300 First Debentures of ?100/- each and the debenture-holders had appointed the Beawer Trust Ltd., England as trustees. By an Indenture made in England on 13-10-1924 the Company charged by way of first charge in favour of the trustees all its undertaking properties and assets for the time being both present and future including its uncalled capital with the payment of all moneys for the time being owing on the security of the debentures and such charge was to rank as a floating charge.By two subsequent deeds made at Madras dated 26-3-1925 and 6-7-1950 certain immovable properties belonging to the company were mortgaged in favour of the said trustees. The said Trustees appointed respondent 2, the Managing Director of the Company and day today management of the tramway Service and of the business of the Company, as their Receiver. He took possession as such Receiver, from the midnight of 11-4-1953 of all the assets of the Company including moneys in the bank to the credit of the Company and after that date the Tramways service was suspended and still remains suspended.One J. B. Beardsell, one of the Directors of the Company filed O. P. No. 419 of 1953 as the duly constituted Attorney of the Company for winding up the Company on the ground that it was unable to pay its debts and that it had ceased to carry on its business. An order for winding up of the Company was made by the Court on 20-1-1954 and the Official Receiver, High Court, Madras, was appointed the Official Liquidator. Since all the assets including the moneys of the Company were in possession of respondent 2, the Official Receiver was unable to take charge of anything except the records of the Company.4. Soon after the order for winding up the respondent 2 advertised in the newspapers on 23-1-1954 for the sale of the properties and assets of the Company. At the end of the conditions of sale he stated in Para. 7 that "the sales are for the time being subject to the approval of the High Court at Madras and it will be for the undersigned to obtain such approval for accepted offers free of all costs to the purchaser".5. At the time of the order of winding up, two suits were pending in the High Court, C. S. No. 191 of 1952 flied by the Company against the State of Madras for Rs. 1,33,204-9-0 and interest thereon being electric charges alleged to have been collected by the State of Madras in excess of those payable by the Company and paid by the Company under protest and C. S. No. 368 of 1953 filed by the State of Madras against the Company for the recovery of Rs. 9,26,123-2-3 with interest thereon, being the difference alleged to be due in respect of the electric charges under the old rates and the revised rates applicable to the company.During the pendency of the said suits respondent 2 gave an undertaking in Application No. 4533 of 1953 in Civil Suit No. 368 of1953 that he would not without the orders of the High Court dispose of any of the assets of the Company which were in his possession till the disposal of the suit C. S. No. 368 of 1953. The two suits aforesaid were tried together and were disposed of by a common judgment on 16-3-1954.6. On 16-7-1954 respondent 2 agreed to sell and respondent 3 agreed to buy the movable properties of the Company the particulars of which were set out in the agreement entered into on that date, for a price of Rs. 4,01,658 of which half was paid on the signing of the agreement and the other half was agreed to be paid out of the proceeds of sale to be made by the purchasers of the assets as scrap.7. On 23-7-1954 the Official Receiver, High Court, Madras (respondent 5 herein) filed an application No. 3542 of 1954 for setting aside the said sale of the assets of the Company on the grounds, inter alia, that it was prejudicial to the interests of the General body of unsecured creditors, that the same had been concluded with undue haste and without adequate publicity and in violation of respondent 2s said undertaking to the court. It also asked for an injunction restraining respondent 2 from handing over and respondent 3 from either taking over or breaking up the assets purchased by him pending the disposal of the said application.8. This application was based on a report of the Official Receiver in which after setting out the relevant facts he submitted that even though under S. 229, Indian Companies Act the company which was admittedly insolvent was governed by rules prevailing with regard to the respective rights of the secured and unsecured creditors and to debts provable and valuation of annuities governing the administration in insolvency and secured creditors generally stood outside the liquidation and were entitled to have the remedy of realising the security and proving before him for the deficiency, if the properties of the company could be sold for a price higher than the amount due to the trustees of the debenture-holders there was a possibility of a surplus coming into his hands for the benefit of the unsecured creditors.If respondent 2 proved before him for any deficiency due to the secured creditors, it would certainly affect the rights of unsecured creditors, and moreover though the secured creditors might realise the security, it will be in the interests of the unsecured creditors to see that a fair and proper price was obtained. He therefore submitted that in the interests of the unsecured creditors it was just and necessary to have a fair valuation ascertained and an enquiry held to ascertain whether the sale by respondent 2 in favour of respondent 3 was bona fide and for a proper Price.Respondent 2 filed an affidavit in reply in August 1954 contending inter alia, (1) that the offer by respondent 3 was the highest that he had received and that this had been accepted bona fide, (2) that in the advertisement the condition as to the previous sanction of the court was inserted because of the undertaking that he had given to the court in C. S. No. 368 of 1953 and that this undertaking lapsed with the dismissal of the said suit on 16-3-1954, (3) that he had been advised by the Solicitors in England for the debenture trustees that it was unnecessary for him to obtain the sanction of the court and that he had been instructed not to apply for such sanction and (4) that the sale was bona fide and he had secured as good a price as could be obtained.9. By its judgment and order dated 9-8-1954 Balakrishna Ayyar J. (in Chambers) dismissed the said application with costs. The learned Judge held that the question whether respondent 2 had violated the undertaking given by him was not germane to the application before him, that undoubtedly respondent 2 did give wide publicity of his intention to sell the assets of the company, that it could not be said that the sale was sub rosa on the ground of want of wide publicity to the intended sale of the companys assets and that respondent 3s offer was the best offer received by respondent 2 looking both to the abstract of offers appended to the affidavit of respondent 2 in the said application, and looking to the other offers pointed out to him by respondent 5.The learned Judge further referred to the offer of the Corporation of Madras and said that the said corporation had not made only firm offer at all and that the offer of one A. Chettiar of Rs. 4,25,000 made on 5-8-1954 during the hearing of the application was an offer made by a person who did not appear to him to be of a man of sound financial status. The learned Judge in his judgment also recorded the fact that during the hearing of the application respondent 3 offered to sell to the Madras Municipal corporation the entire assets he had purchased at the same price which he paid for it but the corporation were not prepared to accept the offer.10. Respondent 5 accepted the said judgment and decision and did not prefer any appeal against the same. But the appellants who were not parties to the proceedings applied for and obtained from the High Court leave to appeal from the said decision. This appeal also was dismissed by the High Court with costs on 24-9-1954. The High Court differed from the finding of the trial Court and held that due publicity had not been given to the intended sale and observed that if the matter rested merely on a decision of that point they would have allowed the appeal and set aside the sale.They however held that in the absence of fraud or want of bona fides on the part of the seller along with that of the buyer the sale in favour of respondent 3 could not be set aside. The High Court further considered the question whether the said sale was void as being without the leave of the Court in view of S. 232, Indian Companies Act and answered that question in the negative. The High Court further held that a secured creditor had a right to realise his security without seeking the assistance of the Court and remaining outside the winding up.11. Being aggrieved by the said judgment and decree of the High Court the appellants applied for leave to appeal to this Court and such leave was granted by the High Court on 24-9-1954.

Reasoning:
16. The corresponding provisions of the Indian Companies Act have been almost bodily incorporated from those of the English Companies Act and if there was nothing more, the position of the secured creditor here also would be the same as that obtaining in England and he would also be outside the winding up and a sale by him without the intervention of the Court would be valid and could not be challenged as void under S. 232(1), Indian Companies Act.17. It was, however, urged that the addition of the words " or any sale held without leave of the Court of any of the properties" had changed the position of the secured creditor and even though the secured creditor realised the security without the intervention of the court such sale, if effected by him without the leave of the winding up Court , was void.The decision of the Allahabad High Court above referred to had held on a construction of S. 232(1) as it then stood, that an execution was not put in force merely when the property of the judgment-debtor was sold in pursuance thereof, but it was put in force when the property was attached and hence where the property of an insolvent company was attached prior to the date of the commencement of the winding up but was actually sold subsequent to such date, the sale was not void and could be upheld.Even apart from this intendment there are certain canons of construction which also tend to support the same conclusion.Prior to the amendment the law was well-settled both in England and in India that the secured creditor was outside the winding up and he could realise his security without the intervention of the Court by effecting a sale of the mortaged premises by private treaty or by public auction.It is a well-recognised rule of construction that "when two or more words which are susceptible of analogous meaning are coupled together noscuntur a sociis. They are understood to be used in their cognate sense. They take, as it were, their colour from each other, that is, the more general is restricted to a sense analogous to the lessregard to the circumstances under which the amendment was inserted in S. 232(l) by Act 22 of 1936 and also having regard to the context we are not prepared to hold that the Legislature in inserting that amendment intended to effect a fundamental alteration in law with irresistible clearness. Such a great and sudden change of policy could not be attributed to the Legislature and it would be legitimate, therefore, to adopt the narrower interpretation of those words of the amendment rather than an interpretation which would have the contrary effect.It may be observed in this connection that S. 171 enacts a general provision with regarded to suits or other legal proceedings to be proceeded with or commenced against the company after a winding up order has been made and lays down that no suit or other legal proceedings shall be proceeded with or commenced against the company except by leave of the Court and subject to such terms as the court may impose.This general provision is supplemented by the supplemental provisions to be found respectively in Ss. 229 and 232(1) of the Act. Section 229. speaks of the application of insolvency rules in winding up of insolvent companies and S. 232 (I) Speaks of the avoidance of certain attachments, executions, etc., put into force without the leave of the Court against that estate or effects of the company and also of any sale held without the leave of the Court of any of the properties of the company after the commencement of the windingin our judgment, no narrow construction should be placed upon the word "or other legal proceeding" in S. 171. In our judgment, the words can and should be held to cover distress and execution proceedings in the ordinary Courts. In our view, such proceedings are other legal proceedings against the company, as contrasted with ordinary suits against theare, therefore, of the opinion that the sale effected by respondent 2 as the Receiver of the Trustees of the debenture-holders on 16-7-1954 was valid and binding on all parties concerned and could not be challenged as it was sought to be done by the Official Receiver.