Case: New Kaiser-I-Hind Spinning and Weaving Company Limited (In Liquidation) Vs. State of Maharastra

The appeals raise common questions of fact and law and the principal parties thereto are also common and were represented by the same counsel. It will be convenient therefore to dispose of all the appeals by one common order( 2 ) THIS company was at one time being run by a management which for the sake of convenience and brevity we shall call the J. K. group or as it is called in the judgment of the court below in appeal No. 98 of 1967 as the Singhania group. On 21st June, 1965, a petition for winding up of the company was filed being Petition No. 39 of 1965 by a concern named Indualal and Co. and by an order of this court a provisional liquidator was appointed, who took charge of the company on the 2nd August, 1965. In consequence the working of the mills stopped as from the 6th of august, 1965. On the 16th August, 1965, an agreement was arrived at between the Singhania group and another group, which for the sake of convenience and brevity we shall call the jalan group. The principal persons in this group are Sanwarmal Todi, Jagannath Agarwal, K. M. Goenka and Nandlal Jalan. The agreement was that the Jalan group was to buy over the controlling shares belonging to the J. K. group and thus obtain the control and management of the company. We will presently refer to the detailed terms of this agreement but for the time being it may be stated that the Singhania group had agreed to sell 25,625 ordinary (equity) shares of Rs. 100 each which they owned to the Jalan group at a price of Rs. 10 per share payable in a certain manner and on completion of the transaction the directors of the Singhania group were to resign as the directors of the company as the Jalan group would direct. By the agreement the secured and unsecured creditors of the company were divided into four categories and provision was made for the repayment of the debts of the four categories. Of these, the first category were M/s. J. K. (Bombay) Private Ltd. and other J. K. concerns and as regards them it was provided that a sum of Rs. 3,46,501 had been advanced by J. K. (Bombay) Private Ltd. , for purchase of certain shares held by the company as investments and that these shares had been pledged by the company with the Punjab National Bank and the company should get the shares released from the Punjab National Bank and hand them over to J. K. (Bombay) Private Ltd. The company on its part acknowledged that a sum of Rs. 48,13,899 was due to the J. K. concerns as listed in Schedule b attached to the agreement and that the credits would be repaid out of 50% of the profits of the company commencing after the expiry of two years from the date of a second mortgage (agreed to be executed) but in any event not later than 30th June, 1980, as provided in a private agreement reached between Gopalkrishna Singhania (of the J. K. group) and Nandlal Jalan, Todi and Agarwal of the Jalan group. This agreement is dated 16th August, 1965, and is annexed to the main agreement dated 16th August, 1965. On the 19th October, 1965, the company took out a judges summons for considering this agreement between the Singhania group and the Jalan group and after calling for meetings of creditors to consider the arrangement, the company applied on the 23rd December, 1965, for sanction by the Court of the scheme. This was company Petition No. 113 of 1965. On 17th February, 1966, by an order made by Mr. Justice mody the scheme was sanctioned subject to certain modifications and as a result of the sanctioning of the Scheme nop order was made but the Petition No. 39 of 1965 for winding up the company was allowed to be withdrawn by a separate order passed on the 20th february, 1966. Thereafter thed Mills started working as from 1st April, 1966, under the new management of the Jalan group( 3 ) IT appears that the new management had arranged for a loan of Rs. 50 lakhs from the Punjab national Bank on conditions that the Central and the Government of the State of Maharashtra guaranteed a moiety of that loan, but the Central Government declined to furnish a guarantee though the State Government agreed. As a result, there was some delay in the implementation of the Scheme and for that and diverse other reasons the Jalan group and the Singhania group fell out. Disputes arose between them. A suit came to be filed in the city civil court and on the 27th february, 1967, Company Application No. 14 of 1967 was presented before this court by messrs. J. K. Private Ltd. , Bombay. That application was by way of a judges summons praying inter alia that Nandlal Jalan, Sanwarmal Todi, Jagannath Agarwal and K. M. Goenka (the Jalan group) should be ordered to pay forthwith to the J. K. group the first instalment payable under the scheme sanctioned on the 17th February, 1966. That application was supported by an affidavit in which the J. K. group made strong allegation against the new management of thed mills (the Jalan group) and alleged that they were backing out of the agreement which ought to be enforced against them and the company. That application was argued before Mr. Justice thakkar on several days between 12th June, 1967, and 16th June, 1967. In the meanwhile the new managementclosed down the mills on the 14th June, 1967, alleging that they had no funds to run the mills and it was impossible to carry on the company. The company Application No. 14 of 1967 contained prayers for several reliefs Nos. (a) to (u), but in the course of arguments on the 15th June, 1967, counsel on behalf of the J. K. (Bombay) Private ltd. being faced with certain difficulties of securing the presence of parties before the court gave up the prayers (g) to (p) contained in the judges summons dated 27th February, 1967. This fact is noted in the minutes of that day as well as in the order passed by Mr. Justice Thakkar on the 15th June, 1967, and has been adverted to by. Mr. Justice Vimadalal in his order dated 6th november, 1967, on Company Application No. 14 of 1967 (paragraph 1 ). On the 16th June, 1967, Mr. Justice Thakkar also ordered that the notice should be served on the Jalan group afresh because the said prayer had been given up. On the same day, i. e. , 16th June, 1967, the company itself took out a judges summons that the company be wound up under the provisions of section 392 (2) of the Companies Act as the scheme could not be worked. This judges summons is company Application No. 21 of 1967. On 17th June, 1967, the company itself also filed ap petition praying that the company be wound up under the provisions of section 433 of the Companies Act. This substantive petition forp preferred by the company itself is Company Petition No. 82 of 1967. On the 19th June, 1967, one of the creditors of the company, Messrs. Lalji Thakersey and Co. , appeared in Company Application No. 14 of 1967 and filed and affidavit opposing the Company application No. 14 of 1967 and praying that the said application should be dismissed. We mention this fact here because from the granting of company Application No. 14 of 1967 an appeal has been preferred by the said Messrs. Lalji thakersey and Co. and that appeal is appeal No. 96 of 1967( 4 ) WE have said that after the new management (the Jalan group) took charge of the company it restarted the mills on 1st April, 1966, and thereafter disputes arose between the new management (the Jalan group) and the old management (the J. K. group ). While these disputes were going on, an employee of the company one L. A. Chaugule claiming to be a creditor of the company gave statutory notice to the company on the 23rd February, 1967, claiming payment of retrenchment compensation due to him in terms of clause (3) of the scheme and on the 24th December, 1967, after the Company Application No. 14 of 1967 had been presented, this creditor filed an application praying that the scheme should not be sanctioned and that the company, which was in a commercially insolvent condition and unable to pay its debts should be wound up. That application was obviously under section 392 (2) of the Companies Act, and it is application No. 19 of 1967( 5 ) ALL these applications came up for hearing before Mr. Justice Vimadalal and by an order passed by him on the 6th November, 1967, he allowed the Company Application No. 14 of 1967, and ordered the Jalan group to comply with the conditions of the scheme and passed other ancillary orders. By a separate order he dismissed the Company Application No. 21 of 1967 for thep of the company under section 392 (2) of the Companies Act( 6 ) AGAINST the allowance of Company Application No. 14 of 1967, two appeals have been filed in this court, one by the creditor, Lalji Thakersey and Co. being Appeal No. 96 of 1967 and the other by the company itself, being Appeal No. 97 of 1967. Against the dismissal of Company application No. 21 of 1967, namely, the companys own application for winding it up under section 393 (2) of the Companies Act, the company has filed Appeal No. 98 of 1967. We have already said that the company had also presented a substantive Petition No. 82 of 1967 for its ownp under section 433 of the Companies Act. By an order passed on the 18th october, 1967, Mr. Justice Vimadalal ordered that this petition should be adjourned for hearing till four weeks after he had passed orders on Application No. 14 of 1967 and the Companys application No. 21 of 1967. The latter orders, as we have said, were all passed on the 6th November, 1967, but thep petition under section 433 has not been heard because in the meanwhile the appellants in Appeals Nos. 96, 97 and 98 had obtained stay of this order. The substantivep Petition No. 82 of 1967 under section 433 of the Companies Act is thus still pending before the learned single judge, but against the order dated October 18, 1967, adjourning that petition the company has preferred appeal to this court being Appeal No. 100 of 1967( 7 ) ON 12th April, 1967, the creditor, L. A. Chaugule, had filed Company Application No. 19 of 1967 forp of the company under section 392 (2) of the CompaniesThat application was dismissed by Mr. Justice Vimadalal by an order passed by him in Chambers on 4th October, 1967. Against the dismissal of his application the creditor, Chaugule and filed appeal No. 86 of 1967( 8 ) FOR the sake of convenience, we give below in tabular form how the five appeals before us arise :1. Company Application No. 14 of 1967 (allowed)Appeal No. 96 of 1967 by creditor, Lalji thakersey and Co. 2. Company Application No. 14 of 1967 (allowed)Appeal No. 97 of 1967 by the company itself. 3. Application No. 21 of 1967 forp the company under section 392 (2) of the companies Act (dismissed)Appeal No. 98 of 1967 by the company itself. 4. Company Petition No. 82 of 1967 for winding up the company under section 433 of the companies Act (adjourned)Appeal No. 100 of 1967 by the Company itself. 5. Application No. 19 of 1967 by the creditor, L. A. Chaugule (dismissed)Appeal No. 86 of 1967 by the creditor( 9 ) ALL these matters substantially arise out of then of the scheme sanctioned by the court on the 17th February, 1966, and before we set forth the position taken by the respective parties, it is necessary to refer to the terms of that scheme. It is annexed as a schedule to the order or Mr. Justice Mody dated 17th February, 1966, and the operative part of the order recites. this COURT DOTH PASS JUDGMENT AND DOTH HEREBY SANCTION the compromise or arrangement set forth in paragraph five of the petition herein with certain modifications as approved by this Honble Court and which compromise or arrangement with the said modifications is set out in the schedule hereto annexed AND DOTH HEREBY DECLARE the same to be binding on the unsecured creditors of the said company and also on the said company. . . . . .The scheme recites that there were secured and unsecured creditors of the company, the secured creditors being the Punjab National Bank Ltd. , who had advanced loans against the pledge and hypothecation accounts and demand loans secured by goods or mortgage of the fixed assets and pledge account with Messrs. R. Ratilal and Co. secured by cotton and that both these accounts shall be continued by the company. The unsecured creditors have been divided into four categories, their debts aggregating to Rs. 1,01,39,900. The first category comprised the concerns of the J. K. group. The second category aggregating about Rs. 10,33,000 comprised public authorities to whom amounts were due, as for example, the Municipal corporation to whom water charges, rates and taxes were due, the Collector of Sales Tax to whom sales tax dues had to be paid, the Commissioner ofx on account outstanding demands ofx and other demands, the Bombay Port Trust on account of ground rent and the Collector of Bombay also on account of ground rent and several other parties whom the company was liable to pay and who possessed statutory powers of recovery from the company. The third category was comprised of suppliers of cotton to the mills who had not been paid the amount due to the being Rs. 6,84,897. 10. The fourth category was comprised of other sundry creditors such as suppliers of stores to the company and various other creditors who had supplied stores and articles. The employees of the company were put in a separate category by themselves because a special arrangement had been arrived at between the new management and the Union of workers acting on behalf of the employees as regards the payment of retrenchment compensation and other dues to the employees( 10 ) IN category I, provision has been made for satisfaction of the debts of the J. K. group. In clause (i) it is provided that a sum of Rs. 3,46,501 was paid by J. K. (Bombay) Private Ltd. to the company for the purchase of certain shares held by the company and that those shares were pledged by the company with the Punjab National Bank Ltd. The company on its part agreed to redeem those shares and hand them over to J. K. (Bombay) Private Ltd. within 90 days from the date of the order sanctioning the scheme. Clause (ii) is important and runs as follows : the sum of Rs. 48,13,899 is due to J. K. concerns and others whose names are set out in schedule B to the agreement, exhibit a hereto. The said amounts with interest at the rate of 1/4th per cent. per annum will be repaid by the company in annual instalments of an amount equal to 50% of the profits of the company, commencing after the expiry of two years from the date of the second mortgage but in any event not later than 30th June, 1980, as provided in the said agreement being exhibit a hereto and the said amount with interest as aforesaid will be secured by a second mortgage of the companys assets.( 11 ) THE third clause provides that the second mortgage shall be in the form of a debenture trust deed. The whole of this arrangement was subject to the Controller of Capital Issues granting section to the second mortgage being created by the company in favour of the J. K. group( 12 ) THIS provision of the scheme has to be read along with the agreement which is referred to in clause (ii) of category I. That agreement is exhibit a and is entered into between Gopalkrishna singhania called the vendor (J. K. group) and the three members of the Jalan group, Nandlal jalan, Sanwarmal Todi and Jagannath Agarwal called the purchasers. The agreement provides that the Jalans were to purchase the 25,625 ordinary shares owned by the J. K. group in the Newd Spg. and Wvg. Co. Ltd. and that the purchase price of the shares will be Rs. 10 per share. It also provides that the vendor, namely, the J. K. group, shall procure and accept the appointment of such persons as directors of the said company as the purchasers shall direct and that the J. K. group will also procure the consent and confirmation of the various creditors whose names are set out in schedule B. If the company secures the amount due to the vendors by a second legal mortgage, the vendors, J. K. group, agreed that they will not claim interest on the amount due to them at a rate higher than 1/4% per annum and will not demand immediate payment of the said amounts respectively due to them by the company. Certain personal guarantees given by the partners of one of the J. K. concerns were to be discharged by the company. The agreement also stipulated that it was conditional upon the orders being obtained from the Bombay High Court vacating the appointment of the official liquidator (appointed on 2nd August, 1965) and allowing the petitioners in Company Petition No. 39 of 1965 to withdraw the petition( 13 ) THE sum and substance of this agreement between J. K. group and the Jalan group was thus that the J. K. group were enabled to convert the amount of Rs. 48,28,899, which was an unsecured debt, into a secured debt, secured by a second mortgage of the companys assets and they in their turn were to sell their controlling shares to the Jalans to enable the Jalans to obtain the management and control of the company. The J. K. group thus gave up a substantial part of the interest on the amount due to them and their control over the company. They also agreed to defer the repayment of the indebtedness of the company to them by instalments extending upto but not later than 30th June, 1980. These annual instalments were to be paid out of 50% of the profits of the company. The expression profits was carefully defined in paragraph 3 of the schedule c to the agreement. The J. K. group also stipulated for another advantage, namely, that their sum of Rs. 3,46,501, would be returned to them by the company within 90 days from the date of the order sanctioning the scheme( 14 ) IN exhibit b attached to the scheme there is set forth an agreement between the workers through the Rashtriya Mill Mazdoor Sangh and the company. The workers it appears had upon the closure on the 6th August 1965 of the Mills, claimed retrenchment compensation and the agreement provides for the retrenchment compensation and accrued leave with wages during the period and how and on what terms it has to be paidThe appeals raise common questions of fact and law and the principal parties thereto are also common and were represented by the same counsel. It will be convenient therefore to dispose of all the appeals by one common order( 2 ) THIS company was at one time being run by a management which for the sake of convenience and brevity we shall call the J. K. group or as it is called in the judgment of the court below in appeal No. 98 of 1967 as the Singhania group. On 21st June, 1965, a petition for winding up of the company was filed being Petition No. 39 of 1965 by a concern named Indualal and Co. and by an order of this court a provisional liquidator was appointed, who took charge of the company on the 2nd August, 1965. In consequence the working of the mills stopped as from the 6th of august, 1965. On the 16th August, 1965, an agreement was arrived at between the Singhania group and another group, which for the sake of convenience and brevity we shall call the jalan group. The principal persons in this group are Sanwarmal Todi, Jagannath Agarwal, K. M. Goenka and Nandlal Jalan. The agreement was that the Jalan group was to buy over the controlling shares belonging to the J. K. group and thus obtain the control and management of the company. We will presently refer to the detailed terms of this agreement but for the time being it may be stated that the Singhania group had agreed to sell 25,625 ordinary (equity) shares of Rs. 100 each which they owned to the Jalan group at a price of Rs. 10 per share payable in a certain manner and on completion of the transaction the directors of the Singhania group were to resign as the directors of the company as the Jalan group would direct. By the agreement the secured and unsecured creditors of the company were divided into four categories and provision was made for the repayment of the debts of the four categories. Of these, the first category were M/s. J. K. (Bombay) Private Ltd. and other J. K. concerns and as regards them it was provided that a sum of Rs. 3,46,501 had been advanced by J. K. (Bombay) Private Ltd. , for purchase of certain shares held by the company as investments and that these shares had been pledged by the company with the Punjab National Bank and the company should get the shares released from the Punjab National Bank and hand them over to J. K. (Bombay) Private Ltd. The company on its part acknowledged that a sum of Rs. 48,13,899 was due to the J. K. concerns as listed in Schedule b attached to the agreement and that the credits would be repaid out of 50% of the profits of the company commencing after the expiry of two years from the date of a second mortgage (agreed to be executed) but in any event not later than 30th June, 1980, as provided in a private agreement reached between Gopalkrishna Singhania (of the J. K. group) and Nandlal Jalan, Todi and Agarwal of the Jalan group. This agreement is dated 16th August, 1965, and is annexed to the main agreement dated 16th August, 1965. On the 19th October, 1965, the company took out a judges summons for considering this agreement between the Singhania group and the Jalan group and after calling for meetings of creditors to consider the arrangement, the company applied on the 23rd December, 1965, for sanction by the Court of the scheme. This was company Petition No. 113 of 1965. On 17th February, 1966, by an order made by Mr. Justice mody the scheme was sanctioned subject to certain modifications and as a result of the sanctioning of the Scheme nop order was made but the Petition No. 39 of 1965 for winding up the company was allowed to be withdrawn by a separate order passed on the 20th february, 1966. Thereafter thed Mills started working as from 1st April, 1966, under the new management of the Jalan group( 3 ) IT appears that the new management had arranged for a loan of Rs. 50 lakhs from the Punjab national Bank on conditions that the Central and the Government of the State of Maharashtra guaranteed a moiety of that loan, but the Central Government declined to furnish a guarantee though the State Government agreed. As a result, there was some delay in the implementation of the Scheme and for that and diverse other reasons the Jalan group and the Singhania group fell out. Disputes arose between them. A suit came to be filed in the city civil court and on the 27th february, 1967, Company Application No. 14 of 1967 was presented before this court by messrs. J. K. Private Ltd. , Bombay. That application was by way of a judges summons praying inter alia that Nandlal Jalan, Sanwarmal Todi, Jagannath Agarwal and K. M. Goenka (the Jalan group) should be ordered to pay forthwith to the J. K. group the first instalment payable under the scheme sanctioned on the 17th February, 1966. That application was supported by an affidavit in which the J. K. group made strong allegation against the new management of thed mills (the Jalan group) and alleged that they were backing out of the agreement which ought to be enforced against them and the company. That application was argued before Mr. Justice thakkar on several days between 12th June, 1967, and 16th June, 1967. In the meanwhile the new managementclosed down the mills on the 14th June, 1967, alleging that they had no funds to run the mills and it was impossible to carry on the company. The company Application No. 14 of 1967 contained prayers for several reliefs Nos. (a) to (u), but in the course of arguments on the 15th June, 1967, counsel on behalf of the J. K. (Bombay) Private ltd. being faced with certain difficulties of securing the presence of parties before the court gave up the prayers (g) to (p) contained in the judges summons dated 27th February, 1967. This fact is noted in the minutes of that day as well as in the order passed by Mr. Justice Thakkar on the 15th June, 1967, and has been adverted to by. Mr. Justice Vimadalal in his order dated 6th november, 1967, on Company Application No. 14 of 1967 (paragraph 1 ). On the 16th June, 1967, Mr. Justice Thakkar also ordered that the notice should be served on the Jalan group afresh because the said prayer had been given up. On the same day, i. e. , 16th June, 1967, the company itself took out a judges summons that the company be wound up under the provisions of section 392 (2) of the Companies Act as the scheme could not be worked. This judges summons is company Application No. 21 of 1967. On 17th June, 1967, the company itself also filed ap petition praying that the company be wound up under the provisions of section 433 of the Companies Act. This substantive petition forp preferred by the company itself is Company Petition No. 82 of 1967. On the 19th June, 1967, one of the creditors of the company, Messrs. Lalji Thakersey and Co. , appeared in Company Application No. 14 of 1967 and filed and affidavit opposing the Company application No. 14 of 1967 and praying that the said application should be dismissed. We mention this fact here because from the granting of company Application No. 14 of 1967 an appeal has been preferred by the said Messrs. Lalji thakersey and Co. and that appeal is appeal No. 96 of 1967( 4 ) WE have said that after the new management (the Jalan group) took charge of the company it restarted the mills on 1st April, 1966, and thereafter disputes arose between the new management (the Jalan group) and the old management (the J. K. group ). While these disputes were going on, an employee of the company one L. A. Chaugule claiming to be a creditor of the company gave statutory notice to the company on the 23rd February, 1967, claiming payment of retrenchment compensation due to him in terms of clause (3) of the scheme and on the 24th December, 1967, after the Company Application No. 14 of 1967 had been presented, this creditor filed an application praying that the scheme should not be sanctioned and that the company, which was in a commercially insolvent condition and unable to pay its debts should be wound up. That application was obviously under section 392 (2) of the Companies Act, and it is application No. 19 of 1967( 5 ) ALL these applications came up for hearing before Mr. Justice Vimadalal and by an order passed by him on the 6th November, 1967, he allowed the Company Application No. 14 of 1967, and ordered the Jalan group to comply with the conditions of the scheme and passed other ancillary orders. By a separate order he dismissed the Company Application No. 21 of 1967 for the( 6 ) AGAINST the allowance of Company Application No. 14 of 1967, two appeals have been filed in this court, one by the creditor, Lalji Thakersey and Co. being Appeal No. 96 of 1967 and the other by the company itself, being Appeal No. 97 of 1967. Against the dismissal of Company application No. 21 of 1967, namely, the companys own application for winding it up under section 393 (2) of the Companies Act, the company has filed Appeal No. 98 of 1967. We have already said that the company had also presented a substantive Petition No. 82 of 1967 for its ownp under section 433 of the Companies Act. By an order passed on the 18th october, 1967, Mr. Justice Vimadalal ordered that this petition should be adjourned for hearing till four weeks after he had passed orders on Application No. 14 of 1967 and the Companys application No. 21 of 1967. The latter orders, as we have said, were all passed on the 6th November, 1967, but thep petition under section 433 has not been heard because in the meanwhile the appellants in Appeals Nos. 96, 97 and 98 had obtained stay of this order. The substantivep Petition No. 82 of 1967 under section 433 of the Companies Act is thus still pending before the learned single judge, but against the order dated October 18, 1967, adjourning that petition the company has preferred appeal to this court being Appeal No. 100 of 1967( 7 ) ON 12th April, 1967, the creditor, L. A. Chaugule, had filed Company Application No. 19 of 1967 forp of the company under section 392 (2) of the CompaniesThat application was dismissed by Mr. Justice Vimadalal by an order passed by him in Chambers on 4th October, 1967. Against the dismissal of his application the creditor, Chaugule and filed appeal No. 86 of 1967( 8 ) FOR the sake of convenience, we give below in tabular form how the five appeals before us arise :1. Company Application No. 14 of 1967 (allowed)Appeal No. 96 of 1967 by creditor, Lalji thakersey and Co. 2. Company Application No. 14 of 1967 (allowed)Appeal No. 97 of 1967 by the company itself. 3. Application No. 21 of 1967 forp the company under section 392 (2) of the companies Act (dismissed)Appeal No. 98 of 1967 by the company itself. 4. Company Petition No. 82 of 1967 for winding up the company under section 433 of the companies Act (adjourned)Appeal No. 100 of 1967 by the Company itself. 5. Application No. 19 of 1967 by the creditor, L. A. Chaugule (dismissed)Appeal No. 86 of 1967 by the creditor( 9 ) ALL these matters substantially arise out of then of the scheme sanctioned by the court on the 17th February, 1966, and before we set forth the position taken by the respective parties, it is necessary to refer to the terms of that scheme. It is annexed as a schedule to the order or Mr. Justice Mody dated 17th February, 1966, and the operative part of the order recites. this COURT DOTH PASS JUDGMENT AND DOTH HEREBY SANCTION the compromise or arrangement set forth in paragraph five of the petition herein with certain modifications as approved by this Honble Court and which compromise or arrangement with the said modifications is set out in the schedule hereto annexed AND DOTH HEREBY DECLARE the same to be binding on the unsecured creditors of the said company and also on the said company. . . . . .The scheme recites that there were secured and unsecured creditors of the company, the secured creditors being the Punjab National Bank Ltd. , who had advanced loans against the pledge and hypothecation accounts and demand loans secured by goods or mortgage of the fixed assets and pledge account with Messrs. R. Ratilal and Co. secured by cotton and that both these accounts shall be continued by the company. The unsecured creditors have been divided into four categories, their debts aggregating to Rs. 1,01,39,900. The first category comprised the concerns of the J. K. group. The second category aggregating about Rs. 10,33,000 comprised public authorities to whom amounts were due, as for example, the Municipal corporation to whom water charges, rates and taxes were due, the Collector of Sales Tax to whom sales tax dues had to be paid, the Commissioner ofx on account outstanding demands ofx and other demands, the Bombay Port Trust on account of ground rent and the Collector of Bombay also on account of ground rent and several other parties whom the company was liable to pay and who possessed statutory powers of recovery from the company. The third category was comprised of suppliers of cotton to the mills who had not been paid the amount due to the being Rs. 6,84,897. 10. The fourth category was comprised of other sundry creditors such as suppliers of stores to the company and various other creditors who had supplied stores and articles. The employees of the company were put in a separate category by themselves because a special arrangement had been arrived at between the new management and the Union of workers acting on behalf of the employees as regards the payment of retrenchment compensation and other dues to the employees( 10 ) IN category I, provision has been made for satisfaction of the debts of the J. K. group. In clause (i) it is provided that a sum of Rs. 3,46,501 was paid by J. K. (Bombay) Private Ltd. to the company for the purchase of certain shares held by the company and that those shares were pledged by the company with the Punjab National Bank Ltd. The company on its part agreed to redeem those shares and hand them over to J. K. (Bombay) Private Ltd. within 90 days from the date of the order sanctioning the scheme. Clause (ii) is important and runs as follows : the sum of Rs. 48,13,899 is due to J. K. concerns and others whose names are set out in schedule B to the agreement, exhibit a hereto. The said amounts with interest at the rate of 1/4th per cent. per annum will be repaid by the company in annual instalments of an amount equal to 50% of the profits of the company, commencing after the expiry of two years from the date of the second mortgage but in any event not later than 30th June, 1980, as provided in the said agreement being exhibit a hereto and the said amount with interest as aforesaid will be secured by a second mortgage of the companys assets.( 11 ) THE third clause provides that the second mortgage shall be in the form of a debenture trust deed. The whole of this arrangement was subject to the Controller of Capital Issues granting section to the second mortgage being created by the company in favour of the J. K. group( 12 ) THIS provision of the scheme has to be read along with the agreement which is referred to in clause (ii) of category I. That agreement is exhibit a and is entered into between Gopalkrishna singhania called the vendor (J. K. group) and the three members of the Jalan group, Nandlal jalan, Sanwarmal Todi and Jagannath Agarwal called the purchasers. The agreement provides that the Jalans were to purchase the 25,625 ordinary shares owned by the J. K. group in the Newd Spg. and Wvg. Co. Ltd. and that the purchase price of the shares will be Rs. 10 per share. It also provides that the vendor, namely, the J. K. group, shall procure and accept the appointment of such persons as directors of the said company as the purchasers shall direct and that the J. K. group will also procure the consent and confirmation of the various creditors whose names are set out in schedule B. If the company secures the amount due to the vendors by a second legal mortgage, the vendors, J. K. group, agreed that they will not claim interest on the amount due to them at a rate higher than 1/4% per annum and will not demand immediate payment of the said amounts respectively due to them by the company. Certain personal guarantees given by the partners of one of the J. K. concerns were to be discharged by the company. The agreement also stipulated that it was conditional upon the orders being obtained from the Bombay High Court vacating the appointment of the official liquidator (appointed on 2nd August, 1965) and allowing the petitioners in Company Petition No. 39 of 1965 to withdraw the petition( 13 ) THE sum and substance of this agreement between J. K. group and the Jalan group was thus that the J. K. group were enabled to convert the amount of Rs. 48,28,899, which was an unsecured debt, into a secured debt, secured by a second mortgage of the companys assets and they in their turn were to sell their controlling shares to the Jalans to enable the Jalans to obtain the management and control of the company. The J. K. group thus gave up a substantial part of the interest on the amount due to them and their control over the company. They also agreed to defer the repayment of the indebtedness of the company to them by instalments extending upto but not later than 30th June, 1980. These annual instalments were to be paid out of 50% of the profits of the company. The expression profits was carefully defined in paragraph 3 of the schedule c to the agreement. The J. K. group also stipulated for another advantage, namely, that their sum of Rs. 3,46,501, would be returned to them by the company within 90 days from the date of the order sanctioning the scheme( 14 ) IN exhibit b attached to the scheme there is set forth an agreement between the workers through the Rashtriya Mill Mazdoor Sangh and the company. The workers it appears had upon the closure on the 6th August 1965 of the Mills, claimed retrenchment compensation and the agreement provides for the retrenchment compensation and accrued leave with wages during the period and how and on what terms it has to be paid( 15 ) NOW, as we have indicated, the expectations of the parties did not materialise and disputes arose between the J. K. group and the Jalan group and though the mills wereon the 1st april, 1966, and an attempt was made to run it, the attempt failed. Ultimately, the parties came to court by the filing of the Application No. 14 of 1967, but at the hearing various other affidavits and documents were read. At the outset Mr. Bhatt on behalf of the J. K. Group wanted that each appeal should be heard separately and that the parties should not be allowed to refer to any pleading or affidavit or document in any other appeal. At any rate, he urged that Appeals Nos. 96 and 97 which arise out of the Application No. 14 of 1967, should be heard separately and Appeal no. 98 should be heard separately because it arose out of the Application No. 21 of 1967. At the hearing, however, we hadd this objection of Mr. Bhatt and had informed counsel that we would give our reasons later. We are unable to accept this contention of Mr. Bhatt for the simple reason that the conduct of all these matters was not kept separate before the learned single judge and in his own orders also the learned single judge has referred to his findings in the other orders. In his order on Company Application No. 14 of 1967, paragraph 1, the learned judge observed as follows :before I do so, it may, however, be mentioned that the parties have freely referred to affidavits filed in the different applications relating to they in the course of their arguments, as the same have been incorporated and adopted in the affidavits filed in the said applications.( 16 ) IN the same order the learned judge referred to his order in Company Application No. 21 of 1967, thus in view of the fact even at the date when the scheme was sanctioned, the learned judge (Mr. Justice Mody) knew and has stated so in his judgment in clear terms that the company is in insolvent circumstances, and in view of the conclusions at which I have arrived in the order delivered by meCompany Application No. 21 of 1967, to the effect that the scheme has not become unworkable, but it is the new management itself which has deliberately tried to create a situation which would show that it is unworkable, I must reject that contention of Mr. Laud also.The learned judge thus clearly refers to his findings in the connected Application. In his order on Company Application No. 21 of 1967, also the learned judge made a similar remark : it may be mentioned that, in the course of the hearing of this judges summons, the parties have freely used the affidavits filed in the different applications relating to the, as the same have been referred to and incorporated in the affidavits filed in the said applications.in view of this conduct of the cases before the learned single judge we do not think that at the appellate stage counsel for one of the parties can claim that the other party shall now be confined exclusively to the pleadings contained in the affidavits filed in that petition alone and not refer to the affidavits filed in the other applications. Moreover, even the paper books which have been prepared are so prepared that it would be impossible to argue a particular appeal upon the pleadings and documents in that appeal. In fact, Mr. Bhatt himself was compelled to refer to several affidavits in the connected appeals in arguing a particular appeal. We are unable to accept this submission of counsel( 17 ) NOW in claiming enforcement and implementation of the scheme J. K. (Bombay) Pvt. Ltd. have in substance alleged that the scheme as sanctioned by Mr. Justice Mody is binding upon the company and the new management who had undertaken to implement it and had partially implemented it by buying 25,625 ordinary (equity) shares of the company from the J. K. group. Thus the scheme has been partially implemented and now the company and the new management are dishonestly backing out. They have made allegations of deliberate mismanagement and maneuvering against the Jalan group and of having gone back upon their representations to the court made at the time when the scheme was sanctioned. They have pointed out that at the time when the scheme was to be sanctioned the Jalan group had painted a very rosy picture before the company court and made it appear that the company could be worked and the scheme satisfactorily implemented, but having got into the management and control, they have turned round, taken the assets of the company; converted them into cash and have diverted them to their own friends or partisans; deliberately brought the company into the state in which it is. The most paying part of the companys business, viz. , the processing plant has been leased out to badri Prasad Jhunjhunwala and others on very liberal terms, thus causing great loss to the company. Having deliberately brought about such a position they should not be allowed to back out of the scheme, because of the position they have themselves induced. Particularly they alleged that the Jalans preferred a company known as Sushil Investments Private Limited in which their friends and relations are interested at the cost of the parties to the scheme, the other creditors and especially the J. K. group. They had promised by the scheme to bring in the necessary finances and they should be ordered to implement that promise and run the mills( 18 ) ON the part of the Jalan group the principal allegations have been that the J. K. group while they were in the management had committed various frauds which the Jalans discovered after they took charge of the company that they applied to the Controller of Capital Issues for sanctioning the execution of the draft debenture trust deed, but for certain reasons no sanction could be obtained. They have alleged that in spite of their best efforts the company isinsolvent, its whole substratum is gone and it is impossible to implement a scheme which is unworkable. The working of the scheme is dependent on the mills making profits and it is impossible for the mills to be run at a profit under the circumstances. The scheme moreover cannot be implemented because to implement it would bring them into conflict with the provisions of the Securities Contracts (Regulation) Act 42 of 1956. They tried their best to arrange for finance for the company with the Punjab National Bank, but because the Central government failed to give the requisite guarantee (though the State Government had agreed), the necessary finance could not be obtained. They have alleged that even at the time when the scheme was sanctioned the company was in an insolvent condition and that fact was also noted by the learned judge who sanctioned the scheme, but he felt that since the majority of the unsecured creditors of the company had agreed to the scheme he ought to sanction it. Their undertaking was merely to secure finance for the company and not to bring in finance themselves much less to pay anything to the company themselves. They have denied the allegations regarding the processing plant and have said that the arrangement made by them was a proper ande arrangement for the running of the processing unit( 19 ) NOW the learned single judge disposed of the Applications Nos. 14 and 21 of 1967, by two separate orders passed on the same day, namely, 6th November, 1967. In his order in Application no. 14 he held that the allegation which the new management had made against the old management of fraud had not been made out and that in any case the frauds alleged by the new management were merely committed by certain individuals and the company could not possibly be affected by any acts of fraud which some individuals, who were at one time in the management of the, are alleged to have committed on that company. At any rate, the pleading as to fraud on the part of the Jalan group was wanting in particulars and was too vague and general to be considered. He observed that, it was not a proper pleading of fraud at all and does not show that the new management has acquired any definite personal knowledge of the acts of fraud alleged by it against the old management.He also accepted the contention of counsel that the company is incapable of perpetrating a fraud. He Further held that assuming that the old management had committed the frauds alleged against it, the proper remedy of the new management is not to scuttle the scheme on that ground, but to take proceedings under the appropriate provisions of the Companies Act against the individuals who committed those frauds( 20 ) HE then proceeded to consider the contention on behalf of the Jalan group and the company that the company was commercially insolvent and he should take that into consideration and refuse to enforce the scheme. He came to the conclusion that the scheme has not become unworkable, but it is the new management itself which has deliberately tried to create a situation which would show that it is unworkable and that the new management had agreed to bring in the necessary finance for the purpose of running the mills and after failing to carry out their obligation under the scheme and starving the mills of finance, the new management could not be heard to urge that the scheme should not be enforced because the company was commercially insolvent and that was no ground for refusing to enforce the scheme. He held that there was no reason why the J. K. group should not be placed in the situation in which they would have been if the new management had, instead of making an attempt to scuttle the scheme, worked the scheme, as, in my opinion, they would have done as stated above.The learned judge negatived the contention that the implementation of the scheme would give rise to illegality as being contrary to the provisions of the Securities Contracts (Regulation) Act, 1956 (Act No. 42 of 1956 ). He also held that the scheme once it is sanctioned by an order of the court under section 391 of the Companies Act becomes an order of the court and no question of illegality could arise in respect of the same except in the form of an appeal from the order sanctioning the scheme and that it is binding on all the parties to it. In the sequel he ordered that the Jalan group, who have purchased the shares from the Singhania group, should bring in the necessary finance required for running the mill as they have undertaken to do by clause 4 of the scheme as sanctioned by the court. In my opinion, it is not enough that they should procure finance from banks or other parties. It was an obligation which they had undertaken under the scheme to provide the necessary finance required for running the mills, which must mean that they must, in any event, bring in their own finance for that purpose in addition to any finance which they may or may not procure from elsewhere. He also ordered the cancellation of the agreement of lease as to the processing unit of the company which the new management had given( 21 ) IN his order passed in Company Application No. 21 of 1967, the learned judge dealt with the question of the unworkability of the scheme and negatived the contention of the Jalan group that the company was commercially insolvent and that it was impossible to implement the Scheme. He came to the conclusion that it is true that, as things stand, the mills cannot be run, but that is a situation of the new managements own doings, and not one which arises out of the unworkability of the scheme and that the mere fact that, in view certain difficulties, it may not be possible to work the mill for sometime, would not justify ap order under section 392 (2). He reiterated that it was the Jalan group which had deliberately tried to create a situation in which they could come forward and say that the scheme was unworkable, so that they may not be required to bring in any further finances for ruining the mills. Finally he ordered that on considering the facts discussed by me above, I have come to the conclusion that, if the new management brings in the necessary funds, which it has undertaken to do under the provisions of clause (4) of the scheme, and terminates the hiring agreement in favour of badriprasad Jhunjhunwalla and others in respect of the processing unit by giving three months notice, as under the terms of that agreement it is entitled to do, it will still be possible to run the mills, and to carry out the provisions of the scheme.( 22 ) AS regards the mismanagement by the new management, he upheld the three charges against the new management, (1) that the loss alleged to have been incurred by the company was due to the fact that the new management had given on lease the processing unit which was the most profitable part of the working of the mills to their own nominees consisting of Badriprasad jhunjhunwalla and others at a cheap rate to the detriment of the interests of the company; (2) that the new management had failed to carry out clause (4) of the scheme and had deliberately deprived the company of finances; and (3) that the new management had failed to purchase the cotton requisitioned for it by the Government for the purpose of running the mills thereby bringing about the alleged insolvent position of the company( 23 ) SO far as the creditor, Chaugules application is concerned, he dismissed it on the short ground that the applicant had not been able to place before him any material which it could be said that the scheme had become unworkable, except two things, firstly that Chaugule himself claimed Rs. 9,606, and secondly that there was a bold statement in has affidavit unsupported by any affidavits or figures that the company was commercially insolvent. He held that the creditor had not given any details on which he based his allegation of commercial insolvency. Therefore, he dismissed the application of Chaugule.

Reasoning:
In his order on Company Application No. 21 of 1967, also the learned judge made a similar remark : it may be mentioned that, in the course of the hearing of this judges summons, the parties have freely used the affidavits filed in the different applications relating to the, as the same have been referred to and incorporated in the affidavits filed in the said applications.in view of this conduct of the cases before the learned single judge we do not think that at the appellate stage counsel for one of the parties can claim that the other party shall now be confined exclusively to the pleadings contained in the affidavits filed in that petition alone and not refer to the affidavits filed in the other applications. Moreover, even the paper books which have been prepared are so prepared that it would be impossible to argue a particular appeal upon the pleadings and documents in that appeal. In fact, Mr. Bhatt himself was compelled to refer to several affidavits in the connected appeals in arguing a particular appeal. We are unable to accept this submission of counselThe clause in our opinion lays down nothing more than the normal duty of a managing agent or other person in charge of management of a company to make financial provision to run the companyThe provisions of clause 4 (e) of schedule C also contemplate the borrowing of loans from any other firm, company or person because by that clause safeguards are laid own for the security of the second mortgagees. These clauses therefore show that though the provision was that the Jalans should provide the necessary finance the parties contemplated that they would try to raise the finances like any ordinary business house from financial institutions and other persons, firms or companies and that they were under no legal obligation to pay themselves to provide finance in any event, even if negotiations failedIn that view we think that the learned judge erred in his construction of clause 4 and in the order which he passed( 39 ) THE order, moreover, in our opinion, is incapable of being carried out and is incapable of supervision and enforcement. The new management, we shall, presently show, have stated that they made efforts to procure finance, were able to procure it to some extent, but not to the extent that the large indebtedness of the company required. They have also alleged that in this respect the J. K. group were responsible for foiling their efforts to procure the finance, and that the position of the company is such that no reasonable financier would advance moneys to such a company. We shall presently show that having regard to all the circumstances and the conduct of the parties this contention is borne out( 45 ) BUT we do not propose to rest our decision on only that admission, but to examine the position of the company as it appears on the recordThese affidavits deal mostly with the charges ands flung at each other by the two rival groups, the facts and figures pertaining to the company being only incidentally givenThe workers, we are told, have in satisfaction of their claims taken possession of the factory premises and are squatting on it and preventing any director from going in. From 14th june, 1967, tillthese overhead and capital charges must run into several lakhs of rupees. The company does not appear to have any reserve or other funds from which its indebtedness can be paid. Its machinery, which has been lying idle, will cost several lakhs of rupees to be put in order again. When the new managementrestarted the mills on 1st April, 1966,it cost the new management Rs. 5 lakhs to put 60% of the machinery, in order. We cannot imagine that any reasonable or prudent businessman would decide to sink money into or run such a mill. It is clear that the company is insolvent, its entire capital wiped out and its substratum goneWe do not think, therefore, that it was a reasonable inference to draw from the letter of the 25th April 1967, that the new management had failed to purchase the cotton requisitioned for them. Their objection to quality appears to be reasonable and if so, they had a right to reject inferior cotton and to ask that the proper quality be supplied to them. It is not suggested. . . . . . . . . . . . anywhere that they deliberately or dishonestly declined the offer. At any rate, this letter in isolation, picked out from a bunch of about 25 letters, cannot furnish a true picture as to the conduct of the new management, even assuming that that conduct was material, which in our opinion it was not, as we shall presently showWe are unable to accept the charge that the company failed to lift the cotton deliberately and cannot be heard to say that the mills could not make profits for want of cotton. The letter dated 25th April, 1967, moreover does not establish that till then the management could be blamed, which is a charge levelled against the new management by the J. K. group. The position of the company must have further deteriorated since the closure in April, 1967, for we are informed that further amounts of compensation to labour have accumulated and other liabilities in the shape of recurring charges have arisen. How such a company could possibly continue to work at a profit it is difficult to see. It is only it runs at a profit that the scheme can be implementedThe new management after restarting the mills rationalised the spinning and weaving departments and also effected substantial economies. In spite of economies and for reasons and factors beyond the control of the new management the mill is runing at a monthly loss of Rs. 1 to 1 1/2 lakhs. The agreement entered into by the company with Badriprasad Jhunjhunwala and others is a leave and licence agreement and not a lease. They have denied the allegations of fraud, invalidity, illegality and mala fides. They also made an offer that they were ready and willing to offer the working of the processing unit to Gopalkrishna Singhania on a leave and licence agreement similar in terms and conditions to that given to Badriprasad Jhunjhunwalla and others. They have denied that the latter are their nominees or that the son of Nandlal Jalan is managing the processing plantBut we do not think that these allegations and counter allegations are of much relevance since in our view there was no binding obligation or dutyJalans to pay anything to the company or to compulsorily provide financeWe have no doubt that it would not affect the powers vested in the High Court under the Companies Act, nor especially would it affect the transactions already sanctioned and in force before the notification under section 13 was issuedWe do not propose to enter into that discussion, for in our opinion where the powers under section 391 or section 392 are being invoked we do not think that any provision of the Securities Contracts (Regulation) Act affects any of those powers of the court. If the provisions of that Act of not apply, the question whether a scheme is a contact or not, to which these provisions would be attracted, would not arise. With respect we uphold the decision of the learned single judges on this questionUpon the finding we have reached there is no question of giving direction as to a part of the scheme. We do not propose to implement the scheme at all for the simple reason that the company is not a company which can possibly work. It is insolvent and its substratum is gone, quite apart from the fact that in its present condition to allow a second mortgage to be given to the J. K. group would mean completely depriving the remaining unsecured creditors of any share or dividend in the liquidation( 76 ) WE are unable to accept this construction of section of 392. Section 392 appears in an independent chapter dealing with arbitration, compromises, arrangements and reconstructions and was obviously intended to make comprehensive provisions on that subject. So far as compromise and arrangements are concerned, the provisions which govern are sections 391, 392 and 393. These sections have to be read together, because section 392 refers back to a compromise or arrangement sanctioned under section 391 and makes provision for its enforcement. We cannot also readn (1) of section 392 divorced fromn (2)as was urged. The two provisions are complementaryBoth the above powers are for the proper working of the compromise or arrangement. It will thus be seen thatn (1) deals with the cases where a compromise or arrangement sanctioned under section 391 can be worked fully or partially by modifications or giving of directions.n (2) however contemplates a case where the scheme cannot be worked satisfactorily with or without modifications, that is to say, where the scheme (sic) despite any endeavour to modity it or any endeavour to implement by proper supervision or giving suitable directions, in such a case the court is given the power to make an order winding up the company. This power is a discretionary power, because of the use of the word may inn (2), and having regard to the context in which it is used. It is not essential that the company should be wound up even if the scheme does not work satisfactorily, but it is clear that the court must consider the question whether the company ought to be wound up in such a contingency. This power of course can be exercised suo motu by the court or on the application of a person interested in the affairs of the companyThe effect of these provisions is that where a compromise or arrangement is sanctioned under section 391 and the court comes to the conclusion that the scheme cannot be worked satisfactorily with or without modifications, the court has a discretion to wind up the company. In doing so it will have regard to the normal principles governing, particularly those laid down in section 433 and 434. We cannot, therefore, accept the contention of Mr. Bhatt that his clients application for implementation of the scheme must be looked at on its own and in isolation and the position of the company and its capacity to fulfil that scheme ought not to enter into computationWe also hold that the court would not exceed its powers if in a case like this where an application is made for winding up the company in answer to an application to enforce the scheme, to consider the circumstances of the company and order its winding upIn our opinion, since the company is financially not in position to implement the scheme at all, it is not necessary to consider whether implementing a part of it would be legal or illegalThe contention, therefore, must failIt does not follow that the parties cannot, relying upon the subsequent developments and the changed situation, say that the scheme should not be implemented. Were we to accept any such contention, the provision of section 392 would be rendered largely ineffective. It was urged that Lalji Thakersey, the creditor, had actually taken advantage under the scheme in so far as he had got one instalment of the amount paid to him out of the amount due to him. Nevertheless we do not think that in the face of the positive provisions of section 392 we can bar him from pleading that on the date on which Company Application no. 14 of 1967 was filed, the company ought to be wound up and the scheme not implemented. In view of this it is unnecessary to go into the question whether the scheme as passed by Mr. Justice Mody was illegal and void in the inception or it was merely contrary to law. We have however already shown that in our opinion there is no illegalityWe do not think, therefore, that the Rangoon case can support the argument that in the present case the J. K. group have already become secured creditors. They had merely an agreement that a second mortgage would be executed in their favour and nothing moreRelying on this clause Mr. Bhatt urged that if the company is to be wound up, the J. K. group must to be held to be secured creditors as upon a second mortgage and therefore in the event of an order being passed for winding up, in thep proceedings the J. K. group must be classed as secured creditors in terms of the scheme. The argument begs the entire question. The question first of all is, is the scheme enforceable  and that necessarily implies that the scheme including the schedule C has not yet come into force. The question is whether it should be brought into force and yet it is sought to be argued that one of its terms must be forthwith enforced, as if it had been brought into force. We cannot accept this argumentThere is no question, therefore, of supervising the carrying out of the compromise or arrangement or of carrying out the same with any modifications. The compromise or arrangement sanctioned and contained in the scheme cannot be worked satisfactorily at all with or without modifications and the only proper order to pass in the present case is to wind up the company known as the Newd Spinning and Weaving Co. Ltd( 90 ) THE result may be unfortunate to one or the others party, but that cannot be helped, though we may say that in our opinion there is little to choose between the two contending groups who were fighting for control of the company. Each group was seeking its own benefit and was hardly interested in the benefit of the company qua the company. The J. K. group having managed the company for a long time had seen its inter workings and realised that it was impossible bring up the company to a healthier position and work it for profit. They, therefore, decided to clear out of the company so long as they could recover their debts from the company in preference to other creditors. It was a substantial sum of Rs. 48,38,899 and they managed to persuade the Jalan group to take over the company stipulating for themselves to get a security for themselves at the cost of the unsecured creditors of more than twice the value. They also persuaded the Jalan group to take over the company by offering to sell them their controlling share holding at the low price of Rs. 10 per share. Perhaps that attracted the Jalan group which for a time felt that they were making an easy bargain and would be able to set the company on its feet again by procuring finances and running it to their profit in which case the value of the shares would have also risen, but after the controlling shares were transferred and the Jalan group took over the company the expectations of the Jalan group were not realised and they found that the company was in a worse commercial position than they had thought it was in, before they entered into the agreement with the J. K. group. What is more, it does appear that a period of severe depression in the textile industry and want of cotton worsened the position. In that predicament the attitude of the authorities who had controlled the purchases of cotton and fixed its price was most unhelpful and contributed to further losses of the company, with the result that the Jalan group found it impossible to implement the scheme and decided to give ay to their agreement with the J. K. group. We think that the only proper thing they could do in the circumstances was to apply for liquidation of the company. They also had sought their own advantage but their calculations failed. Neither of these two groups can be credited with seeking the advantage of the company or its workers or the interests of the other unsecured creditors of the companyWe have come to our conclusions only on the face of the affidavits filed. If a case is made out for thep of a company, as we have held has been made out in the present case, upon such material as has been placed before us, we do not think that these allegations ands can affect the issue; nor can the motives of either of the two groups, the one in presenting the application for winding up of the company and the other in seeking to enforce the scheme, can be taken into consideration. In Bachharaj Factories Ltd. v. Hirjee Mills Ltd. ([1955] 25 Comp. Cas. 227 251; 57 Bom. L. R. 378), there were also similar allegations made against the directors of the company and Chief Justice Chagla disposed of the allegations at page 392 as follows :but as we read the judgment of the learned judge, the main reason which has weighed with him is that the petitioners have not come to this court with clean hands, and Mr. Mathalone wanted to satisfy us that the motive of the petitioners in closing down the mills was selfish, that they were largely responsible for bringing about an impasse in the affairs of the mills, and the court will not make an order at the instance of a party which is guilty of mala fides. We have not permitted Mr. Mathalone to go into the merits of these allegations about the mala fides of the petitioners because in our opinion these allegations are entirely irrelevant. If the petitioners have made out a case of for thep of the company, if they have placed materials before the court which satisfy the court that the company is insolvent, if they have placed materials before the court which satisfy the court that the substratum of the company is gone, it is difficult to understand what the motive of the petitioners has got to do with the question whether an order ofp should be made or not. If the petitioners were to stand to benefit by the order, undoubtedly the court would say that a party cannot derive benefit by its own wrong. But when an order ofp is made and the liquidator is appointed, the court passes that order in the interest of the company, in the interest of the shareholders, and in the interest of the creditors, and except for the rather doubtful benefit that ordinarily the petitioners solicitors are in conduct of the proceedings no benefit whatever accrues to the petitioners. Therefore, in our opinion, what the learned judge should have considered was whether on the materials placed before him by the petitionersand the materials in this case are overwhelming and they are indisputablea case had been made out or not for thep of the company. The learned judge should not have taken into consideration how wicked the petitioners were or how evil their actions had been.( 92 ) IN a later passage the Chief Justice observed (page 393) ([1955] 25 Comp. Cas. 227, 252; 57 bom. L. R. 378) :there is not the slightest possibility of the working ever being resumed under the present dispensation. We take it that the learned judge was thinking of the allegations of the company that the mills suddenly came to a standstill because of the machinations of the petitioners. But the stark truth remains, for which there is no answer or no explanation, that the mills have no money whatsoever which would enable them to be run.( 93 ) THAT, in our opinion, exactly sums up the position in the present case also.