Case: Chunilal Khusaldas Patel Vs. H.K. Adhyaru &amp; Others

2. The National Mills Company Limited, Ahmedabad, hereinafter referred to as the National Mills, was ordered to be compulsorily wound up by an order of the Joint Judge, Ahmedabad, datedand Trikamlal J., Patel, Manvantray T. Mehta (since deceased) and Krishnalal B. Dave were appointed liquidators of the Nationlal Mills. The liquidators invited sealed tenders for the purchase of the mills land, bungalow, warehouses, etc., and the Himabhail Manufacturing Company, Limited Ahmedabaad, hereinafter referred to as the Himabhai Company, submitted their tender onoffering to purchase the same. The said offer was sanctioned by the Court onand an agreement was entered into between the liquidators and the Himabhai Company for the sale of the properties therein Mentioned for a consideration of Rs 12,68,000. Rs. 3,00,000 were to be paid in cash and the balance in 1936 sharees of the Himabhai Company which were taken to be of the value of Rs.500 per share. There were 484 shares of the National Mills held by 232 shareholders. It was then contemplated that,. After the payment of all debts by the liquidators, these 1936 shares would be distributed amongst the contributories, in the proportion of 4 shares of the Himabhai Company to 1 share of the National Mills. Clauses 5 and 6 of the agreement, however, provided(5). That the Managing agents of the Second Party Sheth Chunilal Khushaldas by way of and in consideration of this agreement, agrees to purchase the shares to be issued by the Second Party from the contributories of the First Party as agreed at Rs. 500. This amount of Rs. 500 per each share of the Second party shall be payable by the Said Sheth Chunilal Khushaldas within five months from the date of the execution of the Sale Deed to such contributories who intend to case the said shares of the Second Party and who shall notify his intention and deliver his share certificates with transfer forms duly signed and executed by him, Sheth Chunilal Khushaldaas to cash the said share within the period aforesaid."Clause (6). That over and above Rs. Three Lacs to be paid in cash as and by way of consideration by the Second Party, if the Official Liquidators require further funds for payments to the creditors, the Official Liquidators may at any time submit up to Seven Hundred shares allotted to the First Partys name by Second Party to Sheth Chunilal Khushaldas and Sheth Chunilal Khushaldas hereby agrees and undertakes to pay to the extent of Rs. three and half lacs on such submission of shares with transfer from A duly executed at the rate of Rs. 500 (rupees five hundred) per each such share in addition to expenses of such transfer of shares pertaining to those shares only.3, another agreement was entered into between the Liquidators and Chunilal Khushaldas Patel, hereinafter referred to as Chunilal, incorporating therein the terms of Cls. (5) and (6) set out above and Chunilal agreed to abide by the Same. The sale deed was actually executed onEven though the Liquidators had anticipated that the work of liquation would be over within the said period of five months and the 1936 shares of the Himabhai Company distributed amongst the contributories, the Liquidators found that theAuthorities assessed the National Mills heavily beyond their expectations and the creditors also could not be paid more than As. 8 in a Rupee. It was, therefore, not possible to distribute the shares to the contributories. The market price of the shares of the Himabhai Company, which was Rs. 435 in September 1953 was about Rs. 450 in Septemebr 1954 and neither the Liquidators nor the contributories were in a position to realise anything beyond this sum by sale of the shares in open market. Therefore, with the object of cashing the shares at Rs. 500 as provided in the agreement, the Liquidators secured letters of authority from contributories holding 227 shares in the National Mills representing 908 shares of the Himabhai Company, and armed with these letters of authority, approached Chunilal atP. M. onasking him to take delivery of the 1936 shares which had been allotted to them along with blank transfer forms duly signed by them. They purported to tender these shares under Cl. (5) of the agreement datedand called upon Chunilal to fulfil his obligation under the agreement datedChunilal however, contended that the tender was not valid and he was not bound to accept the same.A letter and a telegram datedwere addressed by the Liquidators to Chunilal and he replied the same day denying that he had ever refused to accpet delivery of whatever the Liquidators wanted to deliver to him. He further called upon the Liquidators to deliver to him that very way whatever they wanted to deliver. The Liquidators replied onreiterating the position which they had taken up and insisted upon Chunilal fulfilling his obligation. They wound up by saying that the question of their delivering whatever they wanted to deliver did not arise unless Chunilal made payment by cash or by cheque of Rs. 9,68,000 against delivery. Chunilal rejoined by his letter datedsetting out the correct facts according to him and pointed out that the tender was invalid and inoperative and that he had not refused the same.5. The Liquidator sent no reply to this letter but it appears that they approached Chunilal and his legal advisers with a view to bring about a settlement of the dispute. These attempts failed and the Liquidators had, therefore, to approach some other party. They tried to induce Harshadkumar K. Adhyaru, hereinafter referred to as Adhyaru, to purchase these 1936 shares. Adhyaru was at first unwilling to do so. He had, in March 1955 purchased five shares of the Himabhai Company in the open market and had submitted them to the Himabhai Company for registration in his name. Chunilal, who was the senior partner in the Managing Agents firm of the Himabhai Company, is alleged not to have sanctioned the transfer and Adhyaru took umbrage at it and resolved to buy up the whole lot of 1936 shares of the Himabhqi Company which were offered to him by the Liquidators at the price of Rs. 500 per share which Chunilal had agreed to pay for the same in certain events contemplated in the agreement of55 and11 letters were addressed by 57 contributories of the National Mills holding 108 shares to the Liquidators authorising them to dispose of the said 1936 shares to anyone in open market inasmuch as, according to their information, Chunilal had failed to make payment for those shares and to recover the loss, if any, incurred thereby from Chunilal, if need be, by taking necessary legal steps against him.6. OnAdhyaru addressed a letter to the Liquidators offering to pruchase the said 1936 shares at Rs. 500 per share and enclosed a cheque for Rs. 1,00,000 as and by way of earnest money promising to pay the balance forthwith on the approval and sanction by the District Judge of his said offer. It appears that Chunilal also about the same time thought of waiving the objections which he had raised to the purported tender by the Liquidators onand approached Trikamlal J. Patel, one of the two surviving Liquirdators, hereinafter referred to as Trikamalal, offering to take the said 1936 shares. On the morning ofthere was an interview between one Ratilal Nathalal, aof the Himabhai Company on the one hand and Trikamlal on the other in the office of Vasavda, a labour leader in Ahmedabad, in the Permises of the Majoor Mahajan. Trikamtal, at that interview, drafted a letter which he handed over to Ratilal Nathalal with instructions that, if a letter in those terms was addressed by Chunilal to the Liquidators accompanied by a cheque for the full amount of Rs. 9,68,000, the said 1936 shares would be delivered to him, Chunilal accordingly addressed to the Liquidators a letter on the same date in accordance with the said draft waiving all the objections to the tender made onand offering to take delivery of the said 1936 shares at the said rate in pursuance of the agreement datedHe sent a cheque for Rs. 9,68,000 along with the said letter and requested the Liquidators to deliver the said 1936 shares to him with transfer forms duly sigmed by them.7. Matubhai, Son of Chunilal, went along with the said letter and the cheque to Trikamlal at his office in the Court permises at 2 P. M. Trikamlal, however, told him that Chunilal should address another letter to the Liquidators promising to pay the dividend which would be sanctioned at the Annual General Meeting of the Himabhai Company for the year 1954 and he, Matubhai, should bring such a letter to him in the Court premises at about 4 P. M. Chunilal accordingly addressed another letter to the Liquidators promising to pay the dividend which would be sanctioned at theMeeting of the Himabhai Company for the year 1954. When, however, Matubhai went with both the letters and the cheque to Trikamlal in the Court permises, he was not found there as evidently he had taken ill and gone home. Matubhai and Ratilal Nathalal, therefore, went to Trikamlals place of residence atP. M. the same evening and handed over the two letters and the cheque to Trikamlal.Trikamlal accepted these documents but said that the share certificates were with hisKrishnalal B. Dave, hereinafter referred to as Dave, and stated that he would hand them over on Tuesday the 2nd August 1955 after Dave had returned from Bombay where he had gone that evening, and after the relative transfer forms had been duly signed by both the Liquidators. Trikamlal, however, handed over to Matubhai at that very time proxies for the said 1936 shares for Annual General Meeting of the Himbhai Company which was to be held on5, Chunilal addressed a letter to Trikamlal thanking him for giving him the proxies for the said 1936 shares. He put on record that Trikamlal had already received the cheque for Rs. 9, 68,000 and promised to deliver the share certificates of the said 1936 shares together with the transfer forms duly signed by both the Liquidators on Tuesday the 2nd August 1955 on Dave returning from Bombay. He stated that he would be sending his man, Shri Thakersey N. Shah, to Trikamlals chambers at the Court premises atA. M. that day and requested that Trikamlal should deliver the said share certificates and the transfer forms duly signed by both the Liquidators to him. On the same date, Trikamlal also addressed a letter to Chunilal acknowledging the receipt of the cheque for Rs. 9,68,000 and the said letter. He stated that hisDave had gone outside, i.e. to Bombay and intimated that the Liquidators would properly deal with the subject after Dave had been acquainted with matter. Chunilal sent Thakersely N. Shah to Trikamlal onalong with his letter of the same date asking Trikamlal to deliver the said 1936 shares to him and also 20 transfer forms duly signed by the liquidators. He also asked for the stamped receipt for the amount paid by him in full settlement of the amount of the said shares.Trikamlal replied the same day stating that Dave had not returned from Bombay and, therefore, noting could be done till he returned . He stated further that on the return of Dave, he, Trikamlal, would submit the correspondence between Chunilal and himself of Dave for further action. He, however , stated that, without prejudice to the rights of the Liquidators and subject too the approval by Dave and subject to the sanction of the District Judge, he was sending the cheque for Rs. 9,68,000 drawn by Chunilal in favour of the Liquidators to the Bank for acceptance. This cheque was cashed by the Bank and the amount was credited to the account of the Liquidators.8. After Dave returned from Bombay and the Liquidators had consultations amongst themselves, they made a reeport onsubmitting both the offers of Chunilal and Adhyaru for sanction by the Court.9. In the report which they submitted to the District Judge, the Liquidators set out the facts in regard to the alleged breach of the agreement ofby Chunilal and the letters which had been addressed by the contributories to them between the 19th July and the 29th julywhat had transpired between Chunilal and Trikamlal on and afterThey also set out the offer which was made by Adhyaru and stated that the offer of Adhyaru was prior and made onthat Chunilal had committed a breach of the agreement datedby refusing to encash the said 1936 shares, that by the said breach of the agreement the Liquidators were put to great trouble and could not pay the remaining annas 8 to the Creditors and that Adhyaru also was a mill owner and a substantial party. The Liquidators submitted both the offers to the Court for its consideration and sanction.10. As the Annual General Meeting of the Himabhai Company was to be held onthe Liquidators made an application to the District Judge on the evening ofand the District Judgefixed the hearing for the next day,He ordered that notice of the application should be given to Chunilal and Adhyaru and they should file their statements and appear at the hearing before him. Chunilal and Adhyaru accordingly filed their statements. Chunilal denied that he ahd committed a breach of the agreement datedreiterated that he was always ready and willing to purchase the said 1936 shares as per the agreement and pointed out that he had even when showed his readiness and willingness to purchase the said shares and had already given the two letters as also the cheque for Rs. 9,68,000 to the Liquidators and that the matter of sale was thus really completed an concluded between him and the Liquidators and submitted that in these circumstances the Liquidators had no right to sell the said shares to anybody else except himself and were bound to transfer the said shares to him. As regards Adhyaru;s offer, he stated that the same did not appear to be genuie and should not be accepted. Adhyaru, in his statement, pointed out the circumstances under which he came to make his said offer and submitted that this offer being prior in time should be accpeted in preference to the offer of Chunilal.11. The District Judge, after hearing the arguments advanced before him by the Liquidators as well as Chunilal and Adhyaru, sanctioned the offer of Chunilal. He negatived the contentionthat Chunilal had committed a breach of the agreement datedobserving that the tender purporting to have been made by the Liquidators onwas not a valid tender. He took into consideration the circumstances under which Chunilal had come to write the letter datedhe events that had since happened in regard to Chunilals offer to purchase these shares and onserved that even if Adhyaru may be inconvenienced by reason of Chunilals offer it would be unfair to penalise Chunilal and deprive him of the right to which he was entitled under the agreement. He, therefore, ordered that the offer of Chunilal be accpeted by the Liquidators and also the full price had already been paid by him. The 1936 shares be delivered to him or his duly authorised agent together with the necessary transfer forms duly signed. The cheque given by Adhyaru was ordered to be returned and the parties were ordered ot bear their own costs.12. It may be observed that Madhubhai, one of the signatories to the letter datedhad not appeared before the District Judge. When the offer of Adhyaru was not accepted by the District Judge, both Adhyaru and Madhubhai jointed in taking an appeal to the High Court onfiled a common memo of appeal and applied for interim relief before Bavdekar J., which was, however, refused, Chunilal undertaking though his advocate to hand back the shares to the Liquidators on Mondayif they were handed over to him that day.13. The appeal came for admission before Bavdekar J. onat that time Bavdekar J., enquired of Madhubhai who had joined in the appeal what grievance had had to make against the order in appeal and the advocate for Madhubai told Bavdekar J. that this grievance was substantial inasmuch as the contributories felt that the shares in question might fetch a much higher value than Rs. 500 per share. Bavdekar J. called upon the contributories to show thebonafidesof this contention by requesting Adhyaru to raise his offer to Rs. 550 per share and deposit the required additional amount in Court . The said additional amount was accordingly deposited in Court.14. The appeal was heard before a Bench of the Bombay High Court constituted by Gajendragadkar and Gokhale JJ. on the 24th and 25 th August 1955. Adhyaru and Madhubhai appeared by separate counsel and Madhubhai, in the first instance, supported Adhyaru. At the end of the second day;s herein, however, his advocate was instructed to tell the Court that the contributories had withdrawn from the Liquidators the authority to sell the shares by private negotiations but had asked them instead to sell the shares in the open market so that the shares might fetch a much higher value in the open market at Ahmedabad. The hearing of the appeal was then adjoruned. The appeal came for further hearing before the same Bench ofFurther adidavits were filed by Madhubhai and by Matubai the Son of Chunilal pointing out the state of the market in regard to these shares. At the further hearing, the advocate for Madhubhai produced before the Court a recept passed by the Liquidators showing that one Pasavala had deposited with them an amount of Rs. 11,61,600 at the rate of Rs. 600 per share. Counsel appeared also on behalf of the one Gangaprasad Puria offeing to purchase the said 1936 shares en bloc at the rate of Rs. 625 per share. The High Court set aside the order of the District Judge and ordered that the said shares should be sold in the open market and that the offer made by Pasavala should be taken as the minimum offer made for the purchase of the shares in question. The amount of Rs. 11,61,600 deposited by Pasavala in support of the offer was ordered to continue in deposit with the Liquidators unitl the public auction was held and the bid made at the public auction was sanctioned by the District Judge. Chunilal and Adhyaru were declared entitled to bid at the auction if they so desired. Adhyaru was declared to be at liberty to withdraw the additionall amount deposited by him with the Liquidators. Each party was ordered to bear and pay his own costs.15. In the judgment which it devlivred , the High Court laid great stress upon the observation of the District Judge that Chunilal was entitled to a right under the agreement. This position was severaly attacked before the High Court and the High Court came to the conclusion that Chunilal had no right under the agreement datedthat neither on the 17th nor on the 18th Septemeber 1954 Chunilal was willing to abide by his undertaking and that he had committed a breach of the agreement, that Chunilal made his offer onafter coming to know that Adhyaru had made his offer on the 27th July, that, if the matters had stood there Adhyarus offer should have been accepted but, having regard to the conduct of the Liquidators, Adhyarus offer also could not be accepted, that the interests of the contributories were primarily to be considered by the Court and there being higher offers for the purchase of these shares as evidenced by the offer of Pasavala the proper course was to sanction a sale by public auction of these shares so as to fetch the highest price available in the open market for the benefit of the contributories. The High Court accepted the position that normally the discretion exercised by the District Judge should not be interfered with but came to the conclusion that the exercise of the discretion here by the District Judge was erroneous inasmuch as the District Judge was influenced by two considerations, viz., (1) that Chunilal had a right under a agreement datedand (2) that Chunilal had not committed a breach of the said agreement, both of which considerations were in law. The High Court, therefore, felt justified in setting aside the order of the District Judge in favour of Chunilal and ordering the sale by public auction of these shares.16. Chunilal and Adhyaru both applied for certificates for leave to appeal to this Court and the High Court granted the requisite certificates. The appeal filed by Chunilal before this Court is Civil Appeal No.2 of 1956 and the appeal filed by Adhyaru is Civil Appeal No. 3 of 1956. Both these appeals have come for hearing and final disposal before us.

Reasoning:
The whole tender was as composite tender and Chunilal was not satisfied that it was a valid tender of these 1936 shares by the Liquidators to him. The correspondence which took place between the Liquidators and Chunilal between54 makes it abundantly clear that at that stage the Liquidatorws had not got with them the requisite letters of authority from the contributories so as to enabale them to tender even the 1236 shares to Chunilal nor did they at that time make it clear to Chunilal that they were tendering the balance of 700 shares to Chunilal in exercise of their right under cl.(6). It may be that Chunilal expected that he would ulitmately be able to acquire these shares from the individual contributories beyond the said period of five months at the then market rate which according to the then expectation could never be more than Rs. 450 per share, which was much less than Rs. 500 per share which he had agreed to pay under the terms of his agreement.Whatever may have been at the back of his mind, the fact remains that the Liquidatories, on the evening of thedid not make a valid tender of these 1936 shares to Chunilal and Chunilal was well within his rights in refusing to accept the same.He made his position clear in his letter datedwhich he addressed to the Liquidators and it is futile to urge that the attitude which he took up onwas a pureWe are of the opinion that the District Judge was right in his appreciation of the situation as it ontained onand the High Courts conclusion that Chunilal committed a breach of the agreement was claearly erroneous.It is clear from the above that there could be no question of the District Court giving any notice to the contributoriesand the District Judgewas right in the circumstances of the case in considering the only two offers which were submitted before him and exercising his discretion and giving the sanction in favour of Chunilal as he did. If even the contributories who interests were primarily to be saferguarded had not the slightest notion that anything more than Rs. 500 per share could be obtained by a sale of the shares in open market as is evident from the attitude of Madhubhai right up tomuch less could the Liquidators or the District Judge himself have thought of having these shares sold in the open market. If that step had been then taken the result would have been disastrous and not even Rs.per share would have been obtained at such auction sale. The contributories would certainly have suffered and even the offers made by Chunilal and Adhyaru would then have been of no avail. The adventitious circumstance of third parties coming into the field aftercould not have been foreseen by any of the parties concerned and it would be certainly unfair to Chunilal and to Adhyaru to refuse to accept their offers merely on the ground that a sale by public auction was directed by the contributories and might have fetched a higher price than that of Rs. 500 per share actually offered by Chunilal or Adhyaru.It was urged that the appeal was by way ofof the original application and it was open to the High Court to take into consideration the further facts and events in arriving at its conclusion as it did. We are not impressed with that argument. Even though an appeal is in the nature of aand the courts in this country can take into account the facts and events which have come into existence after the decree appealed against, it could be only for moulding the relief to be granted in the appeal :Vide observations of Varadachariar, J., in Lachmeshwar Prasad Shukul v. Keshwar Lal Chaudhuri,1940 FCR 84 at p. 103 : (AIR 1941 FC 5   at p. 13) (A).In the events that had happened as narrated above, there was no justification, therefore, for the High Court taken into consideration the higher offers which were brought into existence by Madhubhai afterbased on a bid for the managing agency of the Himabhai Company on the strength of the acquisition of the voting rights in respect of the whole block of 1936 shares. The position as it stood onwas to be considered and it was on an appreciation of the position as it then stood that the District Judge had to and did consider whether the offer of Chunilal or that of Adhyaru should be sanctioned.27. If, therefore the discretion of the District Judge was not, on the facts and circumstances as they then stood, erroneously exercised as stated before and there was also no prejudice to the interests of the contributories, the High Court was not justified in interfering with the discretion exercised by the District Judge and setting aside the order of the District Judge and directing a sale of these 1936 shares by public auction as itis nothing in the record of the case to show that there was any other arrangement in this behalf and the normal position was that, after the contract for sale was entered into between the Liquidators and Chunilal, Chunilal would become entitled to the dividend on these 1936 shares. Even if the date of the sanction by the District Court, viz.,be considered as the material date for this purpose, the position would have been no different becauseboth the offers of Chunilal and Adhyaru were before the District Court and the moment the Court sanctioned either of the two offers, the contract of sale would become complete. If the contract of sale thus became complete onbefore the declaration of the dividend at the Annual General Meeting of the Himabhai Company onas between the Liquidators and the purchaser the Liquidators would be entitled to recover the dividends from the Company but would be bound to hand over the same to the purchaser. If Adhyarus offer had been sanctioned Adhyaru would have got these dividends from the Liquidators and the Liquidators would not have been entitled to retain the same there being nothing to that effect in the terms of the offer given by Adhyaru to the Liquidators onOn the other hand, the Liquidators would have been entitled to retain the dividends as against Chunilal because, by his letter datedhe had agreed to give the dividends the Liquidators. In either view of the situation, the Liquidators stood to gain Rs. 20 more per share if Chunilals offer was sanctioned. They were thus in a position to realise Rs. 520 per share as against Rs. 500 per share offered by Adhyaru. If this circumstance was taken into account there is no doubt that the offer of Chunilal was higher than that of Adhyaru and deserved to be sanctioned by the District Court.29. Having regard, therefore, to all the circumstances of the case, we are of the opinion that the order made by the District Judge was right and the High Court was in error when it set it aside and directed that he said 1936 shares should be sold by public auction.