Punjab-Haryana High Court
State Of Jammu And Kashmir And Ors. vs Hindustan Forests Company Private Ltd. ... on 20 March, 1996
Equivalent citations: [1997]88COMPCAS21(P&H)
Author: S.P. Kurdukar
Bench: S.P. Kurdukar
JUDGMENT V.K. Bali, J.
1. By this common order we propose to decide connected Company Appeals Nos. 41 of 1990, 38 of 1990, 31 of 1990, 40 of 1990, 26 of 1990, and cross-objections filed, vide C. M. No. 13 of 1991 in Company Appeal No. 41 of 1990 challenging the order of the learned single judge of this court in C. P. No. 35 of 1975, dated February 27, 1990, whereby, various reliefs detailed hereinafter were allowed to Hindustan Forests Company Private Limited (in voluntary liquidation/winding up subject to the supervision of the court).
2. 'The facts leading to the filing of Company Petition No. 35 of 1975 by Hindustan Forests Company Private Limited (hereinafter to be referred as "the company") reveal that the said company came to be engaged in forest leases, saw mill and timber trade in the year 1944-45. In the year 1945, it entered into an agreement with the Government of Jammu and Kashmir (hereinafter to be referred to as "the State") by which the right to remove and convert timber from the trees marked for felling was granted to it. In the year 1961 as well it entered into an agreement with the State and acquired the right to convert timber from the trees marked for felling in various compartments like 39A, 39B, 40A, 40B, 40C, 40D and ,41 of Deodar Kail working circle in Siraj Range of the Doda Forest Division. As per the terms of the lease agreement referred to above, the company was to start felling trees at any time after these were made available to it. The produce was to be removed beyond the coupe boundaries concerned by December 15, 1968. The agreement was to be extended further till March, 1970, by which time, of course, the whole produce was to be removed beyond Jammu or to other registered sale depots of the company. Various terms and conditions of the lease agreement have been mentioned by the learned single judge in the impugned order dated February 27, 1990, and there is no need to refer to the same. However, as and when the necessity might arise to refer to a particular clause of the agreement in the context of the submissions made before us, reference thereto shall be duly made, Various reasons for the company sustaining a massive financial losses have been detailed in Company Petition No. 35 of 1975 as also in the impugned order and the same, thus, do not require reiteration. Suffice, however, it to say that the case of the company was that for various reasons mostly attributable to the fault of the State, normal working of the company came to a grinding halt. During the periods 1962 to 1965, the company suffered huge losses and complete dislocation of working due to heavy rains and floods. In view of these circumstances, the State decided that the recovery of proportionate prices or royalty falling due under the agreement would be made out of the sale proceeds of timber after it reached Jammu and the release for sale and export thereof would be regulated by the Conservator of Forests, When the resources of the company depleted and it was not able tff meet its liabilities, a committee was formed comprising the Chief Secretary to the Government of Jammu and Kashmir, Chief Conservator of Forests, Conservator of Forests, Chairman of Jammu and Kashmir State Financial Corporation and its managing director to negotiate with the United Commercial Bank for advancing loan to the company. In the course of negotiations, the representatives of the Jammu and Kashmir State Financial Corporation (hereinafter to be referred to as "the financial corporation") as well as the United Commercial Bank (hereinafter to be referred to. as "the bank") and Hindustan- Ropeway and Saw Mills Co. Pvt. Ltd. (hereinafter to be referred to as "the saw mill company") were made to understand by the State Chief Secretary, Chief Conservator of Forests and Conservator of Forests, arrayed as respondents Nos. 1 to 3 in Company Petition No. 35 of 1975 (to be referred to as "respondents Nos. 1 to 3" while dealing with the written statement filed on their behalf and subsequent thereto) that stocks of timber available for extraction under the agreement were sufficient to discharge the liabilities of the company to all its creditors and would also cover and secure further advances proposed to be obtained from the bank. The understanding given by the State Chief Secretary, Chief Conservator of Forests and Conservator of Forests was also to the effect that after the payment of sale price and dues of the State and repayment of dues to other creditors, a big amount of money would be left as residuary surplus for the company after clearing all the liabilities. The Chief Conservator of Forests through its officers gave this undertaking arid also undertook to carry out the working of the lease and to conduct the operations and sales under the direct control of the various departments. In the estimation of the State Chief Secretary, Chief Conservator of Forests and Conservator of Forests a minimum of 14,48,000 cft. (4 lakhs cft. Deodar) 3,37,000 cft. Kail and 7,11,000 cft. fur) besides 25,000 sleepers and scantlings which were already lying extracted in the forests and a minimum of 43 lakhs cft. was expected to reach Jammu after allowing provision for all possible losses and shortfalls in transit by side-streams and river etc. The company estimated the value of these 13 lakhs cft. of timber at Rs. 1,27,000 and working costs and expenses at Rs. 43 lakhs. The price of the remaining royalty due to the State out of Rs. 48,60,000 was about Rs. 4 lakhs against Rs. 54 lakhs provided for by the forest department and the liabilities to various creditors was about Rs. 20 lakhs due to participating creditors from the company and connected concerns payable by instalments under the agreement and the dues of United Commercial Bank and the Jammu and Kashmir State Financial Corporation and Rs. 8,18,000 due to residuary creditors. The balance or the residuary surplus that would accrue to the company, therefore, would be over Rs. 24 lakhs on the basis of market conditions and prices prevalent in 1969. The financial corporation and the bank decided with the State and its officers concerned that further advances made by the bank under the agreement would be spent by the forest department of the State through the Conservator of Forests, Chenab Circle. Under the arrangement it was also stipulated and agreed upon that all proceeds of the sales of the company's timber and funds provided by the bank would be deposited in the bank in the special banking account in the name of the Conservator of Forests, Chenab Circle, Jammu. The State Chief Secretary, the Chief Conservator of Forests and the Conservator of Forests took complete control over the assets including machinery and installations, machinery stocks and stores, tools and implements worth over Rs. 10 lakhs. The advances made by the bank were utilised by the State Chief Secretary, the Chief Conservator of Forests, and the Conservator of Forests who also utilised several lakhs of rupees recovered out of the sale proceeds of the company's timber stocks lying in sales depots and also timber brought from river-side transit depots and the timber lying in river and side streams which had been sold without information to the company and no account of these sales had been submitted to the company. Large stocks of timber extracted from the forests remained unaccounted for. On that account, the company suffered heavy losses. It suffered a loss of Rs. 8,50,000 due to flooding down and drifting down of timber to Pakistan in the absence of booms besides the interest thereon at the rate of 12 per cent. per annum amounting to Rs. 9,00,000 ; amount of Rs. 3,00,000 due to shortfall and losses of sleepers and scants and on account of timber sold by the various departments at throw away prices from January, 1969, after the sales of the company was illegally taken over by the Conservator of Forests from September, 1969, besides interests worked out at the rate of 12 per cent. per annum, an amount of Rs. 5,33,530 on account of the value of timber lying at sales depots and river side transit depots and extracted timber lying in the forests and en route to the saw mills taken over by the State and the various departments at the time when the working out of forests was undertaken by the State and the various departments ; an amount of Rs. 10,00,000 and Rs. 6,60,000 on account of machinery and installations, machinery stocks and stores and tools and implements, etc. Other items of losses are also mentioned in the petition which are detailed by the learned company judge in the impugned order dated February 27, 1990. It was further the case of the company that the bank, the State Chief Secretary, the Chief Conservator of Forests and the Conservator of Forests, the financial corporation as also the other bank had participated in the arrangement under which the State Chief Secretary, Chief Conservator of Forests and Conservator of Forests took complete control over the working of the forests in the year 1969. The bank under the said arrangement agreed to take the money due to it from the company from the State Chief Secretary, Chief Conservator of Forests and Conservator of Forests. It was, thus, the case of the company that it is not liable to pay any amount to the bank and its remedy, if any, would be against the State Chief Secretary, Chief Conservator of Forests and Conservator of Forests. Alternatively, its dues may be cleared out of the decretal amount as a result of the decree passed against the State Chief Secretary, Chief Conservator of Forests and Conservator of Forests. It is further the case of the company that the bank, financial corporation and one Shri G. M. Ahanger, retired Conservator of Forests were jointly and severally liable for losses and damages caused to the company along with the State Chief Secretary, Chief Conservator of Forests and Conservator of Forests. It is on these broad pleadings that the company sought for a claim to the tune of Rs. 1,59,95,000. Besides this, it also claimed a decree for damages for the losses accrued to it due to non-fulfilment of the obligation under the agreement. A further direction was sought to render true accounts since January, 1969, when the State Chief Secretary, Chief Conservator of Forests and Conservator of Forests took, complete control of the forests of the company and also the sale hammer. The company also prayed for the refund of cash certificates of the value of Rs. 35,000 deposited by it with the bank. All the reliefs were sought for by the company in a petition filed by it under Section 446 read with sections 526, 518, 542 and 543 of the Companies Act, 1956. Before the stand of various respondents arrayed as parties-respondents in the company petition aforesaid is noticed, it would be more appropriate to first see as to what extent the company petition aforesaid was allowed by the learned single judge.
3. On the basis of the evidence which was led by the parties to this litigation, the learned single judge held that the affairs of the company were controlled by the State on behalf of the company and, therefore, the State was liable to render accounts. The State Chief Secretary, Chief Conservator of Forests and Conservator of Forests gave an undertaking to maintain an account of the timber which were felled by the forest department during the period of lease and which fell into their share after the expiry of the lease period. Therefore, the State and its officers who were dealing with the affairs of the lease and the various departments were the accountable parties and they have to render accounts for the period during which they worked out the lease till its termination. Since the respondents had led no evidence in rebuttal, the learned single judge feeling handicapped to assess the actual losses incurred by the company for want of evidence appointed a local commissioner with the following directions.
(i) Assess the actual value of the timber felled, unfelled, stacked in transit and in depots after the lease was taken over by the State ;
(ii) Ascertain the costs incurred by the State in executing the lease ;
(iii) Assess the total amount due to the State towards the unpaid instalments of lease money/royalty ;
(iv) Assess the actual damages suffered by the company after the lease was taken over by the State on account of sale of timber at a pricp lower than the market price and also to ascertain what was the market price of the timber on the date of the sale ;
(v) Assess the dues, if any, payable to J and K State Financial Corporation and Saw Mills Co. (P.) Ltd. arising in the course of working of the Shiraj forest lease and of other liabilities of the company."
4. Shri Ujjagar Singh, a retired judge of this court, was appointed as a local commissioner to examine the points/directions referred to above. On receipt of the report proper orders were to be passed. A decree of Rs. 8,50,000 with interest calculated at the rate of 12 per cent. per annum from' the date when the machinery of the company was appropriated by the State, was also passed against the State. It was observed in that context that the machinery was not returned by the State after the lease stood terminated by efflux of time, i.e., December 15, 1971. It was also ordered by the learned single judge that the company would be entitled to recover this amount with interest from December 16, 1971, till its realisation. Further, a decree in favour of the company for rendition of accounts was passed against the State Chief Secretary, Chief Conservator of Forests and Conservator of Forests and the parties were left to bear their own costs.
5. The State, being aggrieved by the impugned judgment passed by the learned single judge, has filed Company Appeal, bearing No. 41 of 1990 arising from Company Petition No. 35 of 1975. The financial corporation also being aggrieved by the order passed by the learned single judge dated February 27, 1990, has filed Company Appeal No. 38 of 1990 against the directions issued by the learned single judge at Serial Nos. 8 and 9, referred to above, by basically pleading that no such prayer was made by the petitioner in the company petition and, therefore, the learned single judge had erred in giving the necessary directions when the financial corporation had obtained a decree of Rs. 3,50,694.75 with interest from March 16, 1972, in a suit instituted by it in the Court of District Judge, Bhadrwah, under Section 31 of the State Financial Corporations Act, thus being a secured creditor.
6. United Commercial Bank too being aggrieved by the impugned judgment of the learned single judge has filed Company Appeal No. 26 of 1990 wherein particular findings of the learned single judge on issues Nos. 7, 8 and 12 have been challenged.
7. United Commercial Bank had filed a suit for recovery of Rs. 9,65,985.87 inclusive of interest till May 18, 1975, against the company in the High Court of Jammu and Kashmir on June 18, 1975. The company was ordered to be wound up by the order dated February 27, 1975, passed by the learned company judge in C. P. No. 169 of 1974. An application was thus moved under Section 446 read with sections 523 and 526 of the Companies Act, 1956, for transfer of the said civil suit from the High Court of Jammu and Kashmir to this court by the company, vide order dated August 1, 1980, this court ordered transfer of the civil suit aforesaid to this court. The suit was registered as Company Petition No. 48 of 1981. The company in the said company petition, i.e., 48 of 1981 filed C. P. No. 35 of 1985 under section -446 read with various sections referred to above for recovery of damages and rendition of accounts. By order dated September 27, 1988, in Company Appeal No. 2 of 1987, a Bench of this court directed that Company Petition No. 35 of 1975 and Company Petition No. 48 of 1981 be disposed of together and the evidence led in either of the cases can be read in the other and vice-versa. The suit of the appellant-bank which was converted into a company petition, as referred to above, came to be dismissed, vide separate order of the even date, i.e., February 27, 1990, by the learned company judge as findings on issue No. 6 were returned against the appellant-bank. The appellant-bank has thus in the manner aforesaid filed two appeals one arising out of Company Petition No. 35 of 1975 and the other arising from Company Petition No. 48 of 1981.
8. The State too has agitated through a separate appeal, bearing Company Appeal No. 40 of 1991, the findings recorded by the learned company judge in Company Petition No. 48 of 1981.
9. The company also being not fully satisfied with the order of the company judge rendered in Company Petition No. 35 of 1975, has filed cross-objections, vide C. M. No. 31 of 1991, in Company Appeal No. 41 of 1991. It is pleaded in the cross-objections aforesaid that one of the prayers of the company was for decreeing security deposit of Rs. 35,000 made by the company in the form of cash certificates with the United Commercial Bank with interest thereon till the same was refunded back to the company and since the State had not deposited the receipt of Rs. 35,000 under the lease agreement, the decree for the aforesaid amount of Rs. 35,000 with interest should have been granted to it by the company judge.
10. Respondents Nos. 1 to 3 in the joint written statement filed by them, by way of preliminary objections objected to territorial jurisdiction of this court. It was further pleaded that agreement dated March 23, 1961, contained an arbitration clause, thus there was an alternative remedy provided in the agreement itself and, therefore, the petition, i.e., Company Petition No. 35 of 1975 was stated to be incompetent. On the merits, the lease agreement dated March 23, 1961 was admitted. It is, however, pleaded that the agreement provided for the lease of various compartments of Deodar and Kail working circle in Siraj Range of the Doda Forest Division. The period of lease was seven years and it expired on December 15, 1968. It was further extended up to December 15, 1971. The losses sustained by the company for the reasons attributed to respondents Nos. 1 to 3 were denied. It was also stated that Rs. 39,56,407.20 was the balance due towards royalty and Rs. 21,26,049.82 as interest on belated payments up to March 31; 1975, from the company. Taking of the Siraj lease by the various departments and its control over the same was denied. It was, however, stated in the written statement that the department provided guidelines for working out the agreement by rendering technical assistance. The control of the lease always remained with the company till the expiry of the lease period by efflux of time but it was further stated that the loan advanced by Jammu and Kashmir State Financial Corporation was not properly utilised by the company and the company approached the United Commercial Bank for a further loan of Rs. 6 lakhs to the company. Since the United Commercial Bank had already advanced loan of Rs. 4 lakhs to the company, it agreed to advance Rs. 6 lakhs more as loan to the company on the assurance of various departments that technical advice would be rendered and reasonable supervision exercised. It is stated that it was made clear to the United Commercial Bank that the royalty is the first charge. In 1971, the company was not in a position to work out the lease because of meagre balance of Rs. 4, 190.20. Therefore, to help it to overcome the financial difficulties, the department arranged supply of ration on credit and also paid the labour out of sale proceeds. Some of the creditors who had financed the company filed suits against the company and they were paid an amount of Rs. 68,000 out of sale proceeds of the timber of the company. The taking over of the assets of the company or the installed machinery, stocks, stores, tools or implements was also denied. It is also stated that whatever timber felled or unfelled was taken over by them was in pursuance of the terms of agreement of lease. The felled or unfelled timber covered by the lease agreement were left within the coupe area after the termination of lease and all felled timber converted or otherwise left outside the coupe boundary after the expiry of the lease had been duly auctioned with notice to the company. Maximum care and caution was taken to recover the maximum price thereof by open auction and whatever money had been recovered in this behalf had been duly credited towards the outstanding dues of the company, Jammu and Kashmir State Financial Corporation which was arrayed as respondent No. 8 in Company Petition No. 35 of 1975, filed separate reply and controverted the material allegations made in the petition. United Commercial Bank arrayed as respondent No. 7 in Company Petition No. 35 of 1975 also filed its written statement relating to arrangement. of the United Commercial Bank for advancing the loan of Rs. 6 lakhs to the company. It was pleaded that an amount of Rs. 6 lakhs was sanctioned by it in favour of the company and this money was withdrawn from the accounts of the company through its managing director, Shri B. K. Kapoor, on his authorised operation by means of cheque and the same was placed in the account of "Conservator of Forests, Chenab Circle, Jammu account Hindustan Forests Company." It is pleaded that the bank was not willing to entertain the request of advancing any further money to the company as there appeared to be no prospects of possible rehabilitation of the company. Before, however, it could decline the request for repayment, the Conservator of Forests intervened in view of the huge involvement of the forest department and negotiations started between the company, authorities of the United Commercial Bank and the Conservator of Forests. As the State Financial Corporation was also an interested party, since it had advanced a large amount to the company, its managing director was also associated with the negotiations at every vital stage. The loan was ultimately advanced by the bank and the usual bank documents were duly executed by the company and at the same time another account as per the arrangement arrived at was opened with the Jammu branch of the bank in the name and style of "Conservator of Forests, Chenab Circle, Jammu account Hindustan Forests Company." Cheques were drawn by the managing director of the company against the company's account and credited to the account of the Conservator of Forests account Hindustan Forests Company for meeting the expenses of the working of the lease. This arrangement continued for two years. To the various written statements filed, reference whereto has been made above, the company filed replications. On the pleadings of the parties, the learned single judge framed the following issues :
(1) Whether the petition is barred because of the arbitration clause in the lease agreement dated March 23, 1961, or because of the arbitration proceedings initiated thereunder ? O.P.D. (2) Whether the petition is bad for misjoinder of parties ? O.P.D. (3) Whether the petitioner is entitled to the restitution and restoration of the assets and the undertakings of the company in the respondent's possession ? O. P. P. (4) In case issue No. 3 is not proved, whether the petitioner is entitled to a sum of Rs. 1 crore and 20 lakhs by way of compensation .and damages ? O.P.D. (5) Whether any loss has been caused to the petitioner because of any wrong and illegal act or acts, mismanagement and commission of the respondents ? If so, to what extent ? O.P.P. (6) Whether the petitioner is entitled to the restoration of the right of lease for the unexpired period ? O.P.P. (7) Whether the respondents are liable to render accounts of the money received or realised by them to the company and the bank, respondent No. 7 ? O.P.D. (8) Whether respondents Nos. 1 to 3 are liable to pay the loan received from the United Commercial Bank ? O.P.P. (9) Whether the lease has expired by efflux of time ? O.P.D. (10) Whether any new arrangement was entered into between the company and respondents Nos. 2 and 3 on behalf of the State of Jammu and Kashmir, under which it was agreed that reasonable and necessary extensions for the working of the lease would be granted ? O.P.P. (11) Whether the State of Jammu and Kashmir is entitled to claim a set off to the tune of Rs. 60,82,457.02 along with up to date interest, towards the royalty due from the petitioner-company ? O.P.D. (12) Whether the dues of respondent No. 7 are repayable on pro rata basis out of the surplus arising in the course of working out of the Siraj forests undertaking or lease or alternatively out of the amounts decreed in favour of the petitioner-company ? O.P.P. (13) Relief."
11. Since evidence was recorded in C. P. No. 35 of 1975 and the same was to be treated in C. P. No. 48 of 1981 and vice versa, the learned single judge decided both the company petitions mentioned above on the same date giving rise to various appeals, reference to which has been made above. Issues Nos. 1 and 2 were decided against the respondent-applicants. Under issues Nos. 6, 9 and 10 it was held that the period of lease expired on December 15, 1968, but it was extended by the State up to December 15, 1971, to enable the company to complete the working and the lease terminated by efflux of time as per agreement. It was held that the lease could not be granted to a private individual and, therefore, the company was not entitled to the restoration of the lease for the unexpired period. Issues were thus accordingly determined. Issues Nos. 7 and 8 were determined against respondents Nos. 1 to 3 so argued in the company petition whereas under issues Nos. 3, 4, 5, 11 and 12 a decree for recovery of Rs. 8,50,000 with interest calculated at the rate of 12 per cent. per annum from the date .when the machinery of the company was appropriated by the State and was not returned was passed in favour of the company and against respondent No. 1. Various directions reference whereof has been given were also issued.
12. Out of the many appeals, referred to above, we first propose to deal such appeals in which there is no controversy on facts. One such appeal is preferred by the Jammu and Kashmir State Financial Corporation, bearing Company Appeal No. 38 of 1990. Mr. L. M. Suri, learned senior advocate appearing on behalf of the corporation, contends that it is admitted between the parties that a suit in the court of the District Judge, Bhadrwah under Section 31 of the State Financial Corporations Act for the recovery of Rs. 3,65,694.75 with interest from March 16, 1972, was filed and a decree was passed in its favour and the appellant was in the process of executing the decree when disputes between the company and the State came on the surface resulting in Company Petition No. 35 of 1975 filed by the company in this court. In so far as the appellant is concerned the only relief claimed by the company against it was to the effect that dues of the company may be recovered on pro rata basis out of surplus arising in the course of working of the Siraj Forest Undertaking of the company or alternatively on pro rata basis in favour of the company. On these admitted facts, the contention of learned counsel is that a direction could not be issued to the local commissioner to assess the dues, if any, payable to the appellant arising in the course of working of the Shiraj forest lease or other liabilities of the company. A decree has since already been passed in favour of the appellant by the District Judge, Bhadrwah, in a petition under the State Financial Corporations Act and by the present order execution of that decree has effectively been stayed. It is also the contention of learned counsel that the learned single judge could not determine the liability of the respondent-company qua the appellant as the corporation-appellant was a secured creditor and had obtained a decree from the District Judge, Bhadrwah. The properties of the company were mortgaged to the appellant and, therefore, the learned company judge deciding the claim of the company against an unsecured creditor or the claim of the company against others could not have opened the decree already granted. He further contends that it is the choice of the appellant to either proceed against the company or its guarantors and in support of this contention, learned counsel cites M. K. Ranganathan v. Government of Madras [1955] 25 Comp Cas 344 ; AIR 1955 SC 604.
13. One of the directions at Serial No. (V) given by the learned company judge while appointing the local commissioner runs as follows :
"Assess the dues, if any, payable to respondents Nos. 8 and 9 arising in the course of working of the Shiraj Forest Lease or other liabilities of the company."
14. In opposition to the appeal preferred by the corporation, learned counsel appearing for the company, however, contends that it has been proved by overwhelming evidence on the record of the case that the loan of Rs. 6 lakhs was sanctioned in favour of the company by the bank, the account was opened in the bank in the name of Conservator of Forests, Chenab circle account Hindustan Forests Company and while working out the way and manner the lease was to be managed, there were deliberations by various parties inclusive of the financial corporation. On account of various meetings held on that account, it was decided that the forest department shall assume full responsibility for strictly controlling and supervising the operations of the lease and the forest department shall specifically agree and undertake to remit to the corporation the corporation's share in the surplus available out of the sale proceeds of the timber. Besides the other evidence that has come on record, counsel makes a reference to the letter, bearing No. L.A.100/69/1993, dated June 19, 1969, addressed by the managing director, Jammu and Kashmir State Financial Corporation, Srinagar, to the manager, United Commercial Bank Ltd., Srinagar. The arrangement relevant part whereof has been mentioned above, it is further contended by learned counsel for the company, has even been admitted by the witness who appeared for it. That being the position, it is argued by learned counsel that direction No. (v), given by the learned single judge, which has been reproduced above, needs to be sustained.
15. After hearing learned counsel for the corporation as also the petitioner-company, we find merit in the contention of learned counsel for the corporation noted above. It is an admitted position that the appellant-corporation had already obtained a decree, reference whereto has been given above. It was in the process of executing the decree when various orders in Company Petition No. 35 of 1975 came to be passed for which reason the execution of the decree is still pending. There may have been an arrangement to work out the Shiraj lease in the way and manner sought to be established by the petitioner-company but once the decree had been passed, it could be said that the local commissioner would assess the dues payable to the financial corporation arising in the course of working of Shiraj forest lease or other liabilities of the company. A lawful decree that was passed by a court of competent jurisdiction following an inter partes judgment which had even attained finality could not be set at naught. Even though, therefore, the forest department or someone else may be the guarantor for the company which admittedly secured a loan of Rs. 3,10,000 from the corporation, it was the choice of the appellant-corporation to proceed against any one of the judgment-debtors or against all of them. M. K. Ranganathan's case [1955] 25 Comp Cas 344 (SC) cited by learned counsel for the appellant supports his contention.
16. We may, however, add that if we uphold the arrangement between the company and the State, whereby the entire work of the Shiraj lease had virtually and completely come into the hands of the State and in which arrangement the corporation had given a consent and was, in fact, a party to the said arrangement, then the liability of the State shall not be totally washed away. If, therefore, in execution of the decree the company is made to pay the decretal amount, it shall, however, be open to it to stake its claims against the State of the dues of the appellant but such a course is not permissible under a company petition preferred by the respondent-company. It may, therefore, either stake its claims through independent proceedings or resist the execution on the ground of arrangement between the parties referred to above if that be open to it or in any other manner that may be permissible under the law. The appeal preferred by the corporation, thus, deserves to be partly allowed, The appellant, Jammu and Kashmir State Financial Corporation, shall be at liberty to execute the decree. For reasons to be recorded later, we are going to uphold the arrangement arrived at between the State and the company which was consented to even by the financial corporation. If, therefore, in execution of the decree, the financial corporation is able to recover the decretal amount from the company, the company in turn would be able to stake its claim against the State. That being our observation, there will be no necessity to issue direction to the local eommissioner as has been issued by the company judge mentioned at Serial No. V.
17. The facts leading to the filing of company appeal, bearing No. 26 of 1990, by the United Commercial Bank are also not in dispute. Briefly the facts may be recapitulated. The bank had filed a suit for recovery of Rs. 9,65,985.87 inclusive of interest till May 18, 1975, against the company in the High Court of Jammu and Kashmir on June 18, 1975. The company was ordered to be wound up by order dated February 27, 1975. An application was thus filed under sections 523 and 526 of the Companies Act, 1956, for transfer of the said civil suit from the High Court of Jammu and Kashmir to this court and, vide order dated August 1, 1980, this court ordered transfer of the said suit to this court. The suit was registered as Company Petition No. 48 of 1981. The other facts have since already been given and need no repetition. The suit of the appellant-bank which came to be converted into the company petition was dismissed, vide separate order by the learned company judge as findings on issue No. 6 were returned against the petitioner-company. In the civil suit culminating into company petition the following issues were framed :
1. Whether the suit is not maintainable as no leave has been obtained under Section 446 of the Companies Act ? OPR
2. Whether the petition is bad for misjoinder of causes of action ? OPR
3. Whether the suit is bad for misjoinder of respondents Nos. 3 and 4 ? OPR
4. Whether the suit is bad for non-impleading of the Jammu and Kashmir State Financial Corporation ? OPR
5. Whether the suit has not been filed by a proper person ? OPR
6. Whether the suit is barred by time ? OPR
7. Whether defendants Nos. 2 to 5 are not liable for the suit amount because the management of the forest lease was handed over to defendants Nos. 1 and 6 at the instance of the petitioner-bank ? OPR
8. Whether the petitioner is entitled to any decree against respondent No. 1 ? OPR
18. It may be mentioned here that issue No. 1 was treated as a preliminary issue. The court, vide order dated September 18, 1985, held that post facto sanction to continue with the suit instituted after the passing of the winding up order can be granted by the court and the suit will be deemed to have been validly instituted from the date the requisite sanction was granted. Company Petition No. 47 of 1976 was moved by the bank against the company under Section 446 read with Section 523 of the Act for grant of leave to continue with the civil suit. Before the filing of the petition, the voluntary liquidator of the company moved the court through an application under Section 446 read with sections 523 and 526 of the Act for transfer of the same from the High Court of Jammu and Kashmir to this court. The application was allowed. In view of the order passed, Company Petition No. 47 of 1976 to prosecute the suit by the bank in the High Court of Jammu and Kashmir was dismissed by the learned company judge on August 1, 1980. The learned company judge thus held under issue No. 1 that the suit would be deemed to have been validly instituted on August 1, 1980, i.e., when the application was allowed and the suit was transferred to this court. The learned company judge returned findings on all other issues in favour of the bank but, as mentioned above, the findings on issues Nos. 6 and 7 were returned against the bank. Even though the suit, as mentioned above, was filed earlier in the Jammu and Kashmir High Court, under issue No. 1 it was held to be validly instituted on August 1, 1980, and since it was not filed within six years of advance of loan, the learned company judge held it to be patently barred by time. Obviously, the bank has challenged the findings of the learned company judge so recorded.
19. Before the matter might proceed any further, it may be mentioned that simply because under issue No. I it was held that the suit was validly instituted on August 1, 1980, when an application for transfer of civil suit from the Jammu and Kashmir High Court to this court was allowed, the learned company judge held the suit to be instituted on August 1, 1980, despite the fact that it was filed in the Jammu and Kashmir High Court in 1975, and, therefore, construing the terminus a quo as August 1, 1980, the suit was held to be barred by time.
20. Learned counsel representing the bank vehemently contends that the mere fact that the winding up order has been made or the official liquidator has been appointed as provisional liquidator and, therefore, no suit or other legal proceeding can commence and if pending at the date of winding up order, shall be proceeded with against the company and that any suit by or against the company which is pending in any court, may be transferred and disposed of by that court as provided under Section 446 of the Companies Act, 1956, does not mean that the limitation of the pending suits, i.e., the suits filed prior to the date of a winding up order having been passed, shall be deemed to have been instituted on a date when they are transferred for the purposes of limitation. A suit against a company may not proceed when a winding up order has been passed and the same may legally proceed only when such suit has been transferred, is entirely different than construing limitation, contends learned counsel.
21. Sub-section (1) of Section 446 of the Companies Act, 1956, deals with. filing of fresh suits as also pending suits. When a winding up order has been made or the official liquidator has been appointed as provisional liquidator, no suit or other legal proceedings shall be commenced, or if pending at the date of the winding up order, shall be proceeded with against the company, except by leave of the court and subject to such terms as the court may impose. Sub-section (2) of Section 446 deals with powers of the court which is winding up the company, i.e., in which a winding up order has not been passed, to entertain any suit or proceeding by or against the company, any claim made by or against the company, any application made under Section 391 by or in respect of the company and any question of priorities or any other question whatsoever, whether of law or fact, which may relate to or arise in the course of the winding up of the company ; whether such suit or proceeding has been instituted or is instituted before or after the order for the winding up of the company or before or after the commencement of the Companies (Amendment) Act, 1960. Sub-section (3) of Section 446 deals with a suit or proceeding which is already pending. Such a suit or proceeding is to be transferred and disposed of by the court in which the winding up petition is pending. Section 446 reads thus :
"446. Suits stayed on winding up order.--(1) When a winding up order has been made or the official liquidator has been appointed as provi-
sional liquidator, no suit or other legal proceeding shall be commenced, or if pending at the date of winding up order, shall be proceeded with, against the company, except by leave of the court and subject to such terms as the court may impose.
(2) The court which is winding up the company shall, notwithstanding anything contained in any other law for the time being in force, have jurisdiction to entertain, or dispose of-
(a) any suit or proceeding by or against the company ;
(b) any claim made by or against the company (including claims by or against any of its branches in India) ;
(c) any application made under Section 391 by or in respect of the company ;
(d) any question of priorities or any other question whatsoever, whether of law or fact, which may relate to or arise in course of the winding up of the company ;
whether such suit or proceeding has been instituted, or is instituted, or such claim or question has arisen or arises or such application has been made or is made before or after the order for the winding up of the company, or before or after the commencement of the Companies (Amendment) Act, 1960.
(3) Any suit or proceeding by or against the company which is pending in any court other than that in which the winding up of the company is proceeding may, notwithstanding anything contained in any other law for the time being in force, be transferred to and disposed of by that court."
22. The company, as referred to above, was wound up by an order dated February 7, 1975, and the suit by the bank was filed in the Jammu and Kashmir High Court on June 18, 1975. This suit was transferred to this court on August 1, 1980. The only question that needs adjudication thus is as to whether the period provided for filing a suit for recovery of money would be counted from the date the suit was actually filed in the Jammu and Kashmir High Court or when the said suit came to be transferred to this court, in the way and manner fully described above ? We find considerable merit in the contention of learned counsel representing the appellant-bank. The period of limitation has to be counted from the date when the suit was originally filed and not from the date when it is transferred to the court in which the winding up petition is pending. We will discuss the relevant provisions of law and the case law cited on the issue but we might observe right here that if the limitation is to count from the date when a suit, which has been filed years earlier, is transferred, it would have anomalous results. The suits filed within limitation, simply because the same have remained pending for number of years and during the pendency of which a winding up petition has been filed, shall not become barred by time. A suit instituted within limitation, in our considered view, cannot become a suit filed beyond the period of limitation simply because permission is granted to continue with the suit by the court seized of a winding up petition against the company later on. The suit might not proceed till such time the permission is granted to continue with the suit and but for that impediment in the progress of the suit, we find nothing more in Section 446 of the Act which might go to even remotely suggest that the limitation of such suit shall commence from the date when permission is granted to continue with the suit. The language employed in Section 446 would make it explicit that a suit or legal proceeding shall not commence and if, pending at the date of a winding up order, may not or shall not proceed against the company, except by leave of the court. There is, thus, a bar on either filing of fresh suit or continuing with the pending suit but the language of section, even though stretched, would not make the suits, which are already pending, barred by time simply because they can continue only after the permission is granted and the suit is transferred to the company judge.
23. Mr. Sanjiv Anand, learned counsel representing the respondent-company in this appeal preferred by the bank, besides relying upon Section 446 of the Companies Act, 1956, also relies upon a decision of the apex court in Bansidhar Shankarlal v. Mohd. Ibrahim [1971] 41 Comp Cas 21, 25 ; AIR 1971 SC 1292, 1295. The observations of the apex court, pressed into service, are contained in paragraph 8. The same read thus :
"Even granting that sanction under Section 179 does not dispense with the leave under Section 171 of the Act, to institute a proceeding in execution against the company ordered to be wound up, we do not think that there is anything in the Act which makes the leave a condition precedent to the institution of a proceeding in execution of a decree against the company and that failure to obtain leave before institution of the proceeding entails dismissal of the proceeding. The suit or proceeding instituted without leave of the court may, in our judgment, be regarded as ineffective until leave is obtained, but once leave is obtained the proceeding will be deemed instituted on the date granting leave."
24. The facts of the case aforesaid reveal that one Mohammed Ibrahim had instituted proceedings and had prayed for a decree of ejectment in respect of land occupied by the Luxmi Spinning and Weaving Mills Ltd. as his tenant. The suit was decreed on October 1, 1953. Before the decree was passed, the company had executed a deed in favour of Bansidhar mortgaging its fixed assets for securing repayment. After the decree of the trial court, the company executed a second deed also in favour of Bansidhar mortgaging the fixed assets for repayment of an additional sum. The decree of the Subordinate Judge in Mohammed Ibrahim's suit was confirmed on August 4, 1954. Against that decree, Bansidhar and the company preferred second appeal to the High Court. Bansidhar also filed a suit in the High Court of Calcutta on its original side to enforce the two mortgages in his favour and obtained a preliminary mortgage decree in the suit. Another creditor of the company applied for and obtained an order directing that the company be wound up. The liquidators of the company and Bansidhar prosecuted the second appeal. The decree of the District Judge was confirmed by the High Court in its appellate jurisdiction. Mohammed Ibrahim then instituted an application for enforcement of the decree in ejectment against the company without obtaining leave of the High Court under Section 171 of the Indian Companies Act, 1913, which is in pari materia with Section 446 of the Companies Act, 1956. Bansidhar then filed a petition contending that the application for enforcement of the decree was not maintainable without leave of the court which ordered that the company be wound up. On the motion of Mohammed Ibrahim, the company judge granted leave to execute the decree in second appeal. The Subordinate Judge before whom the proceedings were pending, dismissed the application filed by Bansidhar and the order of dismissal was confirmed by the Additional District Judge and so by the High Court in second appeal. Bansidhar's petition for a certificate for appeal to the Supreme Court was rejected. Bansidhar then preferred two petitions for special leave to appeal to the Supreme Court, one against the order of the High Court dismissing his second appeal against the order in the execution proceedings and the other against the order of the High Court refusing to certify the appeal under Article 133(l)(b) and (c) of the Constitution of India. Counsel representing the appellant in the said case argued before the Supreme Court that the Subordinate Judge was incompetent to entertain the application for executing the decree in second appeal unless the High Court in its company jurisdiction granted leave to execute the decree under Section 171 of the Indian Companies Act, 1913. It was also argued that leave of the High Court by the terms of Section 171 of the Indian Companies Act, 1913, made a condition precedent to the institution of a proceeding against a company ordered to be wound up by the court and that the application for execution of the decree without in the first instance obtaining leave of the High Court was entertained without authority. The apex court, after noticing the seeming conflict in the judicial pronouncements of various High Courts in the country on law and facts, held that (at page 24 of 41 Comp Cas) ;
"When the second appeal was pending before the High Court at the instance of the company and Bansidhar against the decree passed by the District Court in ejectment, the company was ordered to be wound up by order of the High Court and the liquidators were appointed. The liquidators prosecuted the appeal. There was no evidence on record whether the liquidators obtained the sanction of the court under Section 179(1)(a) of the Companies Act. But there was no reason to suppose that the liquidators did not obtain the sanction of the court. If sanction of the court under Section 179 to prosecute the appeal before the High Court was obtained, and it must be so assumed, the contention raised on behalf of Bansidhar loses all significance, for an execution application is only a continuation of the suit and the control of the High Court enures during the execution proceeding also. If the sanction of the court has been obtained for the prosecution of the suit, it would be plainly unnecessary to obtain fresh sanction to the institution of execution proceeding at the instance of the successful party."
25. It was further held that (at page 25 of 41 Comp Cas) :
"It may be true that the sanction obtained by the liquidators was granted under Section 179 of the Companies Act to initiate or enforce a claim of the company or to defend an action, whereas the leave of the court to institute or to continue a suit against the company in winding up is obtained under Section 171. It would be giving effect to a technicality divorced from the true object of the section to hold that, even in a suit filed or prosecuted with the sanction of the court, the decree may not be enforced by a successful party without leave under Section 171 of the Act."
26. It is, thereafter, that the Supreme Court observed in paragraph 8 as has been reproduced above. From the reading of the judgment and the observations made by the apex court, we, however, do not find if the question mooted out before us was even remotely involved in Bansidhar's case [19711 41 Comp Cas 21. The observations to the effect that (at page 25 of 41 Comp Cas) :
"The suit or proceeding instituted without leave of the court may, in our judgment, be regarded as ineffective until leave is obtained, but once leave is obtained the proceeding will be deemed instituted on the date granting leave", in our view were made only for the purpose of continuing with the suit and it is that effectiveness which has been talked , about in the observations of the Supreme Court, noted above. Till such time leave is obtained, pending proceedings are ineffective as is also clear from the language employed in Section 446 but that does not mean that such proceedings for the purposes of limitation shall be deemed to have been filed on a date when leave is granted. Learned counsel has also relied upon State of Bihar v. Syed Anisur Rahman [1977] 47 Comp Cas 372. The said judgment, on parity of reasons given above, cannot come to the rescue of the company.
27. We are of the firm bpinion that a validly instituted suit within limitation, as provided under the Limitation Act, would not become a suit filed beyond the period of limitation and the period of limitation has to be counted from the date when the suit is originally filed despite the fact that leave to continue with the suit has been granted later in point of time. That being our view, the finding of the learned company judge recorded under issue No. 6 deserves to be set aside and we accordingly order so.
28. As mentioned above, the learned company judge has determined issue No. 7 in. favour of the respondents whereas issue No. 8 has been determined in favour of the petitioner. Issue No. 7 was as to whether defendants Nos. 2 to 5 are not liable for the suit amount because the management of the forest lease was handed over to defendants Nos. 1 and 6 at the instance of the petitioner-bank whereas issue No. 8 was as to whether the petitioner is entitled to any decree against respondent No. 1. The bank had arrayed the State of Jammu and Kashmir as defendant No. 1 whereas Shri P. N. Kaul, formerly employed by and/or under the Government of the State of Jammu and Kashmir as the Conservator of Forests. Chenab Circle, Jammu and now employed on Special Duty with the Chief Conservator of Forests, Jammu and Kashmir State was arrayed as defendant No. 6. The Hindustan Forests Co. (P.) Ltd., B. K. Kapur, managing director of the company, Smt. Lalita Kapur, director of the company and Mr. Ajai Kumar were arrayed as defendants Nos. 2 to 5. It would, thus, be apparent that it is primarily the State of Jammu and Kashmir which has been held liable to pay the decretal amount. The State, therefore, has also filed an appeal against this order of the learned company judge but in support of the said appeal, learned counsel representing the State has hardly urged anything before this court. It may, however be mentioned that a number of contentions have been raised in the appeal filed by the State arising out of Company Petition No. 35 of 1975 and learned counsel representing the State is, perhaps, of the view that if the findings recorded by the learned company judge in the appeal arising out of Company Petition No. 35 of 1975 are accepted, the State would be absolved of its all liabilities inclusive of its liability to pay to the appellant-bank. Even though no substantial arguments have been raised by the learned State Counsel, we would still like to mention that on the strength of the evidence that was produced, learned company judge came to a correct conclusion that it is the State of Jammu and Kashmir and defendant No. 6, who were liable to pay the amount in question and not the other defendants, referred to above. In the suit filed by the bank it was pleaded that respondent No. 2, so arrayed in the suit, had approached the bank for financial assistance. The bank was not willing to advance any money unless the repayment of the amount sought to be advanced was guaranteed by the State. An arrangement was arrived at. The bank was to advance the loan to the company and the same was to be placed at the disposal of the Conservator of Forests, Chenab Circle, Jammu, in the account of the company. The arrangement also provided for working of the lease by the Conservator of Forests. The sale of timber was to be effected by the Conservator of Forests and the sale proceeds were to be deposited with the bank in the aforesaid account and thereafter a proportionate share of royalty due to the State was to be withdrawn therefrom and the remaining amount was to be reinvested in the working of the Siraj lease. The balance, if any, was to be made available to the bank for liquidating the fresh advances. The State through the Forests Officers was to maintain a proper and regular account and to furnish the same to the bank. In response to the queries made by the bank, the State through its Conservator of Forests informed the bank that on the basis of the estimates provided to it by its Divisional Forest Officer, the total value of the timber in forests and in transit was worth Rs. 1,27,00,000 and a sum of Rs. 43,00,000 was the amount of estimated working balance. Adding to this, a sum of Rs. 54,00,000 was payable to the State on account of the remaining price of the timber, the liability of the company was Rs. 97,00,000. As per the estimate and assurance furnished by the State through its Conservator of Forests, the company was likely to earn a profit of Rs. 30,00,000 from the Siraj lease. The conditions for advancing the loan to the company were set out in letter dated June 19, 1969, addressed by the managing director of the Jammu and Kashmir State Financial Corporation to the manager of the bank at its Srinagar branch. The same are as under :
"(a) The maximum limit of fresh advance by the United Commercial Bank Ltd. to the company shall be kept at a figure that the total liability of the company under it (inclusive of principal, interest and other charges) does not at any time exceed Rs. 6 lakhs.
(b) The forest department shall assume full responsibility for strictly controlling and supervising the operations of the lease.
(c) Fresh advance of the United Commercial Bank Ltd. for working the lease shall be placed at the disposal of the forest department. All . withdrawals, disbursements and expenditure shall be strictly controlled and regulated by the forest department and the funds at no stage shall be placed in the hands of the management of the company.
(d) The sale of timber shall be handled by the forest department and the moneys so realised shall be held by them in trust and for the distribution according to an agreed arrangement between the various parties.
(e) The royalty of the State Government will have a prior claim over the sale proceeds of the timber and deductions therefrom towards royalty shall at no time exceed 50 per cent. of the sale proceeds. The claim of the United Commercial Bank Ltd. In respect of its fresh advance will rank next subject to condition (h) below. Thereafter, the surplus would be divisible amongst the various existing creditors including the bank and the corporation, to whom other creditors would make co-sharers in the surplus which will have to be sorted out in concurrence with the corporation and the bank. The sharing will be done on pro rata basis, i.e., in proportion to the outstanding dues.
(f) While determining the divisible surplus as aforesaid the existing liabilities of the company towards income-tax arrears will be taken due note of. In this connection, the letter No. 771, dated May 13, 1969, of the Income-tax Officer, 'A' Ward, Jammu, addressed to Shri B. K. Kapur, the managing director of the company, will be relevant.
(g) The forest department shall specifically agree and undertake to remit to the corporation the corporation's share in the surplus available out of the said proceeds of the timber.
(h) The corporation is prepared to give precedence to the bank's fresh advance (up to a maximum of Rs. 6 lakhs) over its second charge on timber in the forest and in transit subject to the condition that as soon as the said fresh advance by the bank gets liquidated in the manner aforesaid or in case the scheme does not get through for any reason whatsoever it will get immediately and automatically restored as if the corporation had not agreed to give precedence to the bank's fresh advance.
(i) The company shall submit or cause to be submitted to the corporation statements at monthly intervals indicating the volume of timber floated, collected and sold and also the amount realised by way of sale proceeds as also other statements which it may normally be required to submit to the bank and the forest department of the State Government".
29. It was further pleaded in the suit filed by the bank that the State did not object to the aforesaid conditions except the condition regarding the share of the royalty which the bank and Jammu and Kashmir State Financial Corporation had put at 50 per cent. of the sale proceeds. As regards the fixation of the percentage of appropriation out of the sale proceeds towards the amount of royalty the Conservator of Forests, vide letter dated July 16, 1969, had stated that the royalty share of Rs. 6, Rs. 4.5 and Rs. 3 per cft. for deodar, kail and fur, respectively, was tentatively fixed and that the same could be enhanced by the forest department at any time and in an extreme case the department might even charge full sale proceeds towards its royalty. It was, however, qualified by the Conservator of Forests that the extreme action may not be called for in this lease if adequate funds were made available for its working and there were no serious acts and hindrance of God to obstruct the working of the lease. It was as a result of the aforesaid agreement, assurances and guarantees given by the State through its officers that the bank had sanctioned the cash credit in favour of the company to the extent of Rs. 6 lakhs. The money was placed at the disposal of the said Conservator of Forests in an account styled as "Conservator of Forests, Chenab circle account the Hindustan Forest Company (P.) Ltd.". The Conservator of Forests was alone competent to issue the cheques in appropriating the amount. The arrangement continued nearly for two years. The sale proceeds were deposited according to the agreement with the bank and apportionment made at 50 per cent. of the total sale proceeds. In the suit it was further pleaded that although a formal agreement as envisaged by Section 122 of the Constitution of Jammu and Kashmir was not arrived at between the bank and the State but the bank had advanced the loan to the company on the representation made by the State through its officers and thus it was bound to carry out the said promise despite the express agreement under Section 122 of the Constitution of Jammu and Kashmir. In the written statement filed on behalf of the State, it was pleaded that the agreement was contrary to the provisions of Section 122 of "the Constitution of Jammu and Kashmir and was not enforceable at law. The contents of arrangement between the bank, the State, the company and other financial institutions were denied. After the resultant trial and recording of evidence, the learned company judge recorded a firm finding of fact that the conditions for advancing the loan to the company were set out in the letter dated June 19, 1969, addressed by the managing director of the Jammu and Kashmir State Financial Corporation to the manager of the bank at Srinagar branch. A copy of this letter was endorsed to the Chief Conservator of Forests and the Conservator of Forests, Chenab Circle, with the following remarks :.
"That no arrangements will be acceptable to the Corporation unless the forest department takes care of the corporation's interests as visualised above. It is also understood that no arrangements in the case will be entered into without first consulting the Corporation and safeguarding its interests. It is also assumed that once the scheme is put into effect, it will continue to work for quite a few years and suitable extensions in le.ase periods will be allowed. It is further requested to keep the Corporation informed of the developments in the case."
30. The learned company judge further held that "there is no rebuttal to this document either by oral or documentary evidence. The original letter was signed by Shri S. C. Jain, the managing director of the Jammu and Kashmir State Financial Corporation. There can be no dispute about its genuineness and contents. This letter unequivocally establishes that as a result of the negotiations, the proposal which has been finalised proved that the forest department was to assume full responsibility for strictly controlling and supervising the operations of the lease and the fresh advance by the petitioner for executing the lease was to be placed at the disposal of the forest department and all withdrawals, disbursements and expenditure were to be strictly controlled and regulated by them and the funds at no stage were to be placed at the hands of the management of the company". For recording the findings, as have been reproduced above, we are of the clear view, the learned company judge took into account all the relevant evidence that had come on records as also the fact that the State had led no evidence in defence of its averment that no such agreement had been arrived at. The learned company judge, in our view, came to a right conclusion while deciding issues Nos. 7 and 8.
31. In view of the discussions made above, the appeal preferred by the bank, bearing No. 31 of 1990 is allowed. Its suit is decreed against defendant No. 1, i.e., the State of Jammu and Kashmir. The decree shall be for the principal amount advanced by the bank, as mentioned in the suit, with 6 per cent. Interest per annum from the date the loan was advanced till such time the same is recovered. The bank shall also be entitled to costs incurred by it in filing the suit.
32. Coming now to appeal No. 41 of 1990, filed by the State of Jammu and Kashmir, Mr. N.B.S. Gujral, learned counsel for the appellant, has raised several points. His first contention is that the original agreement of lease, reference whereto has been given in the earlier part of the judgment, contains Clause 44 which provides arbitration between the parties, i.e., the appellant-State and the company, in the case of any dispute and inasmuch as the matter had since already been referred to an arbitrator, the petition filed by the company giving rise to this appeal under sections 446, 526, 518, 542 and 543 of the Companies Act was wholly incompetent. His second contention is that there was absolutely no documentary evidence on records from which it could be spelt out that the actual running of the forest or operation thereof was with the forest department as also that the company petition was not maintainable for the reliefs asked for. It is further being contended by learned counsel appearing on behalf of the appellant-State of Jammu and Kashmir that the findings on issues Nos. 7 and 8 have been recorded by the learned company judge on the basis of exhibit P-29 and three witnesses examined by the company and on this evidence the relief claimed was not maintainable. It is further the contention of learned counsel that evidence of RW-2 was not at all considered while returning the finding with regard to possession and that the agreement/arrangement pressed into service by the company did not come into being by the provisions contained in Article 299 of the Constitution and, thus, it was not binding upon it.
33. In so far as the first point raised by learned counsel based upon Clause 44 of the agreement dealing with arbitration is concerned, it needs to be stated here that the arbitration proceedings were transferred to this court by consent of the parties. In this case, the arbitrator was appointed by the Jammu and Kashmir High Court in Arbitration Application No. 26 of 1972. The arbitrator did not render the award within four months of entering upon the reference. In the meantime, the company was ordered to be wound up. An application was moved in the High Court of Jammu and Kashmir for staying further proceedings before the arbitrator and also an application for extension of time for making the award. On April 7, 197&, the High Court of Jammu and Kashmir stayed further proceedings before the arbitrator. The court did not pass any order on the application for extension of time for making the award. This court, thereafter, transferred the arbitration application to itself in C. P. No. 82 of 1975 moved by the company. The arbitration file was thus received in this court in view of the orders passed by this court on November 15, 1985, and was registered as C. P. No. 71 of 1987. The respondents in this petition were not represented by a counsel and even counsel, who represented the parties in these proceedings at the time of passing of the order dated November 15, 1985, also did not represent. In these circumstances, the learned company judge directed that notices be issued to the respondents in C. P. No. 71 of 1987. This petition was dismissed in default on October 9, 1987. The arbitration proceedings were transferred to this court but the company did not pursue the same when the petition was dismissed for non-prosecution. On these facts, the learned company judge came to the conclusion that no useful purpose shall be served by relegating the parties to the arbitrator. Reasons given by the learned company judge apart, in so far as the present proceedings are concerned, the State never made an application under Section 34 of the Arbitration Act. It is by now a settled proposition of law that legal proceedings would be stayed if there is an arbitration agreement and if an application for such stay is made under Section 34 of the Arbitration Act before filing of the written statement. The apex court in State of U. P. v. Janki Saran Kailash Chandra, AIR 1973 SC 2071, wherein only an adjournment was asked for filing a written statement, held that "asking for such an adjournment was a step in the proceedings". In this case, no such prayer as envisaged under Section 34 of the Arbitration Act was ever made. The written statement was filed without taking the plea with regard to there being an arbitration clause in the original agreement or that arbitration proceedings were pending. This contention of learned counsel is thus repelled.
34. Coming now to the second contention of learned counsel with regard to there being no evidence regarding taking over of the forest or the possession of the leased area by the State, we find no substance in this contention of learned counsel as well. Letter No. LA100/69/1993, dated June 19, 1969, was addressed by the managing director, Jammu and Kashmir State Financial Corporation, Srinagar, to the manager, United Commercial Bank Ltd., Srinagar, as has already been referred to. This letter clearly indicates that as a result of the negotiations, a proposal was mooted with regard to the grant of loan to the company. The contents of para 2 of the letter aforesaid contained Clauses (a) to (i) which have already been reproduced while dealing with the appeal preferred by the bank. Clause (b) of the letter clearly states that the forest department shall assume full responsibility for strictly controlling and supervising the operations of the lease whereas clause (d) states that the sale of timber shall be handled by the forest department and the money so realised shall be held by them in trust and for the distribution according to an agreed arrangement between the various parties. That apart, PW-7, Krishan Lal, manager of the United Commercial Bank, Jammu, produced the statement of account, exhibit PW-Y/221, from the account of the Conservator of Forests, Chenab Circle, Jammu account Hindustan Forests Co. P. Ltd. The cheques were signed by the Conservator of Forests and drawn in favour of different parties mentioned therein. There was no question for the officers of the State to have signed the cheques in favour of different parties and that was possible only if the arrangement, as arrived at between the parties, vide letter dated June 19, 1969, as per letter mentioned above, was actually carried out. PW-12, R. C. Mehta, regional manager of the United Commercial Bank, also stated that in the year 1969, the company approached him for another loan for the working of the Shiraj forest lease in the State of Jammu and Kashmir and before advancing the loan, he contacted the Forest Department, the Chief Secretary of the State as also the Industrial Financial Corporation of Jammu and Kashmir. After the loan was sanctioned, an account was opened with the bank in the name of the Conservator of Forests, Chenab Circle. The Conservator of Forests used to draw money and deposit the same in the said account.
35. In its compilation, the company has given to us the documents which have been placed on record and which show the taking over of possession and control of the working of the forest by the forest department from the company. Besides the letter referred to above, there is another letter dated January 30, 1969, from the company to Timber Transport Officer, which is exhibit P-4. Hindustan Forests Co. Ltd. had written that they had already submitted a list of the existing stock of the timber lying in their depots which has been sold in auction. It was also mentioned as to why unnecessary hurdles were being placed by the staff in lifting the timber billed and paid for by the parties. There is another letter, exhibit P-17, dated March 11, 12, 1969, from the Conservator of Forests to the regional manager of the United Commercial Bank wherein it has also been mentioned that when action suggested in paras 1 and 2 was finalised, the department wduld have no objection to closely supervising and controlling the working and sales of the lease. There is another letter dated March 22, 1969, exhibits PW-2/4 of the Conservator of Forests to the Chief Conservator of Forests and yet another letter dated April 1, 1969, exhibit PW-2/5, of the Chief Conservator of Forests to the Conservator of Forests. These two letters also talk of the control of the leased forest by the forest department. It is clearly mentioned in one of the letters that it would be advantageous to the department as well as to the Jammu and Kashmir State Financial Corporation and others if a trial to this scheme was given for at least one year so that they might be able to see how the scheme works. The Conservator of Forests further stated that he had a feeling that if the operations were controlled adequately, the scheme was bound to succeed. There are other letters, exhibits P-29, P-30, PW-2/15, PW-8/2, P-32, PW-9/1, P-33, P-34, PW-2/20, P-36, P-37, P-12, P-39, PW-1/11, P-9/7, PW-2/2, P-45 and PW-3/9, which clearly clinch the issue in favour of the company that not only the forest department had taken control over the leased forests from the company but from its sister concern the machinery to work the forest was also taken and so much so all sales were then made by the department and even the forest department paid money to various parties which the company owed towards them. So much so even the sale hammer of the company was taken by the forest department. As mentioned above, no rebuttal came from the side of the State and the evidence of the company had gone unrebutted. In our considered view, there is overwhelming evidence on records to show that the entire working of the leased forest was taken over by the State and the contention of learned counsel for the appellant-State that there was no such evidence is totally misconceived and deserves to be rejected.
36. The next contention of learned counsel that the petition under Section 446 read with sections 526, 518, 542, 543 and 446(2) of the Companies Act, 1956, for the reliefs contained therein, was incompetent, in our view, is also devoid of any merit. The claim of the petitioner-company was with regard to restoration of its assets. A decree was, thus, prayed for to the effect that the company is entitled to the restoration of the status quo ante and to work out the operations of the forest under the agreement for the period for which it was being operated by the State of Jammu and Kashmir, Chief Conservator of Forests and Conservator of Forests since January, 1969. A decree was also sought for an amount of Rs. 1,59,95,000 with interest at 12 per cent. per annum till its realisation against respondents Nos. 1 to 3, i.e., State of Jammu and Kashmir and others. The total amount mentioned above was regarding the various items, like, losses caused due to flooding down and drifting down of timber in the absence of booms, short falls and losses of 11 to 12,000 sleepers and scantlings and on account of timber sold off by respondents Nos. 1 to 3 at throw away prices from January, 1969, after the sale hammer of the company was illegally taken over in September, 1969, the value of timber lying at sales depots and river-side transit depots and extracted timber lying in the forests ; the machinery and installations, machinery stocks and stores and tools and implements, etc., taken over by respondents Nos. 1 to 3 at the time when they undertook the working of the forests or in the alternative the estimated cost or value for replacement together with interest thereon ; miscellaneous stocks and stores of foodgrains and food stuffs and forestry hand-tools and equipments, etc. ; amount advanced by the United Commercial Bank and placed at the disposal of respondents Nos. 1 to 3 together with interest thereon and estimated surplus of sales over the casts of extraction and transportation on the timber taken over by respondents Nos. 1 to 3. As has been mentioned above, an order winding up the company had since already been passed and, therefore, any suit or proceedings or any claim made by or against the company could be filed only under the provisions contained in Section 446 of the Companies Act, 1956. If the agreement/arrangement, as is pleaded by the company, is upheld, we do not find any embargo in filing a suit or proceeding by the company for realisation of the amount based upon the averments made in the petition. The petition filed under Section 446 of the Act was in the nature of a suit and, as mentioned above, no suit or proceeding could be instituted by or on behalf of the company or against it and the only remedy available, in the considered view of this court, for the company was to file a petition under Section 446 of the Act. The court, under the powers conferred on it by Section 477 of the Companies Act, at any time after the appointment of a provisional liquidator or the making of a winding up order, could summon before it any officer of the company or person known or suspected to have in his possession any property or books or papers, of the company, or known or suspected to be indebted to the company, or any person whom the court deemed capable of giving information concerning the promotion, formation, trade, dealings, property, books or papers or affairs of the company. Under Sub-section (2) of Section 477, the court could examine any officer or person so summoned on oath concerning the matters aforesaid, either by word of mouth or on written interrogatories. Under Sub-section (3) of Section 477, the court could require any officer or person so summoned to produce any books and papers in his custody or power relating to the company. Under Sub-section (4) of the section aforesaid, if any officer or person so summoned, after being paid or tendered a reasonable sum for his expenses, failed to appear before the court at the time appointed, the court could cause him to be apprehended and brought before it for examination. Under Sub-section (5) of the said section", if, on his examination, any officer or person so summoned admits that he is indebted to the company, the court could order him to pay to the provisional liquidator or, as the case may be, the liquidator at such time and in such manner as the court may deem just. Under Sub-section (6), if, on his examination, any such officer or person admits that he has in his possession any property belonging to the company, the court may order him to deliver to the provisional liquidator/liquidator that property or any part thereof. Under Sub-section (7) the orders made under subsection (5) or (6) can be executed in the same manner as decrees for the payment of money or for the delivery of property under the Code of Civil Procedure, 1908. The learned company judge, thus, under the powers conferred upon him by various provisions of the Companies Act, 1956, enumerated above, had jurisdiction to decide the matter and the reliefs asked for could well be granted. It may be mentioned here that a winding up order is passed or the provisional liquidator is appointed when the company is unable to pay its debts to its creditors and it is for the benefit of those who have some claims against the company that these beneficial provisions have been enacted. The whole property of the company must come before it or the liquidator for equitable distribution amongst the creditors of the company. The Supreme Court in Hiralal Kalyanmalji Seth v. Gendalal Mills Ltd. [1976] 46 Comp Cas 142, 145 ; AIR 1976 SC 910, held that "under Section 195, the court, may, after it has made a winding up order, summon before it persons whom it thinks capable of giving information concerning the trade, dealings, affairs and property of the company. Where the company summons former receiver and secured creditors it can not be said that it exercised the discretion arbitrarily or capriciously". Section 195 of the Indian Companies Act, 1913, is in pari materia to Section 477 of the Companies Act, 1956. This contention of learned counsel for the appellant is, thus, also repelled.
37. Coming now to the statement of Ajay Kapoor, RW-2, whose statement on the original records seems to have been recorded as R-9W1, nothing has been pointed out to us which may blunt out the claim of the company or may partially dilute the same. RW-2 is Ajay Kapoor, son of Mr. Balwant Krishan Kapoor, and he was the managing director and shareholder of Hindustan Roadways and Saw Mills Private Ltd., respondent No. 9. It was stated by him that the main object of the constitution of the company was to carry out the mechanical works of the forests under lease to the Hindustan Forests Company Pvt. Ltd., petitioner. He stated that in the year 1968, the petitioner company suffered heavy losses due to flood and his company advanced loans to it to the extent of Rs. 2,50,000 and an agreement was executed between the petitioner and respondent No. 9. Agreement on that behalf was produced by him as exhibit R-9W1/1. He further stated that the machinery that was to he operated by his company belonged to the petitioner company and it was originally imported and got fabricated by the petitioner company. He also stated that the machinery was taken over by the forest department in the year 1969. Learned counsel for the appellant-State has, however, relied upon his statement where he mentioned that even after the machinery was taken over by the Jammu and Kashmir Government, his company continued to operate the same. The effort is to show to the court that it is the petitioner company which continued to have control over the leased forest and it is for that reason that Hindustan Roadways and Saw Mills, a sister concern of the petitioner company, continued to work with its machinery in the leased forest. The effort is also to show that if that be the case, i.e., the sister concern of the petitioner company continued to operate the machinery, the learned company judge could not award the amount of the value of the machinery, said to have been taken over by the State. Learned counsel, it appears to us, has relied upon a stray sentence from the entire statement of this witness. Read in its entirety, we are convinced that the machinery might have still been operated by Hindustan Roadways and Saw Mills, a sister concern of the petitioner company but complete control and supervision of the same vested with the" forest department. This witness has further stated that the bank had reached a settlement with the petitioner company and later a number of meetings were held between the representatives of the bank, the officers of the forest department and the petitioner company. The understanding reached at was that in case the financial and supervisory control of the forest operations of the petitioner company were handled by the forest department, the bank would advance further loans. Subsequently, an account of the petitioner company, to be operated by the Conservator of Forests, Chenab Circle, was also opened in the respondent bank, This arrangement was brought into operation and remained in force successfully till the year 1973. Finding no substance in this contention of learned counsel for the appellant, we reject the same.
38. The last contention of learned counsel is that the agreement or arrangement, which is the sole basis for the various reliefs detailed in the company petition, was not arrived at as per the terms and conditions for arriving at an agreement with the Government as provided under Article 299 of the Constitution and, therefore, even if the same is proved, the State shall not be bound to pay anything for violation of any of the terms of the said agreement/arrangement. As per the provisions contained in Article 299, all contracts made in the exercise of the executive power of the Union or of a State shall be expressed to be made by the President or by the Governor of the State, as the case may be, and all such contracts and all assurances of property made in the exercise of that power shall be executed on behalf of the President or the Governor by such persons and in such manner as he may direct or authorise. It cannot be disputed that all contracts in exercise of the executive powers of the State have to be made by the Governor of the State but the question in the present case is as to whether this agreement/arrangement arrived at between the parties was a contract. We are of the opinion that the contract arrived at between the parties was the one vide which the lease of earmarked forest area was granted to the petitioner company way back in the years 1944-45 and 1961. The company was to start felling trees at any time after these were made available beyond the coupe boundaries concerned by December 15, 19G8, The agreement was to be extended till March, 1970, by which time the whole produce was to be removed beyond Jammu or to other registered sale depots of the company. The facts, fully detailed above, reveal that when the petitioner company came under a financial strain, a workable arrangement was arrived at between the parties by which, as per the case of the company, the lease was to be worked by the State for and on behalf of the company. This was thus in our view, an agreement/arrangement to work out the lease for which a valid contract had already been arrived at between the parties. The arrangement cannot, thus, take the character of a fresh agreement by which the rights and liabilities of the parties, de hors the original agreement, were to be arrived at. The rights and liabilities of the parties were to be determined by the original agreement of lease and with a view to work out the lease, an arrangement was arrived at and that, in our view, cannot be a fresh contract between the parties, thus, necessarily demanding execution of a contract within the parameters of Article 299 of the Constitution. That apart, while arriving at the original contract of lease, in our view, what the State of Jammu and Kashmir had given to the petitioner company was a right to sell the timber. Sub-section (2) of Section 2 of the Sale of Goods Act, 1930, defines "delivery" which means voluntary transfer of possession from one person to another. Sub-section (7) of Section 2 defines "goods" to mean every kind of movable property other than actionable claims and money ; and includes stock and shares, growing crops, grass and things attached to or forming part of the land which are agreed to be severed before sale or under the contract of sale. Sub-section (10) of Section 2 defines the "price" to mean the money consideration for sale of goods. By an agreement of lease, thus, it was a case of sale of goods, the petitioner company being purchaser of goods. The apex court in State of Maharashtra v. Champalal Kishanlal Mohota, AIR 1971 SC 908, held that (headnote) :
"Standing timber may ordinarily not be regarded as 'goods', but by inclusive definition given in Section 2(7), of the Sale of Goods Act, things which are attached to the land may be the subject-matter of contract of sale provided that under the terms of the contract of sale they are severed before sale or under the contract of sale. Since it was expressly provided that the timber agreed to be sold shall be severed under the contract of sale, the timber was 'goods' within the meaning of Section 2(7) of the Sale of Goods Act."
39. In Badriprasad v. State of Madhya Pradesh, AIR 1966 SC 58, the Supreme Court held that (at page 64) :
"When a contractor is deemed to have paid in full the price there could be no occasion for the Government to reserve a right of disposal of the property even when its delivery had been made to the purchaser. As already stated, it is Section 20 of the Sale of Goods Act which will apply to this case. This section provides that where there is an unconditional contract for the sale of specific goods in a deliverable state, the property in the goods passes to the buyer when the contract is made and it is immaterial whether the time of payment of price or the time of delivery of the goods or both is postponed. The contract was unconditional, the goods sold were specific. They were in a deliverable state and, therefore, the property in the goods did pass at the time when the contract was made. This section would have applied even if the time of payment of price had been postponed. In the present case, as already stated, the payment allowed by instalments is to be deemed payment in full at the time of the delivery of the goods sold."
40. The provisions of the Sale of Goods Act and the case-law, referred to above, would thus go to show that at the time of original agreement or contract all that the State of Jammu and Kashmir had done was that it had sold the timber to the petitioner company. The specific goods in the category of coupe, referred to above, were to be sold by the petitioner company. Out of the sale proceeds realised by the company, it had to pay a fixed amount of royalty to the State. The working arrangement of felling the trees and sale thereof by the State of Jammu and Kashmir at the behest of the company and on its behalf cannot be said to be constituting a new contract that might have, required the formalities/prerequisites of a contract as envisaged under Article 299 of the Constitution. This argument of learned counsel is also thus repelled.
41. There is some substance in the last contention of learned counsel for the appellant and that is with regard to the decree passed by the learned company judge in favour of the petitioner company for an amount of Rs. 8,50,000 with interest at 12 per cent. per annum from the date when the machinery of the company was appropriated by respondent No. 1 by holding that the machinery was not returned by the State after the lease stood terminated by efflux of time, i.e., December 15, 1971. The contention of learned counsel for the appellant-State is that in the company petition an alternative prayer was made. It was prayed in the first instance that the machinery should be returned to the company, failing which a decree for the amount, referred to above, that was equivalent to the price of the machinery, should be passed. Without considering the first prayer and finding out the possibility or feasibility thereof, straightaway the alternative prayer of the petitioner company was allowed. This, in our view, could not be done and the directions issued should have been to direct the State of Jammu and Kashmir to hand over the machinery to the petitioner company, failing which a decree of the amount equivalent to the value of the machinery should have been passed. We thus partly allow Appeal No. 41 of 1990. Whereas, the appeal of the State of Jammu and Kashmir against the judgment recorded by the learned company judge dated February 27, 1990, would stand dismissed, the only modification would be that the appellant-State is directed to hand over the machinery taken over by it for working out the Shiraj lease, if the machinery is in deliverable state, failing which the directions given by the learned company judge in this regard would hold the field. It is to that extent only that the appeal of the State of Jammu and Kashmir shall stand allowed.
42. No arguments at all have been addressed in support of the cross-objections filed, vide C. M. No. 31 of 1991 in Company Appeal No. 41 of 1990 challenging a part of the order passed by the learned company judge in Company Petition No. 35 of 1975.
43. In view of the discussions made above, Company Appeal No. 41 of 1990 arising out of C. P. No. 35 of 1975 is dismissed with the modification as detailed above. The company appeal preferred by the financial corporation, bearing No. 38 of 1990, against the directions issued by the learned company judge is allowed in the manner fully indicated above. The appeal of the bank bearing No. 26 of 1990 is allowed in the manner indicated above. The decision in the appeals mentioned above would also cover the decision in Appeals Nos. 31 and 40 of 1990. In view of the peculiar facts and circumstances of these cases, the parties are left to bear their own costs.