Smt. Inderbir Kaur And Others vs Satbir Singh And Others
1980 Latest Caselaw 421 Del

JUDGMENT

H.L. Anand, J.

1. This application under ss. 542, 543(l). 531 and 531A of the Companies Act, 1956, and the connected application being C.A. No. 583 of 1979, under ss. 456, 531, 531A, 542 and 543 of the Act, inter alia, raise the question of Rajbir Industrial Farms P. Ltd., in liquidation, for short, the company, had any right to or interest in immovable property comprised in Rajbir Villa Estate, Bhimtal, and assail the validity of the sale of part of the estate and the machinery, fittings and fixtures belonging to the company. The applications were filed in these circumstance.

2. Satbir Singh, former ruler of the erstwhile State of Jind, admittedly owned, at the material time, Rajbir Villa Estate, Bhitmal, comprising, inter alia, of Rosary Cottage, land surrounding the cottage and barracks and/or out-houses attached to the cottage. Satbir Sing married Miss Buggy, daughter of Major S. C. Bugg, and she was thereafter known as Inderbir Kaur. The company was incorporated on May 21, 1964, with a nominal capital of Rs. 5 lakhs, divided into 5,000 equity shares of Rs. 100 each. The issued capital was Rs. 4 lakhs, divide into 4,000 equity shares of Rs. 100 each, which was subscribed and fully paid up. The company had been promoted by Satbir Singh with a view to develop an orchard on the estate and to set up a canning factory. It was a family concern of Satbir Singh and he and his wife were the only members and directors of the company at all material times. Out of the issued capital, 500 equity shares were allotted to each of them in 1964. A further allotment of 3,000 shares was made to Satbir Singh in December, 1971, against the outstanding credit of Satbir Singh to the tune of Rs. 3 lakhs. The company had apparently been allowed by Satbir Singh to develop the land around the Rosary cottage as an orchard and to set up canning factory is the barracks attached to the cottage. Bugg, who was then in the happy position of the father-in-law of the ex-ruler, was apparently appointed the administrator of the company and the Rosary cottage was allowed to be use for his residence. The company, which was essentially an enterprise of the former ruler, and, in any event a family concern, seems to have developed the land into an orchard. It further appears that some machinery was purchased and a canning factory was also set up in the barracks. The company was overtaken by the unfortunate matrimonial disharmony between the couple, who have long since parted company and Inderbir Kaur migrated from India leaving her father to settle scores with the former ruler, as also his claims against the company, on account of certain amounts advanced to it, as also arrears of salary as Administrator. Bugg has apparently been staying in the Rosary cottage and continued to do so even after Inderbir Kaur left the country. The project of the company was disrupted as a sequel to the matrimonial disharmony, and soon after the couple parted company, Satbir Singh entered into an agreement on March 31, 1972, with Mohan S. Lakhani agreeing to sell the entire estate, including the land, which had been given to the company for development, and the barracks which housed the factory, along with the machinery, fittings and fixtures comprised in the factory to Lakhani for Rs. 3,75,000. A sum of Rs. 50,000 out of the consideration was allocated to the machinery, fittings and fixtures, belonging to the company. A sum of Rs. 1 lakh was received by Satbir Singh by way of advance and the balance was agreed to be paid at the time of the registration of the sale deed. The sale deed was executed on April 15, 1972, in favor of Lakhani and his mother, Sati S, Lakhani, when the balance amount was paid to Satbir Sing. Satbir Singh executed a separate receipt for Rs. 50,000 purporting to act as the managing director of the company. The payment of this amount was made by a bank pay order endorsed in favor of Satbir Sing. Pursuant to the sale deed, Satbir Sing delivered possession of the estate, including the factory, to the purchasers except a part of the Rosary cottage, which was apparently still in the occupation of Bugg, leaving it to the Lakhanis to deal with him.

3. In April, 1972, there was apparently a dispute between Bugg and the Lakhanis with regard to the claim of certain movables, fittings and fixtures in the Rosary cottage, as a result of which, the Lakhanis filed a suit against Bugg in the Nainital Court with a view to restrain Bugg from removing or appropriating to himself, any furniture, fixtures and movables stored in the cottage. The court granted an interim injunction and Bugg, in turn, sought the winding-up of the company and filed C.P.No. 47/72 in his name as well as on behalf of his daughter. The petition was field in May, 1972. The winding-up of the company was sought, inter alia, on the ground of inability of the company to pay the claim of Bugg which was computed at Rs. 31,100 and the deadlock in the conduct of the affairs of the company owing to matrimonial disharmony between Satbir Singh and Inderbir Kaur. Satbir Singh and the Lakhanis were imp leaded as respondents and the validity of the sale of the estate was also challenged and the cancellation of it was sought on the ground that Satbir Sing had no authority to dispose of the property of the company. Certain other reliefs were also sought, including the alternative relief of removal of Satbir Singh from the Board of the company. The Lakhanis were, inter alia, required to restore the property of the company. During the pendency of the petition, a compromise was arrived at between Bugg and Inderbir Kaur, on the one hand, and the Lakhanis, on the other, on July 12, 1973, in terms of which, it was agreed that the winding-up petition may continue but the "case" a against the Lakhanis would be dismissed as withdrawn. Bugg and Inderbir Kaur, inter alia, accepted the position that the purchase of the estate including the machinery, etc., was made by the Lakhanis in good faith but reserved their right to pursue the allegations that Satbir Singh had made a fraudulent sale of the assets of the company. The Lakhanis, in turn, agreed to withdraw the claim against certain movables lying in the Rosary Cottage and claimed to belong to Bugg, and to withdraw the suit pending in the Nainital Court. The suit was apparently withdrawn and bugg removed his movables vacating the part of the Rosary Cottage, which was still in his occupation. By an order eventually made on November 28, 1974, the company was ordered to be wound up on the ground that the substratum of the company had gone and the business of the company could not, therefore, be carried on. The questions as to the validity of the sale and as to the claim of Bugg as a creditor were, however, left undetermined.

4. In March, 1975, Inderbir Kaur and Bugg filed C.A.No. 138/75 under ss. 542, 543(l), 531 and 531A of the Act to void the sale of the estate and the factory in so far as it related to the Rosary Cottage, 8 acres of land around the cottage, the barracks housing the canning factory and the machinery, plant, fixtures and fittings, forming part of the factory. In the alternative, Satbir Singh and the Lakhanis were required to reimburse the company to the extent of Rs. 5 Lakhs odd on account of the value of the affected interest of the company. Satbir Singh was further required to reimburse to the company a sum of Rs. 3 lakhs, being the value of the shares allotted to him in December, 1971, against outstanding credit. The land and the orchard on it were valued at Rs. 3 lakhs, Rosary Cottage at Rs. 1 lakh and a lakh odd was said to be the value of the factory building, machinery, plant, fixtures and fittings in the factory. Interest at 12 percent. was also claimed from the respondents till the date of payment. The application was grounded on the allegations that the land and the barracks had been given by Satbir Singh to the company for the development of as orchard and the construction of a canning factory and that the company had developed the land and installed the factory after making necessary alterations in the barracks and that the Rosary Cottage, the land and the orchard standing on it and the building housing the factory, including the machinery, plant, fixtures and fittings, were the property of the company and were sold by Satbir Sing without the authority of the company rendering Satbir Singh and the Lakhanis liable to account for the property as well as the consequential damages caused to the company. Satbir Singh, the Lakhanis and the company, through the official liquidator, were imp leaded as respondents to the application. The application was resisted by Satbir Singh as well as the Lakhanis but was supported by the official liquidator, even though the official liquidator had not carried out any independent investigation into the affairs of the company, as to the possible title of the company to any of the aforesaid properties, and as to whether the company had any right over or interest in the property. While the Lakhanis pleaded that they were bona fide purchasers for consideration without any notice as to the interest of the company in the property except the factory, Satbir Singh denied that any part of the estate belonged to the company or that the company had any right to or interest in any part of it. It was, however, admitted that Satbir Singh had promoted the company for the purpose of developing an orchard on the aforesaid land and to set up a canning factory in the barracks and that he had allowed the company to develop the orchard and to set up the factory in one of the barracks. It was also not disputed that the factory consisting of the machinery, plant, fixtures and fittings belonged to the company but it was claimed that the same was sold to the Lakhanis on behalf of the company and the sum of Rupees. 50,000 received by him from the Lakhanis on account of the value of the machinery, etc., were applied by him towards payment of his dues form the company. It was, however, denied that any improvements or additions were made in the property by the company and, in any event, the company had been fully compensated in that he did not receive any consideration from the company for allowing the company the use of the property. It was further alleged that the disposal of the estate had not, in any way, caused any loss or prejudice to the company. It was further claimed that he had advanced substantial amounts to the company by way of loans and the allotment of the additional share was justified on account of the subsisting credit of the order of Rs. 3 lakhs. A claim was also made that Satbir Singh had paid for the shares which were allotted to his wife. It was denied that Bugg was a creditor of the company.

5. During the pendency of the application, the company was transposed as a co-petitioner but was restored to the position of a respondent, at its request apparently because the official liquidator was reluctant to subscribe to the various allegations made in the application without any investigation of his own with regard to the affairs of the company. During the hearing of this application, a serious challenge was thrown to the maintainability of the application on the ground that by virtue of the compromise arrived at earlier between Bugg and Inderbir Kaur, on the one hand, and the Lakhanis, on the other, it had been accepted that the Lakhanis were bona fide purchasers and that the application as against the Lakhanis was, in any event, liable to be dismissed and the properties forming the subject-matter of the sale in the hands of the Lakhanis were outside the reach of the proceedings. It was at that stage that C.A.No. 583/79 was filed by the company, through the official liquidator, for almost identical relief and on identical allegations and material, on November 6,1979. The official liquidator obviously did not carry out any investigation of his own because a substantial part of the application of Inderbir Kaur and Bugg were lifted into this application. The only addition were that the official liquidator had also invoked s. 456 of the Act and besides Satbir Singh and the Lakhanis, Inderbir Kaur and Bugg were also imp leaded as respondantents. Both the applications were heard together and it was agreed that the material placed on the record of the earlier of the two applications, as well as the pleadings of the parties in the earlier application, would be taken into account in deciding both the applications. This was intended to obviate any unnecessary duplication. It was also agreed that the material, forming part of the winding-up petition, would also be taken into account in deciding the various questions in controversy between the parties. The claims in both the applications and the arguments at the hearing proceeded on the basis that the company had proprietary interest in the Rosary Cottage, 8 acres of land attached to it and the barracks in which the factory was housed. In course of arguments, however, it became obvious that the claim to the immovable property, as laid in the two applications, could not possibly be sustained in the absence of any instrument and of reference to the immovable property in any of the balance sheets of the company. It was at this stage that a suggestion was thrown up that the vague and indefinite claim in the applications to any right over or interest in the aforesaid property could perhaps be sustainable under s. 60 of the Easements Act on the ground that Satbir Singh had granted in favor of the company any a license to use the aforesaid properties for the purpose of developing an orchard and setting up the canning factory and that during the subsistence of the license the company had carried out extensive work of a permanent nature on the property and that by virtue of the work of a permanent character executed by the company on the property and expenses incurred in the execution of it, the company had an irrevocable license to the said property and neither the owner nor the purchaser could deprive the company of the irrevocable license. This is how the argument proceeded and leave was granted to the company to amend C.A.No. 583 of 1979 on the ground that this represented a different approach to the common facts and circumstances as also the material on record. Leave was also granted to the parties to file amended pleadings as also any additional or any supplementary material relevant to the various questions in controversy. Leave was also granted to the company to invoke the doctrine of promissory or equitable stopped to protect its interest in relation to the property.

6. I have heard learned counsel for the parties at length in the two applications on the carries questions in controversy between the parties.

7. The first question for decision is as to the extent of any interest of the company in the immovable property, forming part of the estate. No claim was made in any of the applications to any immovable property, forming part of the estate, except the Rosary Cottage, 8 acres of land around the cottage and the out-houses or barracks in which the canning factory; was installed. This claim has, however, no basis. Satbir Singh was admittedly the exclusive owner of the entire estate and it is nobody's case that any interest in any part of the estate was transferred by him to the company, either by way of sale, gift, lease or otherwise by any instrument and there are no references to the immovable property in any of the balance-sheets of the company. The vague reference in the two applications to Satbir Singh having "given" any part of the estate to the company for the purpose of development of an orchard and establishment of a canning factory could not, therefore, justify an inference, much less a conclusion, that there was any vesting of nay interest in any part of the immovable property in favor of the company. Counsel for the applicants, therefore, rightly did not press the claim to any interest in any part of the immovable property. The claim to the immovable property was, therefore, confined to an irrevocable license with regard to the Rosary Cottage, 8 acres of land around the cottage and the barracks on the ground that these had been given by Satbir Singh to the company to develop an orchard and set up a canning factory. It was further claimed that during the operation of the license, the company had developed the orchard, made alterations in the barracks and installed the factory in the barracks and that these constituted work of a permanent character on which the company had incurred considerable expenses. It was claimed that the license granted by Satbir Singh to the company was coupled with transfer of property and that either way the right of Satbir Singh to alienate the property and of the purchaser was subject to the rights of the company in relation to the property. Doctrine of promissory equitable was also invoked to protect the interest of the company. In the alternative, it was urged that, in any event, the property could not be sold and the license could not be revoked without payment of adequate compensation to the company.

8. Whether Satbir Singh granted any license to the company to enter upon the land and develop an orchard and to set up the canning factory the out-houses of the Rosary Cottage and, if so, the nature of the license, are the further questions that need to be answered. It is the common case of the parties that there was no material on the record to base a finding that there was any express grant of a license, either with regard to the land, the cottage or the out-houses. It is, however, not disputed that in all the balance-sheets and profit and loss accounts of the company, which are duly signed by Satbir Singh, the assets of the company include the "orchard" and the "canning factory" and there are references in the balance-sheets to the expenditure incurred on the development of the orchard, construction and installation of the machinery, etc. It is also not in dispute that the company had been given the possession of the land and the out-houses and some development work had been done on the land and the machinery had been installed in the out-houses. It is also not in dispute the Bugg has been staying in the Rosary Cottage during the period that he has been looking after the affairs of the company. Under s. 54 of the Easements Act, the grant of a license may be, inter alia, implied from the conduct of the grantor and that being so, it is difficult to resist the conclusion that Satbir Singh had granted a license to the company to develop the orchard on the land and to set up a canning factory in the out-houses and that pursuant to it, the company entered upon the land and the building and some work of the development of the orchard and installation of the factory, fittings and fixtures had been done during the material period. The mere fact that the estate exclusively belonged to Satbir Singh and the company was promoted by him for the purpose of developing an orchard and setting up a canning factory without any out-side as its member apart form his wife, would not make any difference to the relationship between the corporate body on the one hand, and Satbir Singh on the other, in relation to the estate. It is well-settled that a corporate body is a legal entity independent of and distinct from the members of whom it is composed. The attitude of Satbir Singh that the estate belonged to him and so did the company and that, therefore, the company acquired no rights in relation to the property ignores the legal incidence of incorporation.

9. Thus far, there is, however, little difficulty because the implied grant of a license by Satbir Singh to the company for the use of the property for the aforesaid two purposes and the incidental use of the cottage for the residence of Bugg was not seriously disputed. The real question in controversy between the parties has been the nature of the license. Was it a revocable laciness and, therefore, stood revoked either when the project of the orchard and the canning factory was as good as given up or when Satbir Singh eventually decided to dispose of the estate and alienated the property in favor of the Lakhanis handing over vacant possession of the entire estate along with the machinery, fittings and fixtures ? If it was revocable, was the company entitled to any notice or compensation and as to the extent of it ? Was the license irrevocable either because it was coupled with transfer of property or because acting upon the license, the company and executed a work of permanent character and incurred expenses in its execution ?

10. Under s. 60 of the Indian Easements Act, 1882, a license may be revoked by the grantor, unless :

"(a) it is coupled with a transfer of property and such transfer is in force ; or

(b) the licensee, acting upon the license, has executed a work of the permanent character and incurred expenses in the execution."

11. Clause (a) of s. 60 is not attracted on the facts and circumstances of this case as there was no transfer of any property or nay interest in any property. The test of irrevocability laid down in this clause is narrower than the corresponding test in English law. In English law, it is enough if it is a license coupled with a grant or interest in the nature of property, as distinguished from transfer of property. Even if the license is confined to entry into the property, the right to develop the land and take away the fruits or enjoy the benefit of the orchard cannot be said to be a contract for transfer of any property. In the first instance, there is no such contract because of the total absence of any consideration. Secondly, it does not relate to any interest in the property and is merely a personal right. Moreover, the complex right not only to enter on the land but also to utilize the produce for the purpose of the canning factory would not among to a license coupled with a grant or with a "profit a prendre" because the produce is not the property of the grantor but of the grantee itself since the orchard was to be developed by the company at its own cost. The requirement of clause (a) was, therefore, not satisfied and the license would not be irrevocable under that clause. The requirement of clause (b), however, appears to have been fully satisfied both with reference to the land and the barracks in which the factory was installed. The balance-sheets of the company for the years 1956-57 to 1970-71 and the directors' report to which Satbir Singh throughout subscribed as also the books of accounts of the company for the relevant years clearly bring out that on entering upon the land and the barracks, the company spent large amounts on the development of an orchard and the installation and establishment of a canning factory. According to the balance-sheet and profit and loss account for the year 1969-70, the fixed assets of the company were valued at a little over rupees one lakh and composed of Rs. 98,427 on account of plant and machinery, Rs. 2,571 on account of electric installations and Rs. 992.72 on account of furniture and fixtures. The development expenditure on the orchard is shown at Rs. 49,880.60. The directors' report which is signed by Satbir Singh, inter alia, mentions that there had been satisfactory progress with regard to the development of the orchard and that "new trees have been planted and the orchard expanded". It was added that "returns from this plantation is expected to be received by the company during the current year". It is true that a substantial part of the expenditure on the development of the orchard is capitalization of the salaries paid from time to time including the wages of farm workers and the administrator, but that, to my mind, would not make nay difference. That is part of the input in the development of an orchard and if an orchard was, in fact, developed during the years, it could not be said that no work was executed on the land. Similarly, the installation of the machinery and plant and other fittings and fixtures in the barracks is clearly brought out in the balance-sheets as well as in the directors' report. It follows, therefore, that acting upon the license, the company had executed considerable work on the land as also in the construction and installation of a canning factory in the barracks and incurred considerable expenditure in the hope that with the complete development of the orchard, it would be possible for the company to feed its canning unit with the produce from the orchard to earn profits. Clause (b) of s. 60 is based on the principle of estoppel. If the licensee acts upon the license and executes a work on the land thereby incurring expenses, the grantor would be stopped from revoking the license. In such a case, the grantor would be deemed to have held out an assurance to the licensee that in view of the expenditure incurred by him on the work of a particular nature, he could enjoy the benefit for a reasonable period of time. The only further condition that must, however, be satisfied to attract clause (b) of s. 60 is as to the nature of the work because it is not every work on or about the land which is sufficient to render the license irrevocable. It must be work of "a permanent character". There had been considerable judicial controversy with regard to the expression "work of a permanent character" and it is well-settled that a work of a temporary character cannot be considered as work of a permanent character. The work of development of land for agricultural purposes would not necessarily work of permanent character. In the case of ordinary plants and crops it would not fall in the category of permanent character. The position of an orchard would, however, be different. The development of an orchard takes considerably more time than in the case of ordinary crops or other plants. Crops or plants may be annual or biannual and may have even lesser life span. In the case of an orchard, it is not only takes longer to develop and to tend the trees, but they also bear fruit and are open for enjoyment for a much longer period. Some of the trees may even be of permanent nature, though most of them last for many years and there is a reasonable expectation of produce from them. Cases cited at the bar deal with instances of development of groves which also involved construction of boundary wall or other structures and the decision in those cases that the development of an orchard was work of a permanent character, primarily turned not on the plantation, but on account of the structure. I am, however, unable to see why the development of land as an orchard by itself would not amount to work of a permanent character, if there is reasonable expectation of enjoyment of benefit from the orchard for a definite number of years and the process of development itself may take quite a few years. In the present case, the company was incorporated in 1964 and it is then that the company was allowed the use of the land, the barracks and the Rosary Cottage. According to the directors' report, the orchard was in the process of being developed in 1966-67 and by the time the property was sold, it would have started bearing fruits and there was, therefore, reasonable expectation of the company profiting by the venture during the lifetime of the trees. What is true of the orchard, is more so of the barracks. It is not denied that the company purchased plant, machinery and equipment and installed a canning factory in the barracks after making the necessary alterations and considerable expenditure was incurred not only on the plant and machinery, but also on the work of construction and erection and the amount as also the purpose is clearly reflected in the various balance-sheets. The establishment of a factory in the barracks was certainly a work of permanent character and clause (b) would be clearly attracted to the license in respect of the land and the barracks. The license in respect of the land and the barracks, therefore, was irrevocable.

12. The nature of right of the company in relation to the land and the barracks would not, however, be any different even if it were to be assumed that the work executed by the company in the development of the orchard and in the installation of the factory did not constitute work of a permanent character. The right of the company to the possession of the land and barracks would still be protected by the doctrine of estoppel, whether of traditional estoppel, equitable estoppel or promissory estoppel. In the facts and circumstances of the case, the requirements are fully satisfied, irrespective of whether the right is assigned to one pigeon-hole or the other. Satbir Singh had allowed the company to enter upon the land and the barracks, to develop the orchard, to install a factory and to spend large amounts on the project. This was the implied assurance to the company that it would not be disturbed unilaterally and acting on that assurance the company carried out extensive work on the land and in the barracks investing large sums of money. Satbir Singh would be compelled to stand by the assurance and desist from disturbing the possession of the company. That Satbir Singh was himself the promoter of the company and its major shareholder and source of its funds, as also the sole owner of the property would not make any difference to the right of the company to the continued possession and use of the property for the purpose for which it was given to it. That the company was allowed to use it without any valuable consideration would also be irrelevant. Satbir Singh was, therefore, stopped from dealing with the property in any manner which may affect the right of the company to the enjoyment assured to it under the license, whether or not s. 60 was attracted to the case.

13. What is, however, true of the land and the barracks is not necessarily true of the Rosary Cottage because there is no material to show that any work, the other of a permanent or temporary character, we executed by the company in the cottage itself. There is also no material to show that expenditure was incurred by the company on any improvement to the cottage and the license with reference to the cottage could not, therefore, attract either clause (b) of s. 60 or any principle of estoppel. The license with regard to the Rosary Cottage, as distinguished from the land, was clearly revocable at the will of Satbir Singh.

14. Even if the license was revocable and the doctrine of estoppel was not available to the company to protect its right of enjoyment of the property pursuant to the license, the company would, nevertheless, be entitled to damages because it was evicted from the property by the grantor without any fault of its own. The claim of damages would not be justified with reference to s. 64 of the Easements Act, because s. 64 entitles a licensee to compensation only if the grant of the license was for a consideration which, in the present case, it was not. The company would, however, be entitled to damages because the company as a licensee, pure and simple, was entitled under s. 63 to a reasonable time to leave the property and, in particular, to salvage whatever of its property it was bale to, including the machinery, plants, fittings, fixtures, implements and even some of the plants. Such item was never allowed by Satbir Singh to the company. This has certainly caused damage to the company because if it had been allowed time, it may also have been possible for the company to make a proper sale of its assets.

15. Is the sale of the machinery, fittings and fixtures, admittedly belonging to the company, liable to be voided ? It has been the common case of the parties that out of the total consideration of Rs. 3,75,000, Rs. 50,000 was allocated between the seller and the (sic) belonging to the company, even though the payment of this was also received by Satbir Singh. He purported to receive it on behalf of the company as its managing director and at least this is how it is made to appear in the receipt executed by him. The sale proceeds never went to the company and the books of account do not reflect it. It is not in dispute that the sale was neither authorised by the board of directors of the company nor by its general meeting because neither of them considered the question or voted on it. The only explanation of the sale by Satbir Singh on behalf of the company was his attitude that the company was as much his as the estate. He purported to act as the managing director of the company which he obviously was not because the company never had one. He was at all material times one of the directors of the company, his erstwhile wife being the other. He had no power to dispose of the property of the company as a director in the absence of any specific authority in that behalf by a resolution of the company. There was no such resolution. The sale of the property of the company was clearly unauthorised. The source of the capital of the company or the person who promoted it would be wholly irrelevant for a determination of the question of the authority to dispose of the property of the company. The sale is, therefore, liable to be voided and the company entitled to the property being restored to it.

16. Even though the sale of machinery, plant, fittings and fixtures, admittedly belonging to the company, would be liable to be voided and the sale of the estate, to the extent it affected the right of the company to the land and the barracks, would be liable to be set aside and the company entitled to a direction for the land, the barracks and the machinery, etc., being restored to the company, such a relief would perhaps be inappropriate in the peculiar circumstances of this case. The plant and machinery has been lying unused since 1970-71 and must have by now been reduced to sheer junk. If the machinery, etc., are ordered to be restored to the company, as the company has since been ordered to be wound up and is in the process of being wound up, it has no use for the machinery and plant and even if it is to be restored it would have to be disposed of. If would be in the interest of the company that instead of voiding the transaction, the company is ordered to be adequately compensated. As for the use of land and the barracks, the context is changed because the company is being wound up. The right to use the land and the barracks is no an assign able right. Here again, reasonable compensation could be ordered to be paid to the company and the sale of the entire estate, including the machinery, plant, etc., could be held to be valid subject to payment of adequate compensation to the company on account of the reasonable value of its right in the land and the barracks and reasonable value of the machinery, plant, etc., besides a reasonable return on the total amount that would have been given to the company, if the estate had been sold in accordance with law on a tripartite arrangement between Satbir Singh, the company and the Lakhanis.

17. An attempt was made to avoid the liability of Satbir Singh on both the counts, on the grounds that the license granted in favor of the company had been surrendered by the company and that in any event, the company had ratified all that Satbir Singh had done in relation to the estate and the factory. There is no substance in any of these contentions. The doctrine of ratification applies where an agent purports to act for the principal but without his authority or outside the terms of such an authority. Satbir Singh did not purport to act as an agent of the company in relation to the right of the company to the land and the barracks. There was, therefore, no question of ratification because it was an act of Satbir Singh in exercise of his own right as absolute owner of the property. True, Satbir Singh purported to act for the company in relation to the sale of machinery, plants, fittings and fixtures because he signed the receipt as its managing director and this was certainly outside his authority as director and, therefore, without the authority of the company. But, there was no ratification by the company, in fact or in law. The company never considered the matter in its general meeting or in its board meeting and never, therefore, ratified it. There was no ratification by the official liquidator either. Even the compromise entered into by Bugg and Inderbir Kaur did not purport to ratify the transaction. It merely sought to absolve the Lakhanis but not Satbir Singh. Moreover, Inderbir Kaur, by herself, could not act as the company more than Satbir Singh could do so. The act of Bugg in vacating the cottage or leaving the estate could not tantamount to a surrender by the company. He had no such authority from the company.

18. The claim for the recovery of Rs. 3 lakhs from Satbir Singh on account of additional allotment of 3,000 shares is, however, unsustainable. It was not disputed that on the material date, more than Rs. 3 lakhs was due from the company to Satbir Singh on account of funds advanced by him to the company from time to time. No exception could, therefore, be taken to the allotment to wipe off this liability. The allotment could neither be said to be fraudulent nor without consideration. Even if the allotment was described as being for cash, it would not make any material difference.

19. What remains to be considered is the quantification of the relief, the form it should take and the determination as to the person or persons who are liable to the company.

20. I have already expressed the view that, in the peculiar circumstances, no useful purpose would be served by pursuing the property or insisting on the restoration of it to the company. The interest of the company could be sufficiently protected if the company is adequately reimbursed. In quantifying the relief and determining its form, it would necessary to take into account a number of factors. One of the important factors would be the reasonable money value of the rights and interest of the company which have been affected. The other factor would be an assessment of the total liability of the company so that the interests of its creditors are fully protected. These are the two broad parameters which must be kept in mind. According to the last balance-sheet of the company, the plant and machinery had been valued at cost at Rs. 98,427 as on April 1,1970. The written down value of the plant and machinery by April, 1972, when it was sold, would be around Rs. 60,000 having regard to the fact that part of the machinery was acquired in 1966-67 and some additions to it were made thereafter. The balance-sheet puts the development expenditure on the orchard at about Rs. 50,000. A sum of Rs 1,10,000 would, therefore, be a fair estimate of the market value of the plant and machinery and the other rights and interests of the company when the estate was sold. Satbir Singh and Bugg are the only creditors of the company according to the balance-sheet and this is confirmed by the official liquidator. A minor amount of a few thousands is claimed by mother former employee. According to the balance-sheet, the claim of Bugg was put at Rs. 27,100 on account of salary and advances to the company. In the statement of affair Bugg claimed Rs. 66,000 on account of arrears of salary and a sum of Rs. 39,500 on account of advances made to the company. These two amounts apparently include Rs. 27,100 which is reflected in the balance-sheet. Out of the outstanding credit of Satbir Singh, a sum of Rs. 3 lakhs has already been wiped off on account of additional allotment of shares in 1971. It was, however, claimed that Satbir Singh had made further advances to the company and that is how he had sought to justify the appropriation of Rs. 50,000, received from the Lakhanis on behalf of the company. The claims of Bugg as a creditor of the company, as indeed, of the other creditors of the company, including Satbir Singh have, however, yet to be determined even though prima facie the claim, in so far as it is reflected in the last balance-sheet, could not be disputed.

21. While it would be legitimate to ignore for the purpose of the determination of the rights and obligations between the company and Satbir Singh inter se, some of the factors such as, who promoted the company, its composition, the source of its funds and the relationship between the different members and between the members and the creditors of the company, these factors, as indeed, other relevant factors, could not possibly be more in the determination of the question as to the relief and the relief must, therefore, be moderated having regard to all these, as indeed, other considerations. Satbir Singh was the promoter of the company and even though a nominal shareholding stands in the name of Inderbir Kaur, all the funds, including almost the entire issued capital is the exclusive contribution of Satbir Singh. He is, perhaps, still the largest creditor of the company. He had generously allowed the company to use the land, the barracks and the Rosary Cottage even partly for his own benefit and perhaps partly, if not incidentally, to provide work and an honoured place for his erstwhile father-in-law. No consideration was asked for by him for the license given to the company. Bugg, who was certainly a beneficiary in the process, is the only other creditor apart from a few thousand rupees claimed by certain other employees. The claim of Inderbir Kaur as a contributory on the realization of the assets was not seriously canvassed and the whole contest has been with a view to ensure the payment of the claim of Bugg. In the totality of all these circumstances, it would be fair and reasonable if the liability of restoration and reimbursement to the hoisted on Satbir Singh is confined to such claims as may be settled by the official liquidator in appropriate proceedings. Another factor which is important is that even though Satbir Singh claims to be the creditor of the company, he has admittedly received Rs. 50,000 on behalf of the company which he is bound to restore immediately even though he may be required to furnish adequate security with regard to the payment of the balance that may be sufficient to cover all the claims of the creditors, other than Satbir Singh himself.

22. The liability of Satbir Singh to the company is beyond doubt. No doubt, he was the promoter of the company and the only source of its funds. It is also true that he allowed use of a part of the estate to the company without any valuable consideration and would perhaps be a creditor of the company. It is also true that, but for the matrimonial disharmony, the affairs of the company would perhaps never have been exposed to judicial scrutiny. It is, however, difficult to ignore that by his wrongful action Satbir Singh deprived the company of its valuable rights and its property was disposed of without any authority thereby causing damage to its interests. He admittedly received Rs. 50,000 from the Lakhanis and without any authority from the company appropriated it towards payment of his own dues. Even if he was a creditor of the company, he had no right to appropriate the amount to himself. In a winding-up, he would only be entitled to be dealt with along with the other creditors of the company, if any. He is accountable for this amount to the company. He appears to have made no distinction between his property and that of the company and forgot that he was not the company. The amount had to go into the accounts of the company and he had to prove his claim against the company before the official liquidator in the same way in which the claims of other creditors would have to be proved.

23. As for the Lakhanis, they are, no doubt, outside the purview of ss. 542 and 543, but having regard to the finding that the transactions were void, they would be within the terms of ss 531, 531A and 456. No doubt, they were exonerated by Inderbir Kaur and Bugg in the compromise on the ground that they were bona fide purchasers without notice but that does not bind the company or the official liquidator. They obviously knew of the involvement of the company and that is implicit in the sale deed itself because part of the consideration was executed by Satbir Singh as managing director of the company. If they had carried out appropriate investigations, they would have discovered for themselves that the balance-sheet of the company listed the factory and the orchard among its assets and had, therefore, some right or interest in the estate apart form exclusive ownership of the factory. If they did not carry out these investigations, they dealt with Satbir Singh at their own risk, if they had carried out these investigations, they cannot turn round to say that they were bona fide purchasers. True, the company was a family company promoted by Satbir Singh but even so they could have asked for a resolution of the board authorising Satbir Singh to dispose of the property of the company. If they did not know of any matrimonial disharmony, they would have known that such a resolution was the easiest course to follow. If they had known of the matrimonial disharmony, they were certainly conniving with Satbir Singh in the way the property was sold. The manner in which the payment of Rs. 50,000 was made to Satbir Singh confirms the suspicion. The receipt was executed on behalf of the company, but the payment was made by a bank pay order which was endorsed in favor of Satbir Singh. There was no explanation why the payment was not made in the usual manner by a bank draft in favor of the company. They appear to have been anxious to facilitate the task of Satbir Singh in appropriating the funds to himself either towards repayment of his outstanding credit or otherwise. It is, no doubt, true that they have suffered enough because the further disposal of the estate has remained held up all these years, during the pendency of these proceedings. But they cannot escape at least part of the blame.

24. As for the apportionment of liability between Satbir Singh and the Lakhanis, it is obvious that the primary liability is that of Satbir Singh, both on account of damage caused to the company and as to the accountability of money received by him on behalf of the company. The Lakhanis have paid a substantial amount to Satbir Singh for the estate and the machinery, even though the manner in which the payment of Rs. 50,000 was made did not give them a valid discharge from the company. Their liability cannot, therefore, be co-extensive with Satbir Singh, even though they hold a valuable property which can more easily be proceeded against. Their liability cannot, however, reasonably exceed the sum of Rs. 50,000 which they ought to have paid to the company, and since that amount has been paid to Satbir Singh, their liability should arise only if Satbir Singh fails to reimburse the company. The liability of Satbir Singh would, how ever, be to the extent of the total claim of the creditors of the value of the property, whichever is less.

25. Having regard to all the circumstances, I would make the following directions :

(a) Satbir Singh is accountable to the company to the extent of Rs 1,10,000 besides on the amount 10 per cent. per annum from April 1, 1972, till the date of payment, of the amount at which the claim of creditors, other than Satbir Singh, may be settled by the official liquidator, whichever of the two is the lesser;

(b) Satbir Singh would pay to the company within four weeks, sum of Rs. 50,000 received by him from the Lakhanis on behalf of the company. The balance amount would be paid by Satbir Singh, within four weeks of a requisition by the official liquidator after the claims have been settled;

(c) In case the claim of the creditors is settled at an amount which is less than Rs. 50,000, SATBIR Singh would be entitled to a refund of the balance;

(d) Satbir Singh would furnish within four weeks a security to the satisfaction of the Joint Registrar (Appellate) to the effect that he would make the payment of the balance on a requisition from the official liquidator.

(e) The lakhanis would be entitled to deal with the estate, including the machinery, fixtures and fittings, purchased by them by the sale deed, subject, however, to the payment of Rs. 50,000 by Satbir Singh in terms of direction (b) above. If Satbir Singh fails to make the payment it would be open to the Lakhanis to make the payment, in which even the Lakhanis would be entitled to claim the amount from Satbir Singh.

(f) The claims of the creditors of the company, including Bugg, account of arrears of salary and in the loan account, would be settled the official liquidator in accordance with law within three months.

26. C.A. No. 138/75 and C.A.No. 583/79 are disposed of in those term C.A.No. 111/77 does not survive and is dismissed. Satbir Singh would a pay the costs of the proceedings. Counsel's fee is assessed at Rs. 1,000.