Sh. Satbir Singh vs Major S.C. Bugg And Ors.
2002 Latest Caselaw 1120 Del

JUDGMENT

A.K. Sikari, J.

1. This appeal is directed against the judgment dated 13th November, 1980 passed by the learned Company Judge in CA No. 138/78. The learned Company Judge has, in the aforesaid judgment, narrated the facts in substantial details, and therefore, it may not be necessary to repeat the same all over again. To understand the controversy, only material facts may be noted.

2. The appellant, Sh. Satbir Singh, a former ruler of the erstwhile State of Jind and the respondent No. 2 Smt. Inder Bir Kaur were husband and wife. The appellant had an estate at Bhimtal near Nainital. The estate comprised of a villa, a Site Bungalow called Rosery Cottage, Barracks and about 7 acres of land. The appellant and his wife Inder Bir Kaur formed the respondent No. 3 company, called Rajbir Industrial Farms (Pvt.) Limited. As it was a husband and wife company and they were to be the beneficiaries in the event of success of the enterprise, the appellant gave license of 7 acres land for development of orchard and the barracks for setting up the factory and Rosery cottage for being used by the Manager of the company who was called Administrator. Major S.C. Bugg who was the father of Smt. Inder Bir Kaur and father-in-law of the appellant was appointed as the Administrator and he was to use the Rosery Cottage for his residence as the Administrator. The object of the company was to develop an orchard in the said 7 acres of land and to set up a canning factory in the barracks by adjusting the barracks as a factory building and installing and running machinery.

3. It is in the balance sheet and Director's report that the factory was set up and orchard was planted and grown to maturity. There were matrimonial disputes between the husband and the wife. A winding up petition was filed by Smt. Inder Bir Kaur and the company was ordered to be wound up. The appellant, during the pendency of the winding up petition, sold the entire estate comprising of the Villa, Rosery Cottage, Barracks, factory and 7 acres of orchard land to Lakhanis (Sh. Mohan S. Lakhani and his wife Smt. Sati S. Lakhani) being respondents 4 and 5.

4. Subsequently, Smt. Inder Bir Kaur and Major S.C. Bugg filed a petition under Sections 542, 543, 531 and 531-B of the Companies Act being CA No. 138/78 for setting aside the sale made on 15th April, 1972 and other reliefs.

5. While disposing of this application by reason of impugned judgment, the learned Company Judge gave the following directions:

(a) Satbir Singh is accountable to the company to the extent of Rs. 1,10,000/- besides interest on the amount at 10% p.a. from April 1, 1972, till the date of payment or the amount at which the claim of creditors, other than Satbir Singh, may be settled by the official Liquidator, whichever of the two is lesser;

(b) Satbir Singh would pay to the company within 4 weeks a sum of Rs. 50,000/- received by him from Lakhanis on behalf of the company. The balance amount would be paid by Satbir Singh within 4 weeks of 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 refund of balance;

(d) Satbir Singh would furnish within 4 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) Lakhanis would be entitled to deal with the Estate including the machinery, fixtures and fittings purchased both by the sale deed, subject however to be 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 Lakhanis to make the payment in which event, Lakhanis would be entitled to claim the amount from Satbir Singh;

(f) The claims of the creditors of the company including Bugg, on account of arrears or so in the loan account would be settled by the Official Liquidator in accordance with law within 3 months.

6. It may be noted at the outset that under Section 543 of the Companies Act, such an application as filed by the respondent No. 1 herein before the learned Company Judge, i.e. CA No. 138/78 can be filed by the Official Liquidator as well as any creditor or contributory (shareholders) of the company. The Official Liquidator had also moved an application which was registered as CA No. 583/79 mention to which is made in the very first paragraph and the reading of the impugned order clearly indicates that this application is also decided Along with CA No. 138/78 and it is also specifically mentioned in the last paragraph of the impugned order.

7. It appears that no appeal is filed against CA No. 583/79. In view thereof, learned counsel for respondents 1 and 2 raised a preliminary objection by submitting that the result of not filling an appeal in the application of the Official Liquidator would be that some directions of the learned Company Judge in CA No. 583/79 have become final and thus the present appeal would be inconsequential and appellant would not be entitled to challenge the order even in CA No. 138/78. There appears to be some before in this argument of Mr. P.C. Khanna, learned senior counsel appearing for respondents 1 and 2. Nonetheless, as appeal is filed against the same directions in CA No. 138/78 which was admitted in the year 1981 and since we heard the matter on merits in detail, we deem it proper to dispose of this appeal on merits as well.

8. Mr. Sanjiv Anand, learned counsel appearing for the appellant made the following submissions challenging the impugned order.

9. a) The entire estate was owned by the appellant who incorporated the company in question in the year 1964. It was given as irrevocable license in respect of property in question under the Easement Act. In the impugned order, the learned company Judge has not set aside the entire sale. No license was granted by the appellant to the company and no improvement was made. In fact no structure have came up. No building erected and no work of permanent nature executed. In view thereof finding to the effect that the appellant was accountable to the company to the extent of Rs. 1,10,000/- besides interest was uncalled for and directions for payment could not be made.

10. b) Challenging the direction of payment of Rs. 50,000/- by the appellant to the company, it was submitted that the learned Company Judge ignored the fact that the machinery in question remained with the respondents 4 and 5 who should have been held liable for making this payment and not the appellant. It was further submitted that no compensation was payable when no consideration, having regard to the provisions of Sections 60 & 64 of the Easement Act.

11. c) It was further contended that even the case of the respondents was that the company had been transferred. Thus, there was no question of any license coming into existence.

12. d) The learned counsel further submitted that findings of the learned Company Judge at page 21 of the impugned order to the effect that the respondent No. 1 was in possession of the cottage as employee of the company was clearly fallacious as there was no evidence to support this finding.

e) Since 1971, there was deadlock in the company and thus no possibility of revival, and therefore, there was no loss suffered by the company and on this ground also the learned Company Judge should not have made any direction for payment of the amount.

13. f) Challenging the manner in which the directions were made in penultimate para of the impugned order, it was submitted that although the direction given in para (f) stipulated that claims of the creditors of the company would be settled by the Official Liquidator, when the Official Liquidator was yet to go into that exercise in the first instance, there could not be a direction to the appellant to pay the amount as contained in paras (a) & (b).

14. Mr. P.C. Khanna, learned senior counsel appearing for the respondents 1 and 2, on the other hand, relying heavily on the reasonings given by the learned Company Judge in the impugned order submitted that the arguments of the appellant were contrary to record and founded on wrong and factually incorrect premise. He referred to various passages from the impugned order as well as provisions of law to buttress his submission that the directions given by the learned Company Judge were equitable and just as well as in accordance with law.

15. After considering the submissions of both the counsel and perusing the record, we are inclined to accept the submissions of learned senior counsel for respondents 1 and 2 and in view of this, we do not find any merit in this appeal.

16. It may be seen in the first instance that the learned Company Judge has observed in the impugned order that:

"In reply to the Application C.A. No. 138/75 Shri Satbir Singh has admitted that he 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 consisted of machinery, plant, fixtures and fittings belonged to the company..."

17. In view of the aforesaid findings recorded on the basis of undisputed facts, it does not lie in the mouth of the appellant now to contend that there was no license granted by the appellant or that there was no structure of permanent nature existing. The learned Company Judge has, after discussing the material on record in great extenso, arrived at a finding of fact that the appellant had in fact granted the license and there is no reason to upset this finding. The learned Company Judge has observed that additions and alterations were made in the barracks to make it suitable for factory and similarly the orchard was developed by years of work on it. To quote the learned Company Judge:

"It is difficult to resist the conclusion that Satbir Singh had granted a license to the company to develop an orchard on the land and to set up a canning factory in the out-house and that pursuant to it, the company entered upon the land and the building and some work of development of orchard and installation of 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...would not make any difference to the relationship between the Corporation Body on the one hand and Satbir Singh on the other in relation to the Estate."

18. Section 64 of the Easement Act provides:

"The grant of license may be express or implied from the conduct of the grantor."

19. Further, Section 60(b) of the Easement Act stipulates that a license may be revoked by the guarantor unless the licensee acting upon the license has executed a work of permanent character and incurred expenses in the execution. In the present case, the factory was set up and expenses were incurred in the process by conversion of the building and by installation of machinery etc. and it can be termed as a work of permanent character.

20. Dealing with the contention of the appellant before the learned Company Judge to the effect that no expenditure was incurred other than salary paid on the farm workers, the learned company Judge observed:

"It is true that the substantial part of the expenditure on the development of the orchard is capitalisation 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 any difference. That is part of the input in the development of an orchard and the orchard in fact was 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 in the balance sheet as well as the Director's report."

21. The learned Company Judge had even relied upon the balance sheet and profits and loss account in support of its finding and relevant portion of the judgment to this effect is in the following terms:

"According to the Balance Sheet and Profit & Loss Account for the year 69-70 the fixed assets of the company were valued at a little over Rs. 1 lakh and composed of Rs. 98427/- on account of plant and machinery; Rs. 2571/- on account of electric installations and Rs. 992.72 on account of furniture and fixture."

22. It is clear from the impugned order that total expenses on fixed assets incurred by the company, acting upon the license granted by the appellant was, Rs. 98,427/-. The learned Company Judge has reduced this amount to Rs. 60,000/- after allowing depreciation to the tune of Rs. 38,427/-. The learned Company Judge has further found from the balance sheet that the development expenditure on orchard was Rs. 50,000/-. It is in this manner that the figure of Rs. 1,10,000/- was arrived at and because of this reason the learned Company Judge recorded the finding in paragraph 25 (a) of the impugned order that the appellant was accountable to the company to the extent of Rs. 1,10,000/-. Inspite thereof, the learned Company Judge has still not held that this finding was conclusive and left the matter to the Official Liquidator as is clear from the directions contained in para 25 (a) & (f). It is, thus, clear that in so far as amount of Rs. 1,10,000/- is concerned, since this was found to be payable by the appellant on the basis of material produced before the learned Company Judge, in order to secure this amount to the company, direction for payment of this amount by the appellant to the company was made. We do not find any error in these directions given in aforesaid circumstances. The learned company Judge, in order to do complete justice in the matter, had discretion to give such directions and sitting in appeal, it would not be proper or appropriate in the facts and circumstances of this case to interfere with the said discretion when the matter is still at large and is to be finally decided by the Official Liquidator.

23. We also do not agree with the contention of the appellant that there was no consideration for license and compensation is not payable if there was no consideration. In this context, we find force in the following submissions made by the learned senior counsel for respondents 1 and 2 viz. Firstly, no consideration is required in a license. Secondly, there was no question of payment of compensation.

24. The question was whether Sh. Satbir Singh, who terminated the license was, in view of the bar imposed by Clause (b) of Section 60 of the Easement Act (which provides that the license could not be terminated where the licensee acting upon the license has executed a work of permanent character and incurred expense in the execution), liable to the company. The learned Company Judge was entitled to cancel the contract under Section 542 and 543 of the Companies Act, as also under Section 531 and 531-A of the said Companies Act. However, the learned Company Judge instead of cancelling the agreement of sale by Sh. Satbir Singh with the Lakhanis only directed Sh. Satbir Singh to pay compensation equivalent to the claims of the creditors, not exceeding Rs. 1,10,000/- with interest at the rate of 10 per cent from the date of winding up. The liability under Section 60(b) is of the licensor. Sh. Satbir Singh, besides being licensor was director of company. Therefore, liability against him could be enforced instead of filing a suit under Section 452 ands 543 of the Companies Act. The learned Company Judge had the additional power under Section 531-A to cancel the transaction as the company had been ordered to be wound up.

25. The contention of the appellant to the effect that a license is a matter of contract and there was no contract in this case as there was no license is equally misconceived in view of the provisions of Section 52 as well as Section 54 of the Easement Act which are to the following effect:

"Section 52: Where one person grants to an another, or to a definite number of other persons, a right to do or continue to do, in or upon the immovable property of the grantor, something which would, in the absence of such right, be unlawful, and such right does not amount to an easement or an interest in the property, the right is called a license.

Section 54: The grant of a license may be express or implied from the conduct of the grantor, and an agreement which purports to create an easement, but is ineffectual for the purpose, may operate to create a license."

26. Thus, the license may be inferred even from the conduct of the grantor.

27. The contention of the appellant regarding no enquiry of Official Liquidator and no material on record for arriving at a finding is also misplaced inasmuch as already noted above, even the Official Liquidator had filed CA No. 583/79 pointing out the same facts and bringing the material on record.

28. The contention of the appellant that Major Bugg was not being paid any salary is defied by the Balance Sheet of the company as Major Bugg's salary was being shown therein as Rs. 27,100/- while he was claiming Rs. 39,500/-. The claim for advance given by him was Rs. 66,000/-. The relevant portion of the impugned judgment on this aspect is as under:

"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 affidavit 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. There two amounts apparently included Rs. 27,100/- which is reflected in the Balance sheet."

29. The learned senior counsel also submitted that it cannot be said that the amount shown in the balance sheet was towards advances which the appellant had made. to the company. The Official Liquidator has to determine this question. Out of Rs. 1,10,000/- Sh. Satbir Singh had received Rs. 50,000/- from Lakhani for the machinery and his real liability is only Rs. 60,000/- out of total amount of Rs. 1,10,000/-.

30. It is trite now that a company incorporated under the Indian Companies Act is a district entity separate from its members, , The Tata Engineering and Locomotive Co. Ltd. v. The State of Bihar and Ors. 2. (1998) 93 Company Cases 201 (Del.), H.C. Shastri v. Dolphin Canpack (P) Ltd. and Ors. and 3. (1984) 55 Company Cases 737 (Cal.), Purna Investment Ltd. v. Bank of India Ltd. and Ors.

31. Thus, we do not find any merit in this appeal which is dismissed accordingly with costs.

32. Counsel's fee is fixed at Rs. 5,000/-.