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/-.