In Re A.R.N. Narayanan Chettiar

The Link Industries Ltd., a public limited Company incorporated in 1946, was ordered to be wound up. on 8th February, 1956. In 1947,

however, it was a going concern. On 13th August, 1947, the company issued 50,000 shares of the nominal value of Rs. 10 each, and,

Ramanathan Chettiar, the applicant herein, took up 36,555 shares on each of which he paid Rs. 5. At this time the Link Industries Ltd. was being

managed by another limited liability company called Factors Ltd., of which A. C. K. Krishnaswami was managing director.

The case of the Applicant is-here I quote from Ex. P. 1 the letter which the applicant wrote to A. O. K. Krishnaswami on 15th April, 1949 -

that at the time he took up these shares,''

it was expressly understood and agreed to that in the event of my taking the bulk of the shares on account of the non-subscription from the public,

the shares will be Rs. 5 paid up only till such time as I am able to unload the 3/4 of my holding in the market at a little profit. The other day when

you were kind enough to call on me the subject camp up for discussion and I told you about the position.

This letter, it may be explained, was written by Ramanathan Chettiar to Krishnaswami in view of a notice dated 12th April, 1949 calling for a

meeting of the Board of Directors to consider among other things ""the question of making a second call of Rs. 2-8-0 on the 58,000 partly paid up

shares.

On 18th April, 1949 Krishnaswami replied to Ramanathan Chettiar by Ex. P. 3, in which he stated.

The subject has been included in the agenda only for consideration. I hope to meet you here before the meeting and if you insist after discussing

with me, I shall withdraw the subject from the agenda.

On 21st April, 1949 the applicant wrote to Krishnaswami, Ex. P. 4, expressing his inability to attend the meeting and asking that this subject be

deleted from the agenda. Ex. P. 5, an extract from the proceedings of the meeting of the Board of Directors of the Link Industries held on 23rd

April, 1949 reads as follows :

To consider the question of making a second call of Rs. 2-8-0 on the 50,000 partly paid up shares - Deferred for the present.

On 27th July, 1949 the Link Industries Ltd. executed a mortgage, Ex. P. 10, in favour of the Industrial Finance Corporation of India in order to

secure an advance of Rs. 5,00,000, To the significance of some of the terms of document I shall refer later. But, at this stage, it is sufficient to say

that it purports to be an English mortgage, and,

assigns unto the Corporation all the right of the company to receive the balance of Rs. 5 (Rs. Five) per share remaining uncalled upon the said

shares that have been issued by the company when the same shall be called up either by the Directors in the exercise of their powers or by any

liquidator of the company in the event of the same being wound up.

Sometime after this document was executed (the exact date was not mentioned to me) the managing agency was transferred to a new firm called

Goenka and Khaitan On 29th April, 1953 Khaitan wrote to the applicant as follow :

In accordance with the resolution of the Board of Directors dated the 15th April, 1953, we hereby give you notice that the balance of Rs. 5

payable on above shares is being called up in the manner given below :

First call of Rs. 2-8-0 to be paid on or before the 3lst May, 1953; and, the Second and final call of Rs. 2-8-0 to be paid on or before the 30th

June, 1953. Please remit the amount payable by you, i.e., Rs. 1,82,755 (Rs. one lakh, eighty two thousand, seven hundred and fifty five only) in

respect of 36,555 (thirty six thousand five hundred and fifty five only) shares held by you by cheque or demand draft payable in Madras or by

cash.

It appears from Ex. p. 7 that the applicant had a discussion on the subject with the new managing agents and that they agreed to cancel the

notice of call which had been issued and take up the question two years later. On 27th May, 1953 the applicant wrote Ex. P. 8 to the new

managing agents informing them that in view of Ex. P. 7 he was not making any payment. However, on 1st February, 1954 the company wrote Ex.

P. 9 to the applicant drawing his attention to the notice Ex. P. 6 which had been issued on 29th April 1953 and informing him that under the terms

of the mortgage deed executed in favour of the Industrial Finance Corporation, the Corporation had a charge on the unpaid money and that the

Corporation had written on 30th January 1954 calling upon the company to take all steps to recover all moneys from the shareholders. After

stating that the sum due from the applicant was Rs. 1,82,775, he was called upon to make immediate arrangements for the payment of this money

together with interest at six per cent. On 24/25th April, 1953 the Industrial Finance Corporation of India wrote to the Link Industries Ltd., drawing

their attention to certain clauses of the deed of mortgage and asking them to ""open a separate account with your, bankers in the joint name of the

company and the Corporation and deposit all call money in that account. The joint account will be operated by the Madras Manager of the

Corporation on behalf of the Corporation."" As already stated, the order to wind up the company was made on 8th February 1956. On 29th June,

1956 the. Corporation wrote Ex. P. 14 to the Official Liquidator informing him that

we have an English mortgage over all the freehold lands, buildings, engines, plant, machinery and all other assets and uncalled capital of the

company for the total amount due to us and particularly under clauses (a) (xii) and (xiii) of the said deed, the right of the company to receive the

balance of Rs. 5 per share remaining uncalled upon the shares of the company that have been issued, has been assigned in our favour.

We are a secured creditor of the company and are staying cut of the winding up. In view of the terms of the mortgage deed mentioned above, we

are exclusively entitled to the calls in arrears due from the contributories and hence request you to please pay to us all the amount of. the calls in

arrears that you recover from the contributories.

We thank you in anticipation and assure you of our best-co-operation in this behalf.

On 14th June 1956, that is to say, some 15 days before the date of Ex. P. 14, the Official Liquidator had passed an order settling and

confirming the list of contributories that he had prepared and overruling the objection of Ramanathan Chettiar the applicant. In paragraph 6 of his

order he observed :

In the circumstances, I held that A. C. K. Krishnaswami, the Managing Director of the company did, not give any undertaking to treat the 36,555

shares held by Ramanathan Chettiar as fully paid up, and, at any rate, there cannot be such an undertaking given by him for the shares were issued

only as partly paid up. Further the Managing Director has no power to give such undertaking and even if any such undertaking was given it cannot

bind the company. There was also no denial of liability on the part of AR. R.M. Ramanathan Chettiar to pay the unpaid share capital. He is

therefore, liable to pay the sum of Rs. 1,82,175 the unpaid share capital in respect of these Partly paid shares. His name will, therefore, be

included in the filial list of contributories according to the provisional list.

The present application has been taken, out by Ramanathan Chettiar for removing his name from the list of contributories as settled by the

Official Liquidator.

Mr. Thyagarajan, the learned advocate for he applicant, raised in the main three points. The first was that when Ramanathan Chettiar took up

the shares he was given the most explicit assurance that he would not be called upon to pay the balance of the money on those shares till he was

able to sell about 3/4 of his holdings in the market, and, that the Official Liquidator is bound by these assurances. He also remarked that the

Industrial Finance Corporation had also notice of this fact because in paragraph 2 of Ex. P. 1, a letter written by the managing agents of the Link

Industries Ltd. to the Industrial Finance Corporation, it is stated :

When we requested the Corporation to help us with finance, we bad already tried to float an issue of shares in the market and had not met with

success. As yen are aware the issue had to be taken up by softie of our directors, and they could do so then only if we agreed not to make the

shares fully paid up.

The probabilities of the matter are that A. C. K. Krishnaswami did give some assurance of the kind which the applicant pleads, but, in view of

the conclusion I have reached on the other parts of'' Mr. Thiagarajan''s arguments it is unnecessary for me to decide how far this assurance is

binding on the company or the liquidator or the Industrial Finance Corporation.

The second contention of Mr. Thiagarajan was this. In the present case what the Official Liquidator is seeking to do is to recover from the

applicant the money which had been called up by the directors. He purports to act under S. 186 of the Indian Companies Act, VII of 1913. But S.

136 explicitly excludes ""any money payable by him (contributory) for the time being settled on the list of contributories or the estate by virtue of

any call in pursuance of this Act."" Under this section the only moneys that can be collected from a, member are the debts due from him excluding

call moneys. So far as call moneys are concerned, once a winding up has supervened the procedure prescribed by S. 187 must be followed.

Under that section the Court is given power to make a call when it considers that it Is necessary to do so in order to satisfy the debts and liabilities

of the company and expenses of the winding up and for adjusting the rights of the contributories among themselves. To support his argument Mr.

Thiagarajan relied in the main on the language of the statute itself which runs as follows:

Section 166 (1): The Court may, at any time after making a winding up order, make an order on any contributory for the time being settled on the

list of contributories to pay, in manner directed by the order, any money due from him or from the estate of the person whom he represents to the

company ''exclusive of any money payable by him or the estate by virtue of any call in pursuance of this Act.

He emphasised the words that have been underlined (here into '' '') and explained that they exclude moneys payable by virtue of calls made under

the Act.

He then referred to the decision of the Privy Council in Abdullah Ashgar Ali v. Ganesh Das, AIR (20) 1933 PC 63 . At p. 1073 (of ILR All):

(at p. 65 of AIR), their Lordships observed as

follows:

Now, in considering the meaning and effect of S. 186, ''it is impossible to overlook the fact that it is verbatim identical with the corresponding

section in the legislation of this country, a section which dates back some 70 years to 1862, and which has appeared in our company legislation

ever since. It is therefore, a section with an ancestral history. Three features of the section call for notice:

(1) It is concerned only with moneys due from a contributory, other than money payable by virtue of a call in pursuance of the Act. A debtor who

is not a contributory is untouched by it Moneys due from him are recoverable only by suit in the company''s name.

(2) It is a section which creates a special procedure for obtaining payment of moneys; it is not a. section which purports to create a foundation

upon which to base a claim for payment.

It creates no new rights.

(3) The power of the court to order payment is discretionary. It may refuse to act under the section, leaving the liquidator to sue in the name of the

company, and it will readily take that course in any case in which it is made apparent that the respondent under this procedure, if continued, would

be deprived of some defence or answer open to him in a suit for the same moneys.

It will be noticed that in this elucidation of the section their Lordships say that the money recoverable must be moneys other than those payable by

virtue of a call in pursuance of this Act.

The reply of the Official Liquidator to this objection of Mr. Thiagarajan may be summarised more or less in this way. When before the winding

up supervenes the directors of a company make a call on unpaid capital it is a call made by virtue of the articles of association of the company,

and, not a call made in pursuance of the Act; and so, it is not covered by the words of exclusion appearing at the end of sub-s. (1) of S. 186.

Moneys payable in pursuance of such a call are contractual debts and all contractual debts due from a contributory are recoverable, under S. 186

of the Act.

On a proper construction of Ss. 186 and 187, it must be held that all that is excluded by the last words of S. 186 (1) are moneys payable by virtue

of a call made under S. 187 of the Act. To hold otherwise would produce this anomaly; a member who paid up promptly would be placed in a

more unfavourable position than a recalcitrant member who refused to honour his obligations and pay up. The member in default may be able to

plead limitation when proceeded against by way of a suit or he may be able to say when proceeded against under S. 187 that there is no need to

make a call.

I see several difficulties in this reasoning of the learned Official Liquidator. The articles of association of a company are binding on members not

because they have signed those articles - in fact members may not have even seen them - but by virtue of S. 21 of the Act, the first sub-section of

which runs as follows:

21 (1) The memorandum and articles shall, when registered, bind the company and the members thereof to the same extent as if they respectively

had been signed by each member, and contained a covenant on the part of each member, his heirs, and legal representatives, to observe all the

provisions of the memorandum and of the articles, subject to the provisions of this Act.

Sub-section (2) explicitly enacts:

All money payable by any member to the company under the memorandum or articles shall be a debt due from him to the company.

To say as the Official Liquidator appeared to do, that something done under the articles is not a thing done in pursuance of the Act is analogous to

saying that what hangs from a bough does not hang from the tree. The liability to nay the unpaid part of the share capital is created by the Act itself.

Only this: the time and stage of the call and the quantum of the call are left to be decided by the directors when the company is going and by the

court when the company is being wound up. It is no doubt true that when la call has been made by the directors the liability to pay has been held to

he a contractual debt to recover which an action can be brought, But for that reason it does not cease to he money payable by virtue of a call

made under the Act.

If a share-holder who is called upon to pay what the Official Liquidator described as a contractual debt were to enquire why he is bound to pay,

the only answer that can be given to him is, that he is a member of the company, that a call has been made and that it is a call which the directors

have a right to make under the Act. The anomaly indicated by the Official Liquidator is more apparent than real. Of course in some instances the

law of limitation favours the elusive debtor. If he can dodge and evade payment till limitation has actually set in and barred the remedy against him

he would be better off than if he had paid when payment fell due. S. 186 (1) does not create any special anomaly so far as that aspect of the

matter is concerned. Besides money cannot be recovered under S. 186 of the Act when an action for it would he barred.

It must be further borne in mind that even though a right of suit against a defaulting contributory on whom a call has been made by the directors has

become time barred, his statutory liability is not extinguished and can in proper cases be enforced under S. 187 of the Act. It ft no doubt true that

under that section the court has to he satisfied that it is necessary to make a call. But then, one is entitled to proceed on the assumption that

ordinarily the court would act in a reasonable and just manner. It will not therefore refuse to exercise its power in a proper case, and, under S. 187

(1) the court has power to enforce the reserve liability of a share-holder by ordering him to make payments for the adjustment of the rights of the

contributories among themselves.

If it finds that some contributories have paid more and others have paid less than they should properly have done, the court has power to require

those who have paid less to pay more so as to make the burden on all equal. The section is wide enough to enable a court to issue a direction even

to a single contributory. The apprehension voiced by the Official Liquidator that the contention of Mr. Thyagarajan would lead to anomalies

appears to me to be groundless.

12a. I shall now examine some of the decisions which the learned Official Liquidator cited. Jagannath Prasad Vs. The U.P. Flour and Oil Mills

Company Limited, , is a case decided under the Companies Act of 1883. The facts there were as follows: The U. P. Flour and Oil Mills Co., was

started in 1904 with 2000 shares of Rs. 50 each. Jagannath Prasad applied for and was allotted 25 shares and he paid Rs. 10 per share.

Subsequently the company made further calls for the balance of the share money which he did not pay. Suits for the recovery of the unpaid calls

had become barred sometime before 1913. In 1913 the Company was ordered to be wound up on a creditor''s application and a liquidator was

duly appointed. A list of contributories was prepared and the name of Jagannath Prasad was entered in that list without any objection on his part

and the amount of his liability was stated there to be Rs. 1000/-. When called upon by the court at the instance of the liquidator to pay that sum

into court Jagannath Prasad raised, inter alia, an objection that the claim was time-barred. The District Judge overruled the objection. Jagannath

Prasad appealed to the High Court and the appeal was dismissed.

At first sight this decision would seem to support the contention of the Official Liquidator. But, when we read through the decision it will he

seen that what the learned Judges effaced on Jagannath Prasad was his liability to pay under S. 151 of the Act which corresponds to S. 187 of the

Act of 1913. It has been held that a claim for the recovery of which a suit is barred cannot be collected under S. 186 of the Indian Companies

Act. The learned'' Judges in the Allahabad case could not therefore have intended to make an order for payment under S. 150 of the Act of 1832

which corresponds to S. 186 of the Act of 1913. Actually they seem to have rested their decision on S. 151, and, if that is so, this decision will not

help the Official Liquidator at all. I quote the relevant passage:

But the Act says that for the purpose of recovery the amount shall be deemed to be a debt payable at the time or respective times when calls are

made, the S. 151 gives a court, power to make calls from persons on the list of contributories for the amount for which they are shown as liable in

the list prepared by the liquidator; so that really it is not even the right of a company which is being enforced by a liquidator. It is a statutory right of

the creditors of a company to enforce against the contributories of an insolvent company through the court the obligation which the share-holders

took upon themselves when they originally subscribed in the event of insolvency subsequently overtaking the company. (Page 350).

The passage in Abdullah Ashgar Ali v. Ganesh Das, AIR (20) 1933 PC 63 , which explains S. 186 of the Companies Act has already been

quoted. When the facts of that case are examined it will be found that no question arose thereof requiring a contributory to pay a call under the

Act. The suit was for a debt due from a member to the company and what the Privy Council decided was this:

The Court has not power under S. 186 (1) of the Indian Companies Act, 1913, to order a contributory in a winding up to pay a debt the recovery

of which by a suit in the name of the company would have been barred by limitation had it been instituted at the date of the application to the court.

In these circumstances the debt is not ""money due"" within the meaning of the section; the section leaves open every defence which would have

been open in a suit by the company.

J.C. Chandiok, Liquidator of Public Benefit Provident Insurance Society Ltd. Vs. Pearey Lal and others , is a case directly in point and supports

the view of the Official Liquidator. That was a case in which a company falling under the definition of a provident society in S. 65 of the Insurance

Act, went into voluntary liquidation and the liquidator appointed by the Superintendent of insurance sought to collect calls which had been made by

the directors but which remained unpaid. Some of the respondents raised the point that it was unnecessary to make a call. On page 33 (of ILR

All): (at p. 138 of AIR), the learned Judge observed:

They all raise the same point, which I understand to be this. They say that, if the matter be inquired into, it will be found that the liquidator has no

occasion to levy these sums from them because, to put it shortly, he has over-estimated the liabilities of the company. To my mind, that is a wholly

irrelevant argument as far as this application is concerned. A call, once it, has been validly made by the Directors prior to liquidation and once the

date for its payment has passed, becomes a debt due from the share-holder to the company and is indistinguishable from any other debt.

When subsequently the company goes into liquidation, that debt, or those debts, become assets of the company which have to be realised by the

liquidator. They have lost their character as calls and have become debts and, as such, are realisable by the liquidator just as any other debt or

asset is realised. This Court is not in the least concerned with what he wants it for, and, in my view, this court has not even any jurisdiction to ask

the liquidator what he wants it for and still less to withhold the payment of it from him. When, of course, a liquidator comes to the court under S.

187 and asks for leave to make a call after the liquidation has intervened, the position is quite different.

There the court has jurisdiction - and indeed it is the very object of it being brought to the court at all - to consider whether the liquidator really

needs the money he says he needs it or not. In that case the liquidator is making a call himself and that is a step in the liquidation over which the

court has control.

Now, this is a decision of a single Judge, and, with great respect, I have some difficulty in seeing how when a call is made by the directors and the

money payable in pursuance thereof remains unpaid it loses its character as money payable under a call. A call can be made either before a

company is ordered to be wound up or after. The only provision under which a call'' can be made after a winding up is ordered is S. 187. All other

calls must be made by the directors and if they become debts merely by reason of the fact that a call has been made I would expect S. 186 (1)to

end with these words:

exclusive of any money payable by him or the estate by virtue of any call in pursuance of S. 187 of this Act.

The reserve liability of a share-holder is a statutory liability and how it loses that character merely because an unsuccessful attempt has been made

to enforce it, is not quite easy to see. By describing it as a debt we cannot eliminate fact that it is payable in pursuance of the call. Beside (sic) it is

not a debt for all purposes in that for instance there cannot be a set off.

The Official Liquidator referred to Mahomed Akbar Abdulla Fazalbhoy Vs. Associated Banking Corporation India Ltd., . The facts of that

case were as follows: The defendant was the holder of 876 shares of the company. On 24th July 1945, the directors of the company made a call

of Rs. 25 on the shares, payable in two instalments. The first was payable on 5th September 1945 and the second on 2nd December 1945. In

spite of notices issued the defendant failed to pay either instalment, in respect of 375 shares. A provisional Liquidator was appointed on 11th April

1947 and a winding up order was made on 1st October 1947.

On 9th July 1948 the liquidator made a demand upon the defendant to pay the amount of the unpaid call. On 9th August 1948 the defendant took

out a chamber summons for rectification of the list of contributories alleging that he was not a contributory in respect of 375 shares. That summons

was dismissed on 17th September 1948. The defendant appealed and the appeal was also dismissed. On 10th December 1948 the liquidator filed

a suit for recovering the amount of the unpaid calls. As it was originally instituted, it was a simple suit for recovering the debt due from the

defendant to the company in respect of the unpaid calls. It was immediately realised that the suit was liable to be dismissed by reason of the statute

of limitation.

Thereupon an amendment was applied for and the application was granted whereby the plaint was amended. Paragraph 9-A of the plaint set out

the amended cause of action as being that on the winding up order being made the liability of the defendant to pay the amount of the calls became a

statutory liability and such statutory liability was not barred by the law of limitation. No call had been made by the Court on any of the

contributories under S. 187. It was held that the suit filed by the liquidator, if looked upon as a suit to recover a contractual debt was barred by

limitation. It looked upon as a suit to realise a statutory debt created by S. 156, then the suit was not maintainable because no call in respect of that

liability was made by the Court, and, in the absence of any such call the statutory liability could not be realised by the liquidator.

There is nothing in this judgment to support the view that a cell made by a company and remaining unpaid on the date of the winding up can be

recovered under S. 186 of the Act.

The last case which I need examine is reported in In re Whitehouse and Co. (1878) 9 Ch D 595. (E). The headnote to that case is as follows:

Where a limited company is in voluntary liquidation, a contributory cannot set off a debt due to him from the company against calls made against

him either by the company before or by the liquidator after the resolution to wind up.

On examination this case does not seem to support the Official Liquidator, On the contrary, it contains observations which are against him. The

learned Judge, after quoting S. 38 of the old English Act which imposes on every past and present member of a company the liability to contribute

to the assets of the company an amount sufficient for payment of the debts and liabilities of the company, proceeds:

That is a new liability; he is to contribute; it is a new contribution. It is a mistake to call that a debt due to the company. It is no such thing. It is not,

as has been supposed, in any shape or way a debt due to the company, but it is a liability to contribute to the assets of the company; and when we

look further into the Act, it will be seen that it is a liability to contribution to be enforced by the liquidator. It is quite true that a call made before the

winding up - and in this case before me a call was made before the winding up - is a debt due to the company, but that does not affect this new

liability to contribution.

But there are certain limits to the liability Now, first of all, as regards the calls made in the winding up, they being calls for something unpaid on the

shares, that is a contribution due by the member under the Act and is not a debt due to the company.

The contribution also under this section applies to the unpaid calls made before the winding up; because, though that is a debt due to the company.

It is not the less an amount unpaid on the shares in respect of which he is liable, and therefore he must be liable to contribute all that is, unpaid on

his shares. As I said before, it is as much unpaid if he had not paid the calls made before the winding up, as it is in respect of the amount unpaid on

the shares in respect of which no call has been made before the winding up.

It seems to me that the contributories'' liability created by the 38th section being only limited to the amount unpaid, it is immaterial, for the purpose

of this section, whether the call was made before or after the winding up, provided the amount is unpaid. That being so, it is a liability to contribute

which, in the case of an ordinary winding up, is of course, enforceable by the court; but so it is in a voluntary winding up.

The observations on page 541 in Buckley on the Companies Act, 12th Edn., made on this case may be quoted:

And, premising this, the judgment in (1878) 9 Ch D 595 (E), renders the true construction of this section a matter of much less difficulty. The bases

of that judgment are, (1) that contributions under S. 212 of this Act are not debts to the company, but contributions to the assets enforceable by

the liquidator; (2) that such contributions include all that is unpaid on shares at the commencement of the winding up, including, therefore, calls

made before, as well as calls made in the winding up; and (3) that this being so, there is no set-off under the Statutes of Set-off because it is the

liquidator who enforces the calls, while it is not the liquidator but the company that owes the debt, and therefore to establish a set-off the person

asserting it must find in the Companies Acts some provision giving a right of set-off.

On this point I am inclined to agree with Mr. Thyagarajan, S. 186 (1), in plain terms, says that an order may be made in respect of any amount

due from a contributory ""exclusive of any money payable by him or the estates virtue of any call in pursuance of this Act."" I find it difficult to say

that a call made by the directors of a company is not a call made in pursuance of the Act. To get the result which the Official Liquidator wants, the

words and figures ""of S. 187"" must be inserted before the last three words of that sub-section.

The next objection of Mr. Thyagarajan was this. The right to enforce the reserve liability of a share-holder is an actionable claim. By clauses

(a) (xii) and (xiii) of the deed of mortgage, Ex. P. 10, there has been a complete assignment of these rights in favour of the Industrial Financial

Corporation. In consequence it is only the Corporation that can now seek to recover the money. The Official Liquidator has no locus standi in this

regard. Before he can proceed he must obtain a re-assignment from the mortgagee. Mr. Thyagarajan referred to sub-s. (1) of S. 130 of the

Transfer of Property Act which provides that the transfer of an actionable claim whether with or without consideration shall be effected only by the

execution of an instrument in writing, and, that upon the execution of the instrument all the rights and remedies of the transferor, whether by way of

damages or otherwise, shall vest in the transferee,

He remarked that all the rights of the company in respect of unpaid capital having vested in the Industrial Finance Corporation it is only that body

which can seek to recover the money.

He then referred to the decision of the Privy Council in Mulraj Khatau v. Vishwanath, ILR 37 Bom 198 (F) . The appellant and the respondent

in that case were rival claimants to the proceeds of a policy of life insurance which had been paid into court by the insurance company. The

appellant relied on an assignment by the debtor of the policy as an instrument in writing, and, the respondent based his claim on. a deposit of the

policy with him by the debtor unaccompanied by any written instrument. On page 209, after referring to S. 130 (1) of the Transfer of Property

Act, 1900, their Lordships observed,

It is admitted that the right to the moneys becoming due under the policy is an actionable claim. Their Lordships are also of opinion that the section

covers transfers by way of security as well as absolute transfers. If any doubt existed on either of these two points it would be set at rest by the

second illustration to the section which is given in the Act.

Muthiikrishna Aiyar v. Veeraraghava Aiyar, ILR 38 Mad 237: (AIR 1915 Mad 1031) (FB) (G), was a case in which there was a mortgage in

writing of a promissory note. It was held that the right of the promisee to sue on the note became vested in the mortgagee, and, the mortgagee

alone was entitled to sue.

In Santuram Hari Vs. Trust of India Assurance Co., . Chagla J., has stated,

I, therefore, hold that on the execution of the transfer of an actionable claim all the rights and remedies of the transferor vest in the transferee and

the transferee alone is entitled to enforce the remedy; there is no interest left in the transferor which would entitle him to maintain a, suit in respect of

the actionable debt.

The Official Liquidator sought to surmount the difficulty raised by Mr. Thyagarajan by pointing cut that though the mortgage is an English mortgage,

it does not totally divest the company of all legal interests in the property mortgaged, and referred to AIR 1939 14 (Privy Council) .

It is no doubt true that by executing what is called an English mortgage the mortgagor does not divest himself of all legal interest in the property;

but from this it does not follow that he is entitled to get the property into his own hands or even to sue for it.

The Official Liquidator next stated that under Ex. P. 14 the Industrial Finance Corporation has constituted him its agent and authorised him to

collect the money. I find it difficult to discover in Ex. P-14 words conferring on the Official Liquidator the requisite authority. In the first sentence of

the letter the Corporation merely states that it has learnt that the Official Liquidator was taking steps to realise the calls in arrears. Then it goes on

to explain that it holds an English mortgage over all the assets of the company including its uncalled capital.

It next says that it is a secured creditor and requests the liquidator to pay all the amount of the calls in arrears that he might recover. And the letter

ends with the customary formula ""we thank you in anticipation and assure you of our best co-operation in this behalf."" There are no words in Ex.

P-14 conferring any authority on the liquidator; the letter proceeds on the assumption that the liquidator has in himself the requisite power to collect

the money. He is reminded of the rights of the Corporation and requested to pay into its coffers whatever moneys he may realise. Proceeding for a

moment on the assumption that the Corporation intended to constitute the liquidator their agent, still I do not see how the liquidator can proceed

under S. 186 of the Act.

In so far as the liquidator is the agent of the Corporation he can have no larger, rights'' than the Corporation itself and the only way in which the

Corporation can recover the money is by appropriate proceedings based on the mortgage it holds. But, this is not what the liquidator seeks to do.

He does not purport to take his stand on the mortgage; what he seeks to do is to exercise his powers as liquidator without seeking to act as the

agent of the Corporation. This, it seems to me, he cannot do. If the Corporation has properly constituted him the agent - I do not think it has - then

he must proceed on the mortgage. If it has not. then he must proceed as a liquidator, pure and simple.

There is another important fact. In Ex. P-14, the Corporation has explicitly stated that it had decided to stand outside the winding up which of

course it is entitled to. See M.K. Ranganathan and Another Vs. Government of Madras and Others, . But how when standing outside the winding

up the Corporation can obtain the remedies available in a winding up, it is difficult to see.

I must uphold also this objection of Mr. Thyagarajan.

In the result, this application is allowed with cost, to be paid out of the estate. Advocate''s fee Rs. 400/-.

This order is made without prejudice to the rights if any of the Official Liquidator to proceed under S. 87 of the Companies Act, 1913.