New Central Jute Mills Co. Ltd. v. Rivers Steam Navigation Co. Ltd. And Ors.

The point for determination in this appeal is whether a right to sue for damages for breach of contract appertaining to the business of the transferor company is transferred by a vesting order under Section 153A of the Indian Companies Act, 1913. On 6-9-51 Albion Jute Mills Co. Ltd., instituted a suit against the respondent claiming damages for breach of contract to carry certain bales of Jute safely. The plaint alleges that the defendant carrier returned the goods to the plaintiff in a damaged and deteriorated condition and that the plaintiff thereby suffered damages.

2. On 6-12-1955, S. R. Das Gupta, J., sanctioned a scheme of amalgamation of Albion Jute Mills Co. Ltd., and Lothian Jute Mills Co. Ltd., with New Central Jute Mills Co. Ltd. The learned Judge also ordered that (a) the whole of the undertaking and property and all the assets and liabilities of Albion Jute Mills Co. Ltd., and Lothian Jute Mills Co. Ltd., as mentioned in the Scheme of Amalgamation be transferred to and do vest in New Central Mills Co. Ltd.; (b) that suits or other legal proceedings, if pending in this Court or in any other Court by or against Albion Jute Mills Co. Ltd., and Lothian Jute Mills Co. Ltd., be continued by or against New Central Jute Mills Co. Ltd.; (c) that Albion Jute Mills Co. Ltd., & Lothian Jute Mills Co. Ltd., do stand dissolved without being wound-up. This order was made under Section 153A read with Section 153 of the Indian Companies Act, 1913.

3. On 17-5-1957 New Central Jute Mills Co. Ltd., applied for an order that its name be brought on record as plaintiff in the suit in place and stead of the Albion Jute Mills Co. Ltd., on the strength of the order dated 6-12-1955. Bose, J., dismissed this application. He held that all that was purported to be transferred to the applicant was the right to sue for damages for breach of contract and nothing else and that the transfer could not take effect in view of Section 6(e) of the Transfer of Property Act and having regard to the decision in Nokes v. Doncaster Amalgamated Collieries, Ltd., (1940) AC 1014. The applicant has preferred this appeal from that order.

4. The vital words of Section 153A of the Indian Companies Act, 1913, are as follows:

"*** the Court may, either by the order sanctioning the compromise or arrangement or by any subsequent order, make provision or all or any of the following matters :

(a) the transfer to the transferee company of the whole or any part of the undertaking and of the property or liabilities of any transferor company;

(2) Where an order under this section provides for the transfer of property or liabilities, that property shall, by virtue of the order, be transferred to and vest in, and those liabilities shall, by virtue of the order, be transferred to and become the liabilities of, the transferee company, and in the case of any property, in the order so directs, freed from any charge which is by virtue of the compromise or arrangement to cease to have effect.

6. The argument that the transfer infringes the provisions of Section 6(e) of the Transfer of Property Act overlooks the plain words of Section 153A of the Indian Companies Act, 1913. The transfer takes place by virtue of the vesting order without any further act or deed. The antecedent scheme of amalgamation does not effect the transfer. It is not necessary to obtain a formal conveyance from the transferor company. The transfer being by an order of Com t of competent jurisdiction, Section 6(e) of the Transfer of Property Act has no application having regard to Section 2(d) of the Transfer of Property Act.

7. Independently of Order XXII, Rule 10 of the Code of Civil Procedure, the order dated 6-12-1955, read with Section 153A(1)(c) of the Indian Companies Act, 1913, entitles the applicant to continue the suit.

8. On behalf of the respondents it is, however, urged that the vesting order under Section 153A can transfer only those assets and properties which could be transferred by Albion Jute Mills Co., Ltd by an act inter partes and that as Albion Jute Mills Co. Ltd., could not transfer the right to sue, having regard to Section 6(e) of the Transfer of Property Act, the transfer of the right to sue for damages is inoperative.

9. In my opinion, even if the transfer is regarded as one directly by Albion Jute Mills Co. Ltd., it is not hit by Section 6(e) of the Transfer of Property Act. That section provides that a mere right to sue cannot be transferred. It is necessary to remember and stress the word 'mere'. Transfer of a bare right to sue and of nothing else is prohibited. Property with an incidental right to sue for damages may be transferred.

10. Now, an undertaking or business as a going concern is property, A right to sue for damages for breach of contract appertaining to the business is intimately connected with the enjoyment of the business and is an important item of its assets. The assignee of the business takes it with all rights appertaining to it. The transfer of the incidental right to sue for damages together with the business is not a transfer of 'a mere right to sue'.

11. In England there is no positive statutory enactment like Section 6(a) of the Transfer of Property Act. Nevertheless, the English Courts refuse to recognise the assignment of 'a bare right of action' on the ground that it offends against the law of maintenance. Though the English decisions on that point are not decisive authorities on the question of construction of Section 6(e) of the Transfer of Properly Act some of them may be referred to-

as valuable guides.

12. In Jewan Ram v. Ratan Chand Kissen Chand, 26 Cal WN 285 at p. 290: (AIR 1921 Cal 795 at pp. 799-800), Richardson, J. observed:-

"The Indian Legislature when it enacted Section 6(e) of the Transfer of Property Act, no doubt had in mind the expressions used in the English cases "a bare right of action' Or 'a mere right to litigate'. On the question of construction which arises in India, the language of Parker, J., in Glegg v. Bromeley, (1912) 3 K. B. 474 at p 490, to which the learned Chief Justice has already referred, is at least a valuable guide. The question in every case is whether the subject-matter of the transfer is, in the view of the Court, 'property with an incidental remedy for its recovery' or is 'a mere right to sue'."

13. In Ogdens Ltd. v. Weinberg, (1906) 95 L.T. 567, a trader had a claim against the appellant company, arising out of business transactions, for unliquidated damages for breach of contract. He became bankrupt, and the trustee in bankruptcy by deed assigned to the respondent the goodwill of his business, and also 'all the book and other debts, securities, credits, effects, contracts, and engagements belonging or appertainng to the said business.' The House of Lords held that these words were sufficient to pass to the assignee the bankrupt's claim for damages for the breach of contract. The decision primarily turned on a question of construction of the deed of transfer but the assignment of the right to sue for damages was apparently held good because it appertained to the business.

14. Referring to this decision Bankes, L.J. in Ellis v. Torrington (1920) 1 K.B 399, at p. 407, observed: -

"The next case to which I would refer is ( 1906) 95 L.T. 567, where the House of Lords, and particularly Lord Davey, dealt with the question whether a particular assignment was an assignment of a bare right of action for damages and held that it was not, because, as Lord Davey expressed it, the contract was clearly one which appertained to the business."

15. In the case last cited a freehold was subject to a head-lease, an underlease and a sub-underlease. AH the three leases contained onerous covenants to repair the premises. All the leases expired. At the expiration of the leases the premises were out of repair. The plaintiff took a conveyance of the fee simple of the premises together with the benefit of the covenants in the head lease. He also obtained an assignment of the benefit of the covenant to repair, contained in the sub-underlease, and commenced an action against the defendant as assignee of the sub-underlease for breaches of the covenant. The Court of Appeal held that the assignment was valid. Bankes, L.J, observed:-

"In my opinion Sargant, J. was perfectly right when he said that the rights of action for breaches of covenant by the appellant were sufficiently connected with the enjoyment of the property to escape being bare rights of action within the meaning of that phrase as used by Parker, J., in (1912) 3 K. B. 474. The respondent is seeking to enforce a 'right incidental to property, a right to a sum of money which theoretically is part of the property he has bought,"

16. This decision was followed in Manmatha Nath Dutt v. Matilal Mitra , where a Bench of this Court held that an assignment of land together with the claim for mesne profits during the pendency of a suit, claiming ejectment and mesne profits, was Valid and did not infringe the provisions of Section 6(e) of the Transfer of Property Act, the decision in Abu Mahomed v. S.C. Chunder, ILR 36 Cal 35 is distinguishable. In that case there was no transfer of any business or undertaking and the question whether the transfer of a business together with an incidental right to sue for damages is valid did not arise for decision.

17. In my opinion, a transfer of an undertaking together with the right to sue for damages for breach of contract appertaining to the undertaking is not a transfer of a mere right to sue and as such does not infringe the provisions of Section 6(e) of the Transfer of Property Act.

18. On behalf of the respondent reliance is placed upon the decision in (1940) A.C. 1014. IN that case the House of Lords was called upon to construe the provisions of Section 154 of the English Companies Act, 1929, corresponding to Section 153A. of the Indian Companies Act. While the appellant in that case was being employed by Hickleton Main. Co., Ltd., an order was made by the Court under Section 154 of the English Companies Act, 1929, transferring to the respondent company all properties, rights, powers, liabilities and duties of the Hickleton company. Subsequently the appellant absented himself from work in circumstances which would have made him liable under Section 4 of the Employers and Workmen Act, 1875, if he could be-regarded as under a contract of service with the respondent company. This, however, the appellant denied, but on a summons preferred against him under the Act of 1875, for unlawfully absenting himself from work, the justices adjudged that he should pay the sum of 15s and 10s costs. From that order he appealed, but the Divisional Court and the Court of Appeal dismissed the appeal. The point for decision in that case was whether a contract of service previously existing between him and the transferor company automatically became a contract between him and the transferee company by virtue of the order made by the Court under Section 154 of the English Companies Act. The House of Lords by a majority, Lord Romer dissenting, reversed the unanimous judgment of the Court of Appeal and held that the contract of service between the appellant and the transferor company did not automatically become a contract of service between him and the transferee company. Thei majority of the House of Lords held that the section did not authorise the Court to transfer non-assignable rights, and contracts, such as contracts of service, personal contracts and other non-assignable contracts and personal rights and interests in property. Such rights and contracts could not be transferred by the liquidator in an winding up. In the absence of clear and explicit words, the procedural section ought not to be construed so as to authorise the Court to confiscate rights reserved by third parties to deal and associate with the transferor company exclusively and to free the property from the restrictions regarding assignment to which they are subject. The conclusions of the law Lords are thus stated. Viscount Simon, L.C., at page 1024 observed:

"in short, section 154 when it provides for 'transfer' is providing in my opinion for the transfer of those rights which are not incapable of transfer and is not contemplating the transfer of rights which are in their nature incapable of being transferred. I must make it plain that my judgment is limited to contracts of personal service with which the present appeal is concerned."

Lord Atkin at page 1034 observed :

"I am satisfied that this in the main procedural section should not be construed so as to transfer rights which in their nature are by law riot transferable."

Lord Porter at pages 1050 and 1053 seems to have been of the opinion that the transferee company did not obtain 'the benefit of the contracts which, by their nature are not transferable', and that the word 'property' in Section 154 means "property with which the original company has the right to deal without having to obtain the consent of some third party.' Lord Thankerton at pages 1034 and 1037 agreed with these opinions. Lord Romer dissented.

19. It is to be noticed that the question whether a right to sue for damages appertaining to the business of the transferor company could be transferred by the vesting order did not arise for decision in that case. In my opinion the House of Lords did not decide that such a right to sue for damages cannot be transferred by the vesting order. An accrued right to sue for damages is not a right which by its very nature is incapable of being transferred. Such a right may be transferred with property to which it is incidental without infringing any rule of law. Its transfer does not require the consent of the third party. No injustice is caused and no right is infringed by the transfer. If a suit is pending to enforce this right, the transferee company may be allowed to continue the suit. In the case last cited Lord Porter observed at page 1051 :

"Section 154, Sub-section l(c), also enacts that the court may order legal proceedings by the original company to be transferred to the amalgamated company. Such claims seem to me to have nothing In common with contractual obligations where no cause of action has arisen. There is no question of transferring a contract against the will of the defendant. All that is provided for is that an accrued right should be enforceable after substituting one plaintiff for another in an action which in the case of a winding up a liquidator would have been entitled to continue under the Act of 1908 and, where no amalgamation has taken place, would have been entitled to continue today."

20. I am of the opinion that the decision in Nokes' case (1940 AC 1014) does not support the respondents' contention that the vesting order dated the 6th December 1935 could not and did not transfer the claim for damages.

21. Before concluding this judgment I must observe that by Sections 23(g) and 27(d) of the Specific Relief Act where a public company has entered into a contract and subsequently becomes amalgamated with another public company, that contract may be enforced by or against the new company which arises out of the amalgamation. It seems to me that under the Indian Law the new company may, irrespective of novation, enforce contracts which were entered into by the transferor company and which are capable of being specifically enforced, For purposes of this case it is not necessary to consider whether and how far these sections affect the application of Nokcs' case (1940 AC 1014) to Indian conditions, in so far as that decision is based upon the assumption that non-assignable contracts entered into by the transferor company cannot be enforced by the new company,

22. In my opinion the claim and the subject matter of the suit lawfully vested in the appellant and the appellant is entitled to continue the suit.

23. I would, therefore, allow this appeal, set aside the judgment and order of Bose, J. and make an order in terms of prayers (a), (b), (c) and (d) of the petition; and also certify that the case was a fit one for employment of Counsel before Bose, J.

24. The appellant is entitled to the costs of this appeal.

K.C. Das Gupta, C.J.

25. I agree that the subject-matter of the suit stood transferred to the appellant by virtue of the vesting order, In the first place, the objection that the vesting order would not have effect as only a mere right to sue was being transferred, should not, be accepted. It is unreasonable to regard a right to sue for damages for breach of contract in connection with an undertaking, which was being transferred at the same time as a mere right to sue or a bare right of action. That being the position, the real objection raised by the defendant fails.

26. In the second place, I agree with my Lord that the decision of the House of Lords in (1940) A. C. 1014, cannot properly be regarded as laying down the rule that such property would not stand transferred as a result of the vesting order. It is true that there are observations in the speeches, specially of Lord Atkin and Lord Thankerton, which lend support to this view. It is to be noticed, however, that Viscount Simon, L. C., took special care to make it clear that his observations as regards the effect of an order of transfer, if the rights were incapable of transfer, were limited to contracts of personal services with which the appeal was concerned. Lord Romer disagreed with the majority view and took the view which had been taken, it is interesting to mention, by six Judges in the Divisional Court and the Court of Appeal that the effect of the section was to cut across the usual limitations to transferability. Lord Porter guarded himself against saying that legal proceedings by the original company would not stand transferred to the amalgamated company on the basis of transfer of the subject-matter of suit. At page 1051 he pointed out:

"Section 154, Sub-section l(c), also enacts that the Court may order legal proceedings by the original company to be transferred to the amalgamated company. Such claims seem to me to have nothing in common with contractual obligations where no cause of action has arisen."

On a proper reading of the speeches of the law Lords, it will not in my opinion be reasonable to think that the majority of the law Lords wanted to lay down a rule that unless apart from the special provisions of the statute the property could be transferred no transfer could be effected by the vesting order.

27. If it were necessary, I would have, as at present advised, been inclined to express agreement with the views which found favour with the six Judges in the lower Courts and with Lord Romer in the House of Lords that the wide generality of the language of the section ought not to be cut down. As Sir Wilfrid Greene, M. R., delivering the judgment of Court of Appeal--Nokes v. Doncaster Amalgamated Collieries Ltd. (1939) 2 K. B. 578 at page 584--observed :

"By Sub-section (4) the expression 'property' is declared to include property, rights and powers of every description, and the expression 'liabilities' includes duties. This language is prima facie wide enough to include within its scope every kind of right recognized by law, including proprietary, contractual, or statutory rights of every description. Similarly, liabilities of every description and in particular contractual liabilities are prima facie included. What is there to justify a restricted interpretation of these words so as to exclude certain kinds of contractual rights and liabilities? In the general purpose of the section, nothing. On the contrary, if the power of the Court did not extend to contractual rights and liabilities of all kinds, its order would be only partial in its operation and the necessary arrangements for transfer in such cases would have to be carried through by assignment, novation or other appropriate means. How in such a case the beneficent power of ordering dissolution of a transferor company without liquidation could conveniently by exercised it is difficult to see."

It is unnecessary to consider the matter further, as, for the reasons already mentioned, I do not think the decision of the House of Lords itself is an authority for the extreme proposition that unless the ordinary law makes a particular property transferable, the vesting order would not nave the effect of transferring it.