Companies Act Case Law The Rajah of Vizianagram Vs Official Receiver Vizianagram

PETITIONER:
THE RAJAH OF VIZIANAGARAM

Vs.

RESPONDENT:
OFFICIAL RECEIVER, VIZIANAGARAM

DATE OF JUDGMENT:
06/11/1961

BENCH:
DAYAL, RAGHUBAR
BENCH:
DAYAL, RAGHUBAR
SUBBARAO, K.
SHAH, J.C.
MUDHOLKAR, J.R.

CITATION:
1962 AIR 500 1962 SCR Supl. (1) 344
CITATOR INFO :
RF 1973 SC 602 (73)
ACT:
Winding up-Company Incorporated in England-
Unregistered company-Foreign creditors-If can
prove their claims-Indian Companies Act, 1913 (VII
of 1913), ss. 270 to 276.

 

HEADNOTE:
The company was incorporated in England. The
company took lease of certain land from the
appellant. On the application of the appellant the
company was being wound up as an unregistered
company. Certain foreign creditors of the company
filed proofs of their claim before the official
liquidator. The appellant objected to their claims
being entertained on the ground that these
liquidation proceedings were only for the benefit
of the Indian creditors, and that the foreign
creditors were not entitled to prove their debts
in these proceedings. The official liquidator
rejected these objections and allowed the foreign
creditors to prove their claims.
^
Held, that both on account of specific
provisions of the Act and of the general
principles, foreign creditors can prove their
claims in the winding up of an unregistered
company.
The order of winding up of an unregistered
company operates in favour of all the creditors
and of all the contributories of the company.
There is no reasonable basis for depriving the
foreign creditors from participating in the
distribution of the assets collected by the
official liquidator in the winding up proceedings
in India. All the creditors including the foreign
creditors will get rateably out of the assets of
the company which have been collected. When that
company itself is wound up, all of them would be
entitled to
345
similar rateable share in the assets collected
during the winding up proceedings of the company
in the country where it is incorporated. The
liquidation of the company in countries other than
where the company is incorporated and has its
principal office, is just ancillary to the
simultaneous liquidation of that company in the
country of its domicil or any winding up of the
company in future.
The rights and liabilities of the creditors
and contributories respectively when a company is
wound up in the country of its domicil will be
limited to their original rights and liabilities
after taking into consideration how much of those
rights and liabilities have been already satisfied
during the winding up proceedings of its offices
in other countries.
The Courts of a country dealing with the
winding up of a company can ordinarily deal with
the assets within their jurisdiction and not with
the assets of the company outside their
jurisdiction. It is therefore necessary that if a
company carries on business in countries other
than the country in which it is incorporated, the
courts of those countries too should be able to
conduct winding up proceedings of its business, in
their respective countries. Such winding up of the
business in a country other than the country in
which the company was incorporated is really an
ancillary winding up of the main company whose
winding up may have been taken up already in that
country or may be taken up at the proper time.
In re Commercial Bank of South Australia, L.
R. [1886] 33 Ch. D. 174; In re Hibernian Merchants
Ltd., L. R. [1958] 1 Ch. D. 76; In re English,
Scottish, and Australian Chartered Bank, L. R.
[1893] 3 Ch. D. 385; Russian and English Bank v.
Baring Bros. [1936] 1 All. E. R. 505 and Re Azoff-
Don Commercial Bank, [1954] 1 All E. R. 947,
referred to.

 

JUDGMENT:
CIVIL APPELLATE JURISDICTION : Civil Appeal
No. 225 of 1961.
Appeal from the judgment and order dated
February 9, 1951, of the Madras High Court in A.
A. O. No. 249 of 1949.
R. Thiagarajan and P. Ram Reddy, for the
appellant.
K. Bhimasankaram and T. V. R. Tatachari, for
respondent No. 1.
D. N. Mukherjee and B. N. Ghosh, for
respondent No. 2.
346
1961. November 6. The Judgment of the Court
was delivered by
RAGHUBAR DAYAL, J.-This is an appeal on
certificate granted by the High Court of Madras.
The question for determination in this appeal is
whether foreign creditors of a firm which was in
corporated in England and carried on business in
India can prove their claims in the winding up
proceedings of the firm as an unregistered company
in India.
The facts leading to the appeal are that the
Vizianagaram Mining Co. Ltd., hereinafter called
the company, was incorporated in England, under
the English Companies Act then in force, on
December 8, 1894, the object of the company being
to mine manganese ore and some other minerals in
India. Its principal place of business in India
was at Kodur, Vizagapatam District.
The company took certain land on lease from
the Rajah of Vizianagaram, the appellant. Its
business did not prove profitable and it was not
in a position to pay the rent to the lessor or to
pay its creditors. On the application on behalf of
the Rajah Vizianagaram, orders for the winding of
the company were passed by the High Court on March
6, 1945. The Official Receiver of Vizagapatam was
appointed Official Liquidator of the company.
Thereafter, the liquidation proceedings were
transferred to the District Court of Vizagapatam.
The Official Liquidator realised about two lakhs
of rupees from the assets of the company in India.
Certain foreign creditors of the company filed
proofs of their claims before the Official
Liquidator. The appellant objected to their claims
being entertained on the ground that these
liquidation proceeding were only for the benefit
of the Indian creditors and that foreign creditors
were not entitled to prove their debts in these
proceedings. The Official Liquidator
347
rejected these objections and allowed the foreign
creditors to prove their claims.
The appellant then filed an application under
s. 183 of the Indian Companies Act, 1913 (Act VII
of 1913), hereinafter called the Act, for the
expunging of the proofs of all foreign creditors
and for deleting their names from the certificate
of the Official Liquidator filed under rule 90 of
the rules framed under the Act, in the Court of
the District Judge, Vizagapatam. The application
was dismissed by the District Judge. Against this
order the appellant filed an appeal, C. M. A. 249
of 1949, in the High Court. The High Court
dismissed the appeal holding that the foreign
creditors could prove their claims in the
proceedings. Thereafter, the appellant applied for
a certificate under Art. 133 of the Constitution.
The High Court granted the certificate and hence
this appeal.
Learned counsel for the appellant has
supported the contention that foreign creditors
cannot prove their debts in a winding up of the
company in India, on three grounds. They are:
(i) the winding up of a company
incorporated outside India as an unregistered
company, in pursuance of the provisions of
sub-s. (3) of s. 271 of the Act is really the
winding up of the unregistered company as an
independent and separate entity from that of
the main company incorporated outside India,
and is therefore limited to the realisation
of Indian assets and their distribution to
Indian creditors;
(ii) as the Liquidator appointed by the
Court in India cannot get at the foreign
assets and contributories, it is just that
foreign creditors be not allowed to prove
their debts here;
348
(iii) even if foreign creditors can
prove their debts in such winding up
proceedings they should be allowed to prove
only such debts which have some relation to
the business of the company in India.
On the other hand, it is contended for the
respondents that the Indian creditors are free to
prove their claims in foreign countries and
therefore no prejudice is caused to them by
allowing foreign creditors to prove their claims
in the winding up proceedings in India, that the
Act made no distinction between foreign and Indian
creditors for the purpose of the proceedings under
the Act and that in reality it is the main company
which is being wound up though only with respect
to the business conducted by it through its
offices in India and therefore there should be no
bar to the proving of their claims by the foreign
creditors. We are of opinion that the High Court
took the correct view of the legal position in
holding that the foreign creditors could prove
their claims in these winding up proceedings.
Section 270 of the Act defines unregistered
company’ and it includes any partnership,
association or company consisting of more than
seven members and does not include certain
companies which come within the companies excluded
by the section. This definition of ‘unregistered
company’ is for the purpose of Part IX of the Act,
which consists of ss. 270 to 276 and deals with
the winding up of unregistered companies. Sub-
section (3) of s. 271 provides that where a
company incorporated outside India which has been
carrying on business in India ceases to carry on
business in India, it may be wound up as an
unregistered company under Part IX,
notwithstanding that it has been dissolved or
otherwise ceased to exist as a company under or by
virtue of the laws of the country under which it
was incorporated. It is in pursuance of
349
the provisions of this sub-section that the
company is being wound up as an unregistered
company.
Sub-section (1) of s. 271 which deals with
the winding up of unregistered companies, provides
that any unregistered company may be wound up
under the Act and all the provisions of the Act
with respect to winding up shall apply to the
unregistered company, with the exceptions and
additions specified in the sub-section. This makes
all the winding up proceedings subject to the
provisions in other parts of the Act as well.
Clause (iii) of sub. s. (1) mentions the
circumstances in which an unregistered company may
be wound up.
Section 272 deals with the contributories
with the winding up of unregistered companies, and
does not make any distinction between the persons
who can be contributories on the ground of their
being Indian nationals or foreigners. All persons
who are liable to make certain payments are
considered contributories. Similarly other
provisions of the Act which have a bearing on the
winding up proceedings makes no distinction
between Indian or foreign creditors or between
debts with respect to the business carried on in
India or with respect to the business of the
company outside India.
Section 156 provides, in its sub-section (1),
that every present and past member would be liable
to contribute to the assets of the company to any
amount sufficient for payment of its debts and
liabilities when a company is being wound up.
Section 158 defines the expression ‘contributory’
which means ‘every person liable to contribute to
the assets of the company in the event of its
being wound up.
Section 166 provides for an application to
the Court for the winding up of a company. Any
creditor or contributory is entitled to apply for
the winding up of the company. No distinction is
made between the creditors resident in India or
outside India. Section 167 specifically states
that
350
an order for winding up of a company shall operate
in favour of all the creditors and of all the
contributories of the company as if made on the
joint petition of a creditor and of a
contributory. It is not possible therefore, to
urge successfully, that the order of winding-up of
an unregistered company does not operate in favour
of all the creditors and of all the contributories
of the company. All the creditors of the company
can take advantage of the winding up of the
company as operating in India when it has ceased
to carry on business there. There is no reasonable
basis for depriving them from participating in the
distribution of the assets collected by Official
Liquidator in the winding proceedings. All the
creditors including the foreign creditors will get
rateably out of the assets of the company which
have been collected. When that company itself is
wound up, all of them would be entitled to similar
rateable share in the assets collected during the
winding up proceedings of the company in the
country where it is incorporated.
Likewise, s. 211, provides that the property
of a company shall, on its winding up, be applied
in satisfaction of its liabilities pari passu and
subject to such application, shall, unless the
articles otherwise provide, be distributed among
the members according to their rights and
interests in the company, and thus make it clear
that all the creditors of the company have to get
a rateable share out of the property of the
company and that surplus, if any will be
distributed among the members of the company.
Section 228 provides that in every winding up
all debts payable on a contingency and all claims
against the company shall be admissible to proof
against the company. No exception is made. All the
debts against the company in the winding up can be
proved. Such claims can include the claims of
foreign creditors.
351
It is therefore clear that no support can be
found for the contention for the appellant from
the provisions of the Act.
The Courts of a country dealing with the
winding up of a company can ordinarily deal with
the assets within their jurisdiction and not with
the assets of the company outside their
jurisdiction. It is therefore necessary that if a
company carries on business in countries other
than the country in which it is incorporated, the
Courts of those countries too should be able to
conduct winding-up proceedings of its business, in
their respective countries. Such winding up of the
business in a country other than the country in
which the company was incorporated is really an
ancillary winding up of the main company whose
winding up may have already taken up in that
country or may be taken up at the proper time.
It appears that so long as the company as
such is able to carry on business profitably and
be in a position to meet its liabilities, neither
the company nor its creditor nor its contributory
would think of the winding up proceedings even if
the company ceases to carry on business in any
particular country. The persons interested in the
company will be getting their proper return on the
amount lent or contributed. Ordinarily, the
winding up of the company will be proceeding
simultaneously in the various countries where it
carried on business whenever the business of the
company has ceased to be profitable and the
company is reduced to a position in which it is
not expected to make good its liabilities.
It is the company incorporated outside India
which is really wound up as an unregistered
company in this country. In fact, there is no
separate un-registered company which is being
wound up here. The various branch offices of the
company in India cannot be deemed to be the
branches of
352
an independent unregistered company. Sub-section
(3) of s. 271 itself says that the company
incorporated outside India may be wound up as an
unregistered company when it ceases to carry on
business in India. Further, there are no separate
creditors or contributories of the so called
unregistered company. There are no separate
creditors or contributories of the offices or
branches of the company in India. All the
creditors and contributories are really creditors
and contributories of the company incorporated
outside India and therefore all of them, on
principle, should be able to do what creditors and
contributories resident in India can do in the
winding up proceedings.
There has been case law with respect to the
nature of winding up proceedings in the various
countries and the procedure followed in such
winding up.
In In re Commercial Bank of South
Australia(1) a company incorporated in Australia
carried on business in England where it had a
large number of creditors and a large number of
assets. A petition for winding up was made in
England. Subsequently, proceedings for the winding
up of the company were also taken in Australia.
The jurisdiction of the English Court to continue
the winding up proceedings was questioned. In
considering this question, North J., said at page
178 :
“I think, therefore, that the English
creditors are entitled to have a winding-up
order made by this Court. I do not think it
would be right to insert any special
directions in the order; this is not the
proper time for giving such directions. But I
will say this, that I think the winding-up
here will be ancillary to a winding-up in
Australia, and, if I have the control of the
proceedings here, I will take care that there
shall be no conflict between
353
the two Courts, and I shall have regard to
the interests of all the creditors and all
the contributories and shall endeavour to
keep down the expenses of the winding-up so
far as is possible…..I do not think that I
ought to insert any special directions in the
order. But I think that the liquidator ought
not to act without the special directions of
the Judge in Chambers, except for the purpose
of getting in the English assets and settling
a list of the English creditors.”
This order was construed in In re Hibernian
Merchants Ltd. (1) to be not a restriction of the
rights of the liquidator to deal with the English
assets alone for the benefit of the English
creditors only, but to be a direction for the
English Liquidator to take directions of the Judge
when he had to take action with respect to the
other assets and when settling a list of creditors
other than the English creditors. It is to be
noticed that North J., himself said that he would
have regard to the interest of all the creditors
and of all the contributories which means that the
winding-up proceedings were not concerned with
respect to the English creditors alone.
In In re English, Scottish, and Australian
Chartered Bank (2) a chartered banking company,
the principal business of which was in Australia,
stopped payment, and was ordered to be wound up in
England. Meetings of the shareholders and
creditors were held under the orders of the Judge
to ascertain their wishes as to the proposed
scheme of reconstruction. The wishes of the
creditors resident in Australia were obtained
through proxy papers which were sent to those
creditors. The creditors recorded their views on
those papers and deposited them at the offices of
the company at the principal cities in Australia.
The particulars and number of the proxies for and
against the scheme were then
354
telegraphed to the Official Receiver in England.
It was found that if the votes of the Australian
creditors were taken into consideration, the
scheme had the necessary majority in its favour,
but if they were excluded, the majority were
against the scheme. The Judge sanctioned the
scheme. On appeal, objection was taken to the
proceedings on several grounds. The objections did
not include an objection similar to the one before
us for determination, but considering the various
objection, it was said at page 394 :
“One knows that where there is a
liquidation of one concern the general
principle is-ascertain what is the domicil of
the company in liquidation; let the Court of
the country of domicil act as the principal
Court to govern the liquidation; and let the
other Courts act as ancillary, as far as they
can, to the principal liquidation. But
although that is so, it has always been held
that the desire to assist in the main
liquidation-the desire to act as ancillary to
the Court where the main liquidation is going
on-will not ever make the Court give up the
forensic rules which govern the conduct of
its own liquidation.”
This makes it clear that the liquidation of the
company in countries other than where the company
is incorporated and has its principal office, is
just ancillary to the simultaneous liquidation of
that company in the country of its domicil or any
winding up of the company in future. That is to
say, the winding up of the company in those
countries is just complementary to the winding up
of the company in the country of its domicil. The
rights and liabilities of the creditors and
contributories respectively when a company it
wound up in the country of its domicil will be
limited to their original rights and liabilities
after taking into consideration how much of those
rights and liabilities have
355
been already satisfied during the winding up
proceedings of its offices in other countries.
In Russian and English Bank v. Baring
Brothers the facts were that the Bank incorporated
in Russia under Russian law, with its head office
at Petrograd, was dissolved sometime in January
1918. This Bank had a branch in England. The
London branch of the Bank had two large sums of
money with Baring Brothers. On March 23, 1921, the
Bank brought an action against the Baring Brothers
in the Chancery Division of the High Court of
Justice for the recovery of those sums. The Baring
Brothers prayed that all further proceedings in
the action be stayed on the ground that the action
had been commenced or, at all events, was being
continued in the name of a plaintiff who was non-
existent. In considering this matter, Lord Atkin
said:
“The legislature has provided that a
dissolved foreign corporation may be wound up
in accordance with the provisions of the
Companies Act. The provisions of the
Companies Act as to winding up are only
applicable to corporations which are in
existence. Are we to say that the legislative
enactment is completely futile : or is there
another solution? My Lords, I think that we
are entitled to imply, indeed I think it is a
necessary implication, that the dissolved
foreign company is to be wound up as though
it had not been dissolved and therefore
continued in existence. This seems to me with
respect the necessary result of saying that
it shall be wound up in accordance with the
provisions of the Act………I see nothing
incongruous in the legislature saying in
effect, we accept the existence of a foreign
corporation coming to trade in this country;
we shall only
356
impose a condition of registration. But if
the corporation does trade here, acquires
assets here, and incurs debts here, we shall
not accept its dissolution abroad without a
stipulation that if desirable it may be wound
up here so that its assets here shall be
distributed amongst its creditors (I do not
stay to consider whether its English
creditors or creditors generally) and for the
purpose of the winding up it shall be deemed
not to have been dissolved: for that event
would defeat our municipal provisions for
winding up a corporation. This does not
appear to me to be re-creating or
reconstituting a new corporation: it is for
particular and limited purposes refusing to
recognise the dissolution of the old.”
It is clear from these observations that the
winding up of the dissolved company incorporated
in Russia was deemed to be the winding up of that
very company and not of any factitious company
composed of the branch of that company in England.
The main question before us however was
deliberately left open for consideration later.
The observations however go against the
appellant’s contention that the so called un-
registered company which is being wound up should
be deemed to be a separate entity from the
original company incorporated in England.
In Re Azoff-Don Commercial Bank proceedings
for the winding up of a Russian company which had
been carrying on business in England was taken in
England. This company had been dissolved prior to
the proceedings under the laws of the Union of
Soviet Socialist Republics. The petitioners for
the winding up of this company were certain
Norwegian Banks who were creditors of the company.
The petition was opposed by the Crown and another
person who was held to have no locus
357
standi to object. Of the grounds on which the
Crown objected to the petition, one was that the
Court should not make a winding up order at the
suit of foreign creditors in respect of debts
payable in Norwegian kroner, but that it should
leave the Crown to get in the English assets with
a view to the Crown being in a position to make
exgratia payments among English creditors in
respect of rouble debts. In considering this
objection it was said at page 956 :
“The object of a winding-up order is to
ensure distribution of the assets among the
whole body of creditors. No other basis of
distribution would be fair.”
In In re Hibernian Merchants Ltd. a creditor
applied for the winding up of a company
incorporated in the Republic of Ireland and having
a place of business and assets in the United
Kingdom. A request was made that the winding up
order should include the expression `that the
Liquidator shall not act in pursuance of the order
except for the purpose of getting in the English
assets and settling the list of the English
creditors without applying to the Court for
directions’. It was held that the provisions of
the Companies Act, 1948, do not provide for making
such exceptions in the winding up order.
We are therefore of opinion that both on
account of the specific provisions of the Act and
of the general principles, the view taken by the
Court below that foreign creditors can prove their
claims in the winding up of the unregistered
company is correct.
We therefore dismiss the appeal with costs.
Appeal dismissed.
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