M. K. Ranganathan & ANR Vs.
Government of Madras & Ors  INSC 31 (20 April 1955)
BHAGWATI, NATWARLAL H.
DAS, SUDHI RANJAN SINHA, BHUVNESHWAR P.
CITATION: 1955 AIR 604 1955 SCR (2) 374
Indian Companies Act, (Act VII of 1913), s.
232(1) as amended by Act XXII of 1936-The words "or any sale held without
leave of the Court of any of the properties of the Company" added in the
section-Whether legislature intended to make alteration in the low as respects
sales effected by secured creditor-Secured creditor-Whether outside the winding
up-Construction-Presumption against implied alteration of law.
The secured creditor is outside the winding
up and can realism his security without the leave of the winding up Court,
though if he files a suit or takes other legal proceedings for the realisation
of his security he is bound under s. 171 of the Indian Companies Act to obtain
the leave of the winding up Court before he can do so although such leave would
almost automatically be granted.
375 It is a legitimate rule of construction
to construe words in an Act of Parliament with reference to words found in
immediate connection with them. It is also a well- recognized rule of
construction that the legislature does not intend to make a substantial
alteration in the law beyond what it explicitly declares either in express
words or by clear implication and that the general words of the Act are not to
be so construed as to alter the previous policy of the law, unless no sense or
meaning can be applied to those words consistently with the intention of
preserving the existing policy untouched.
Held therefore that having regard to the
context in which the words "any sale held without leave of the Court of
any of the properties" added in s. 232(1) by the amending Act XXII of 1936
have been used in juxtaposition with "any attachment, distress or
execution put into force without leave of the Court against the estate or
effects" it would be a legitimate construction to be put upon them that
they refer only to sales held through the intervention of the Court and not to
sales effected by the secured creditor outside the winding up and without the
intervention of the Court, and that the amendment was not intended to bring
within the sweep of the general words sales effected by the secured creditor
outside the winding up.
Held accordingly that in the present case the
sale effected by respondent No. 2 as the receiver of the trustees of the
debenture holders in July 1954 was valid and binding on all parties concerned
and could not be challenged as it was sought to be done by the Official
Food Controller v. Cork(1923 A.C. 647),
Kayastha Trading and Banking Corporation Ltd. v. Sat Narain Singh (
43 All. 433), Baldeo Narain Singh v. The
United India Bank Ltd. ( 38 I.C. 91), State of West Bengal v. Subodh
Gopal Bose and others (1954 S.C.R. 587), Angus Robertson and others v. George
Day (L.R.  5 A. C. 63), Murugian, P. v. Jainudeen, C. L. ( 3 W.L.R.
682), National Assistance Board v. Wilkinson ( 2 Q.B. 648), Vasudeva
Mudaliar and others v. Srinivasa Pillai and another ( I.L.R. 30 Mad. 426)
and The Governor-General in Council v. Shiromoni Sugar Mills Ltd. (In
Liquidation) (1946 F.C.R. 40), referred to.
CIVIL APPELLATE JURISDICTION: Civil Appeal
No. 20 of 1955.
Appeal from the Judgment and Order dated the'
29th day of September 1954 of the High Court of Judicature at Madras in
Original Side Appeal No. 113 of 1954 arising out of the order dated the 9th day
of August 1954 of the said High Court in its Ordinary Original Civil
Jurisdiction in Application No. 3542 of 1954.
376 C. K. Daphtary, Solicitor-General for
India (H. J. Umrigar, Mohan Kumaramangalam and Rajinder Narain, with him) for
B. H. Dhebar and P. G. Gokhale for respondent
Samarendra Nath Mukherjee and B. N. Ghose for
respondent No. 2.
N. P. Engineer, (B. Moropant and V.J.
Taraporewala, with him) for respondent No. 3.
1955. April 20. The Judgment of the Court was
delivered by BHAGWATI J.-This appeal with a certificate under article 133 (1)
(c) of the Constitution is directed against the judgment of the High Court of
Judicature at Madras dismissing the appeal of the Appellants and refusing to
set aside a sale effected by Respondent 2 of certain properties belonging to
the Madras Electric Tramways (1904) Ltd. hereinafter called the Company, above
the ground at Vepery, Madras and Mylapore, including the machinery cars, etc.
and buildings as scrap to Respondent 3 in his capacity as the Receiver of the
trustees of the debenture holders of the Company.
The Appellants are the Secretary and
President respectively of the Madras Tramways Workers Association (Registered
1253) a Trade Union registered under the Trade
The workmen employed by the Company are
entitled under the award of the Special Industrial Tribunal, Madras in I. D.
No. 9 of 1953 published in the Fort St.
George Gazette, dated the 8th July, 1953 being G. 0. Ms. No. 3024/53 to a
payment of nearly Rs. 7,00,000 out of which the workers belonging to the Madras
Tramways Workers Association alone would be entitled nearly to a sum of Rs.
4,35,000 and are thus the major creditors of the Company. The Company was
incorporated in England with its principal office situated at No. 1, Rundalls
Road, Vepery, Madras-7 and was running the Tramway Service in Madras with
licence issued to it by the Government under the Tramways Act. It had issued
377 1300 First Debentures of CIOO each and the debenture-holders had appointed
the Beawer Trust Ltd., England as trustees.
By an Indenture made in England on the 13th
October 1924 the Company charged by way of first charge in favour of the
trustees all its undertaking properties and assets for the time being both
present and future including its uncalled capital with the payment of all
moneys for the time being owing on the security of the debentures and such
charge was to rank as a floating charge. By two subsequent deeds made at Madras
dated the 26th March, 1925 and 6th July, 1950 certain immovable properties
belonging to the company were mortgaged in favour of the said trustees. The
said Trustees appointed Respondent 2, the Managing Director of the Company and
day to day management of the Tramway Service and of the business of the Compay,
as their Receiver. He took possession as such Receiver,, from the midnight of
11th April, 1953 of all the assets of the Company including moneys in the bank
to the credit of the Company and after that date the Tramways Service was
suspended and still remains suspended.
One J. B. Beardsell, one of the Directors of
the Company filed O. P. No. 419 of 1953 as the duly constituted Attorney of the
Company for winding up the Company on the ground that it was unable to pay its
debts and that it bad ceased to carry on its business. An order for the winding
up of the Company was made by the Court on the 20th January, 1954 and the
Official Receiver, High Court, Madras, was appointed the Official Liquidator.
Since all the assets including the moneys of the Company were in possession of
Respondent 2, the Official Receiver was unable to take charge of anything
except the records of the Company.
Soon after the order for winding up the
Respondent 2 advertised in the newspapers on the 23rd January, 1954 for the
sale of the properties and assets of the Company. At the end of the conditions
of sale he stated in paragraph 7 that "the sales are for the time being
subject to the approval of the High Court 378 at Madras and it will be for the
undersigned to obtain such approval for accepted offers free of all costs to
At the time of the order of winding up, two
suits were pending in the High Court, C.S. No. 191 of 1952 filed by the Company
against the State of Madras for Rs. 1,33,204-9-0 and interest thereon being
electric charges alleged to have been collected by the State of Madras in
excess of those payable by the Company and paid by the company under protest
and C.S. No. 368 of 1953 filed by the State of Madras against the Company for
the recovery of Rs. 9,26,123-2-3 with interest thereon, being the difference
alleged to be due in respect of the electric charges under the old rates and
the revised rates applicable to the Company. During the pendency of the said
suits Respondent 2 gave an undertaking in Application No. 4533 of 1953 in Civil
Suit No. 368 of 1953 that he would not without the orders of the High Court
dispose of any of the assets of the Company which were in his possession till
the disposal of the suit C.S. No. 368 of 1953. The two suits aforesaid were
tried together and were disposed of by a common judgment on the 16th March
On the 16th July 1954 Respondent 2 agreed to
sell and Respondent 3 agreed to buy the movable properties of the Company the
particulars of which were set out in the agreement entered into on that date,
for a price of Rs. 4,01,658 of which half was paid on the signing of the
agreement and the other half was agreed to be paid out of the proceeds of sale
to be made by the purchasers of the assets as scrap.
On the 23rd July 1954 the Official Receiver,
High Court, Madras (Respondent 5 herein) filed an application No. 3542 of 1954
for setting aside the said sale of the assets of the Company on the grounds,
inter alia, that it was prejudicial to the interests of the General body of
unsecured creditors, that the same had been concluded with undue haste and
without adequate publicity and in violation of Respondent 2's said undertaking
to the Court. It also asked for an injunction restraining the Respondent 2 from
379 handing over and the Respondent 3 from either taking over or breaking up
the assets purchased by him pending, the disposal of the said application.
This application was based on a report of the
Official Receiver in which after setting out the relevant facts he submitted
that even though under section 229 of the Indian Companies Act the Company
which was admittedly insolvent was governed by rules prevailing with regard to
the respective rights of the secured and unsecured creditors and to debts provable
and valuation of annuities governing the administration in insolvency and
secured creditors generally stood outside the liquidation and were entitled to
have the remedy of realising the security and proving before him for the
deficiency, if the properties of the Company could be sold for a price higher
than the amount due to the Trustees of the debenture holders there was a
possibility of a surplus coming into his bands for the benefit of the unsecured
creditors. If the Respondent 2 proved before him for any deficiency due to the
secured creditors, it would certainly affect the rights of unsecured creditors,
and moreover though the secured creditors might realise the security, it will
be in the interests of the unsecured creditors to see that a fair and proper
price was obtained.
He therefore submitted that in the interests
of the unsecured creditors it was just and necessary to have a fair valuation
ascertained and an enquiry held to ascertain whether the sale by the Respondent
2 in favour of Respondent 3 was bona fide and for a proper price. Respondent 2
filed an affidavit in reply in August 1954 contending inter alia, (1) that the
offer by the Respondent 3 was the highest, that he had received and that this
had been accepted bona fide, (2) that in the advertisement the condition as to
the previous sanction of the Court was inserted because of the undertaking that
be had given to the Court in C.S. No. 368 of 1953 and that this undertaking
lapsed with the dismissal of the said suit on the 16th March 1954, (3) that he
had been advised by the Solicitors in England for the debenture trustees that
it was unnecessary for him to obtain 380 the sanction of the Court and that he
had been instructed not to apply for such sanction and (4) that the sale was
bona fide and he had secured as good a price as could be obtained.
By its judgment and order dated the 9th
August 1954 Mr. Justice Balakrishna Ayyar (in Chambers) dismissed the said
application with costs. The learned Judge held that the question whether Respondent
2 had violated the undertaking given by him was not germane to the application
before him, that undoubtedly the Respondent 2 did give wide publicity of his
intention to sell the assets of the Company, that it could not be said that the
sale was sub rosa on the ground of want of wide publicity to the intended sale
of the Company's assets and that the Respondent 3's offer was the best offer
received by the Respondent 2 looking both to the abstract of offers appended to
the affidavit of the Respondent 2 in the said application, and looking to the
other offers pointed out to him by Respondent 5. The learned Judge further
referred to the offer of the Corporation of Madras and said that the said
Corporation had not made any firm offer at all and that the offer of one A.
Chettiar of Rs. 4,25,000 made on 5th August 1954 during the hearing of the
application was an offer made by a person who did not appear to him to be of a
man of sound financial status. The learned Judge in his judgment also recorded
the fact that during the hearing of the application the Respondent 3 offered to
sell to the Madras Municipal Corporation the entire assets he had purchased at
the same price which he paid for it but the Corporation were not prepared to
accept the offer.
The Respondent 5 accepted the said judgment
and decision and did not prefer any appeal against the same. But the Appellants
who were not parties to the proceedings applied for and obtained from the High
Court leave to appeal from the said decision. This appeal also was dismissed by
the High Court with costs on the 24th September 1954. The High Court differed
from the finding of the Trial Court and held that due publicity had not been
given to the 381 intended sale and observed that if the matter rested merely on
a decision of that point they would have allowed the appeal and set aside the
sale. They how-' ever held that in the absence of fraud or want of bona fides
on the part of the seller along with that of the buyer the sale in favour of
the Respondent 3 could not be set aside. The High Court further considered the
question whether the said sale was void as being without the leave of the Court
in view of section 232 of the Indian Companies Act and answered that question
in the negative. The High Court further held that a secured creditor had a
right to realise his security without seeking the assistance of the court and
remaining outside the winding up.
Being aggrieved by the said judgment and
decree of the High Court the Appellants applied for leave to appeal to this
Court and such leave was granted by the High Court on the 24th September 1954.
The bona fides of the Respondent 2 in the
matter of the sale were not challenged either in the Courts below or before us
and there were concurrent findings of fact that the price obtained by
Respondent 2 was the best price available under the circumstances. It was
however urged by the learned Solicitor-General for the Appellants:-(I) that the
High Court, having found that due publicity had not been given to the intended
sale, ought not to have allowed the Respondent 3 at that stage to raise the
question as to whether the Court had any power or jurisdiction to set aside the
sale except on the ground that it was vitiated by fraud or for want of bona
fides and (2) that the sale- by Respondent 2 being a sale held without leave of
the winding up Court was void under section 232(1) of the Indian Companies Act.
The High Court bad allowed the Respondent 3 to raise the question even at that
late stage inasmuch as it was a pure question of law and the learned
Solicitor-General therefore rightly did not press the first contention before
us. The main argument centered round the second contention, viz., whether the
sale effected by the Respondent 2 without leave of - the winding up Court was
void and hence liable to be set aside.
382 The decision of this question turns upon
the true construction of section 232 of the Indian Companies 'Act, which runs
as under:- "(I) Where any company is being wound up by or subject to the
supervision of the Court, any attachment, distress or execution put in force
without leave of the Court against the estate or effects or any sale held
without leave of the Court of any of the properties of the company after the
commencement of the winding up shall be void.
(2) Nothing in this section applies to
proceedings by the Government".
It may be noted that the words "or any
sale held without leave of the Court of any of the properties" underlined
above were inserted by Act XXII of 1936. Before this amendment section 232(1)
was almost in identical terms with section 228(1) of the English Companies Act
Two other sections of the Indian Companies
Act may be noted in this context, viz. section 171:"When a winding up
order has been made or a provisional liquidator has been appointed no suit or
other legal proceeding shall be proceeded with or commenced against the company
except by leave of the Court, and subject to such terms as the Court may
impose." and Section 229:- "In the winding up of an insolvent company
the same rules shall prevail and be observed with regard to the respective
rights of secured and unsecured creditors and to debts provable and to the
valuation of annuities and future and contingent liabilities as are in force
for the time being under the law of insolvency with respect to the estates of
persons adjudged insolvent; and all persons who in any such case would be
entitled to prove for and receive dividends out of the assets of the company
may come in under the winding up, and make such claims against the company as
they respectively are entitled to by virtue of this section;" which
correspond respectively to sections 231 and 317 of the English Companies Act of
383 The position of a secured creditor in the
winding up of a company has been thus stated by Lord Wrenbury in Food
Controller v. Cork (1):
"The phrase 'outside the winding up' is
an intelligible phrase if used, as it often is, with reference to a secured
creditor, say a mortgagee. The mortgagee of a company in liquidation is in a
position to say "the mortgaged property is to the extent of the mortgage
my property. It is immaterial to me whether my mortgage is in winding up or
not. I remain outside the winding up' and shall enforce my rights as
mortgagee". This is to be contrasted with the case in which such a
creditor prefers to assert his right, not as a mortgagee, but as a creditor. He
may say 'I will prove in respect of my debt'. If so, he comes into the winding
It is also summarised in Palmer's Company
II, page 415:
"Sometimes the mortgagee sells, with or
without the concurrence of the liquidator, in exercise of a power of sale
vested in him by the mortgage. It is not necessary to obtain liberty to
exercise the power of sale, although orders giving such liberty have sometimes
The secured creditor is thus outside the
winding up and can realise his security without the leave of the winding up
Court, though if he files a suit or takes other legal proceedings for the
realisation of his security he is bound under section 231 (corresponding with
section 171 of the Indian Companies Act) to obtain the leave of, the winding up
Court before he can do so although such leave would almost automatically be
granted. Section 231 has been read together with section 228(1) and the
attachment, sequestration, distress or execution referred to in the latter have
reference to proceedings taken through the Court and if the creditor has resort
to those proceedings he cannot put them in force against the estate or effects of
the Company after the commencement of the winding up without the leave of the
winding up Court. The (1) 1923 Appeal Cases 647.
49 384 provisions in section 317 are also
supplementary to the provisions of section 231 and emphasise the position of
the secured creditor as one outside the winding up, the secured creditor being,
in regard to the exercise of those rights and privileges, in the same position
as he would be under the Bankruptcy Act.
The corresponding provisions of the Indian
Companies Act have been almost bodily incorporated from those of the English
Companies Act and if there was nothing more, the position of the secured
creditor here also would be the same as that obtaining in England and he would
also be outside the winding up and a sale by him without the intervention of
the Court would be valid and could not be challenged as void under section
232(1) of the Indian Companies Act.
It was however urged that the addition of the
words "or any sale held without leave of the Court of any of the properties"
had changed the position of the secured creditor and even though the secured
creditor realised the security without the intervention of the Court such sale,
if effected by him without the leave of the winding up Court, was void.
It was pointed out that these words did not
find their place in the corresponding section 228(1) of the English Companies
Act and therefore even though any attachment, distress or execution put in
force without leave of the Court against the estate or effects of the company
after the commencement of the winding up was void under the terms of the
section 232(1) as it originally stood, the words "or any sale held without
leave of the Court of any of the properties" of the company were wide
enough to include not only a sale held through the intervention of the Court
but also a sale effected by the secured creditor without the intervention of
the Court whether the sale was by private treaty or by public auction. It was
contended on the other hand on behalf of the contesting Respondent, Respondent that
the amendment was made in order to get over the decision of the Allahabad High
Court in Kayastha Trading and Banking Corporation Ltd. v.
385 Sat Narain Singh(1) and that in any event
on a true construction of section 232(1) as amended the words "any sale
held" had reference in the context only to sales held by or effected
through the intervention of the Court and not sales effected by the secured
creditor without the intervention of the Court.
The decision of the Allahabad High Court
above referred to had held on a construction of section 232(1) as it then
stood, that an execution was not put in force merely when the property of the
judgment debtor was sold in pursuance thereof, but it was put in force when the
property was attached and hence where the property of an insolvent company was
attached prior to the date of the commencement of the winding up but was
actually sold subsequent to such date, the sale was not void and could be
upheld. There was an earlier decision of the Patna High Court in Baldeo Narain
Singh v. The, United India Bank Ltd.(1) in which a contrary decision had been
reached exactly under similar circumstances. It is well-known that this
conflict was resolved and the decision of the Allahabad High Court was got over
by inserting this amendment by Act XXII of 1936.
The statement of objects and reasons is
certainly not admissible as an aid to the construction of a statute. But it can
be referred to for the limited purpose of ascertaining the conditions
prevailing at the time which actuated the sponsor of the Bill to introduce the
same and the extent and urgency of the evil which he sought to remedy. State of
West Bengal v. Subodh Gopal Bose and Others(3). The amendment of section 232(1)
inserted by Act XXII of 1936 was designed to prevent such sales as were upheld
by the decision of the Allahabad High Court in Kayastha Trading and Banking
Corporation Ltd. v. Sat Narain Singh(1) and it would be permissible to refer to
that portion of the statement of objects and reasons for the purpose of
ascertaining the extent and urgency of the evil which was sought to be remedied
by introducing the amendment. It follows therefore that the (1)  I.L.R.
43 Allahabad 433 (2)  38 Indian Cases 91.
(3)  S.C.R. 587, 628.
386 amendment could not have been intended to
bring within the sweep of the general words "or any sale held without the
leave of the Court of any of the properties" sales effected by the secured
creditor outside the winding up.
Even apart from this intendment there are
certain canons of construction which also tend to support the same conclusion.
Prior to the amendment the law was
well-settled both in England and in India that the secured creditor was outside
the winding up and he could realise his security without the intervention of
the Court by effecting a sale of the mortgaged premises by private treaty or by
It was only when the intervention of the
Court was sought either by putting in force any attachment, distress or
execution within the meaning of section 232(1) as it stood before the amendment
or proceeding with or commencing a suit or other legal proceedings against the
company within the meaning of section 171 that leave of the Court was necessary
and if no such leave was obtained the remedy could not be availed of by the
secured creditor. The sale of the mortgaged premises was also brought by the
amendment on a par with the attachment, distress or execution put in force at
the instance of the secured creditor and having regard to the context such sale
could only be construed to be a sale held through the intervention of the Court
and not one effected by the secured creditor outside the winding up and without
the intervention of the Court.
It is a well-recognised rule of construction
that "when two or more words which are susceptible of analogous meaning
are coupled together noscunter a soci is, they are understood to be used in
their cognate sense. They take, as it were, their colour from each other., that
is., the more general is restricted to a sense analogous to the less general.
(Maxwell on Interpretation of Statutes, Tenth
Edition, p. 332). The Judicial Committee of the Privy - Council also expressed
itself in similar terms in Angus Robertson & Others v. George Day(1):- (1)
 L.R. 5 A.C. 63, 69.
387 "It is a legitimate rule of
construction to construe words in an Act of Parliament with reference to words
found in immediate connection with them".
Having regard therefore to the context in
which these words "any sale held without leave of the Court of any of the
properties" have been used in juxtaposition with "any attachment,
distress or execution put into force without leave of the Court against the
estate or effects" it would be a legitimate construction to be put upon
them that they refer only to sales held through the intervention of the Court
and not to sales effected by the secured creditor outside the winding up and
without the intervention of the Court.
There is also a presumption against implicit
alteration of law and that is enunciated by Maxwell on Interpretation of
Statutes, 10th Edition, at page 81 in the following terms:- "One of these
presumptions is that the legislature does not intend to make any substantial
alteration in the law beyond what it explicitly declares, either in express
terms or by clear implication, or, in other words, beyond the immediate scope
and object of the statute. In all general matters outside those limits the law
remains undisturbed. It is in the last degree improbable that the legislature
would overthrow fundamental principles, infringe rights, or depart from the
general system of law, without expressing its intention with irresistible
clearness.......................... This passage from Maxwell was approved of
by Their Lordships of the Privy Council in Murugian, P. v. Jainudeen, C. L.(1)
and Their Lordships agreed that the law was correctly stated in the passage
just cited. To the same effect are also the observations of the Court of Appeal
in National Assistance Board v. Wilkinson(1) where it was held that the Statute
is not to be taken as affecting a fundamental alteration in the general law
unless it uses words pointing unmistakably to that conclusion. In that case at
page 658 Lord Goddard, C.J. observed:- (1)  3 Weekly Law Reports 682,
687, (2)  2 Q.B. 648 388 "But it may be presumed that the
legislature does not intend to make a substantial alteration in the law beyond
what it expressly declares. In Minet v. Leman(1), Sir John Romilly, M. R.
stated as a principle of construction which could not be disputed that 'the
general words of the Act are not to be so construed as to alter the previous
policy of the law, unless no sense or meaning can be applied to those words
consistently with the intention of preserving the existing policy untouched'
If the construction sought to be put upon the
words "or any sale held without leave of the Court of any of the
properties" by the Appellants were accepted it would effect a fundamental
alteration in the law as it stood before the amendment was inserted in section
232(1) by Act XXII of 1936. Whereas before the amendment the secured creditor
stood outside the winding up and could if the mortgage deed so provided,
realise his security without the intervention of the Court by effecting a sale
either by private treaty or by public auction, no such sale could be effected
by him after the amendment and that was certainly a fundamental alteration in
the law which could not be effected unless one found words used which pointed
unmistakably to that conclusion or unless such intention was expressed with
irresistible clearness. Having regard to the circumstances under which the
amendment was inserted in section 232(1) by Act XXII of 1936 and also having
regard to the context we are not prepared to hold that the Legislature in
inserting that amendment intended to effect a fundamental alteration in law
with irresistible clearness. Such a great and sudden change of policy could not
be attributed to the Legislature and it would be legitimate therefore to adopt
the narrower interpretation of those words of the amendment rather than an
interpretation which would have the contrary effect.
(Vide the observations of the Privy Council
in Vasudeva Mudaliar & Others v. Srinivasa Pillai & another(1).
(1)  20 Beav. 269.
(2) (19O7) I.L.R. 30 Madras 426, 433, 389 It
may be observed in this connection that section 171 enacts a general provision
with regard to suits or other legal proceedings to be proceeded with or
commenced against the company after a winding up order has been made and lays
down that no suit or other legal proceedings shall be proceeded with or
commenced against the company except by leave of the Court and subject to such
terms as the Court may impose. This general provision is supplemented by the
supplemental provisions to be found respectively in sections 229 and 232(1) of
the Act. Section 229 speaks of the application of insolvency rules in winding
up of insolvent companies and section 232(1) speaks of the avoidance of certain
attachments, executions, etc., put into force without the leave of the Court
against the estate and effects of the company and also of any sale held without
the leave of the Court of any of the properties of the company after the
commencement of the winding up. Section 229 recognises the position of the
secured creditor generally as outside the winding up but enables him in the
event of his desiring to take the benefit of the winding up proceedings to
prove his debt, to value the same and share in the distribution pro rata of the
assets of the company just in the same way as he would be able to do in the
case of insolvency under the Presidency Towns Insolvency Act or the Provincial
Insolvency Act. Section 232(1) also has reference to legal proceedings in much
the same way as legal proceedings envisaged by section 171 of the Act and the
attachment, distress or execution put in force or the sale held are all of them
legal proceedings which can only be resorted to through the intervention of the
Court. The word "held" in connection with the sales contemplated
within the terms of the amended section also lends support to this conclusion
and this conclusion is further fortified by the terms of section 232(2) which
says that nothing in this section applies to proceedings by the Government,
thus in effect indicating that what are referred to in section 232(1) are
proceedings within the meaning of that term as used in section 171 of the Act.
390 The Federal Court also put a similar
construction on the provisions of section 171 read with section 232(1) of the
Act in The Governor-General in Council v. Shiromani Sugar Mills Ltd. (In
Liquidation)(1) "Section 171 must, in our judgment, be construed with
reference to other sections of the Act and the general scheme of administration
of the assets of a company in liquidation laid down by the Act. In particular,
we would refer to section 232. Section 232 appears to us to be supplementary to
section 171 by providing that any creditor (other than Government) who goes
ahead, notwithstanding a winding-up order or in ignorance of it, with any
attachment, distress, execution or sale, without the previous leave of the
Court, will find that such steps are void. The ref- erence to
"distress" indicates that leave of the Court is required for more
than the initiation of original proceedings in the nature of a suit in an
ordinary Court of law. Moreover, the scheme of the application of the company's
property in the pari passu satisfaction of its liabilities, envisaged in
section 211 and other sections of the Act, cannot be made to work in
co-ordination, unless all creditors (except such secured creditors as are
"outside the winding-up" in the sense indicated by Lord Wrenbury in
his speech in Food Controller V. Cork(1) at page 671) are subjected as to their
actions against the property of the company to the control of the Court.
Accordingly, in our judgment, no narrow construction should be placed upon the
words "or other legal proceeding" in section 171. 'In our judgment,
the words can and should be held to cover distress and execution proceedings in
the ordinary Courts. In our view, such proceedings are other legal proceedings
against the company, as contrasted with ordinary suits against the
company". We are therefore of the opinion that the sale effected by
Respondent 2 as the Receiver of the Trustees of the debenture-holders on the
16th July 1954 was valid and binding on all parties concerned and could not be
challenged as it was sought to be done by the (1)  F.C.R. 40, 55.
(2) 1923 A.C. 647.
391 Official Receiver. The position was
rightly summed up by the High Court as under:- "We thus reach the position
that no leave of Court was needed before the Receiver appointed by the
mortgagee debenture-holders exercised the power of sale and that as there is no
allegation of want of bona fides or recklessness or fraud against the Receiver
in exercising such a power, it would follow that the sale held by the Receiver
is valid and effectual to convey title to the purchaser and that such a sale
cannot be avoided on the ground either of want of due notice given by the
Receiver before effecting the sale or on the ground of undervalue".
The result therefore is that the appeal fails
and must be dismissed with costs of the contesting Respondent
3. The other Respondents who have appeared
before us will bear and pay their own costs of the appeal.