The Rajah of Vizianagaram Vs. Official
Receiver, Vizianagaram [1961] INSC 316 (6 November 1961)
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.
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 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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