1961 (11) TMI 34 - SC - Companies Law

Whether foreign creditors of a firm which was incorporated 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? Held that - It is clear from the 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 fictitious 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 unregistered company which is being wound up should be deemed to be a separate entity from the original company incorporated in England. Thus 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. Appeal dismissed.

Issues Involved:
1. Whether foreign creditors of a firm incorporated in England and operating in India can prove their claims in the winding-up proceedings of the firm as an unregistered company in India.

Issue-wise Detailed Analysis:

Issue 1: Whether foreign creditors can prove their claims in the winding-up proceedings of a firm incorporated outside India but operating in India.

Facts and Background:
The Vizianagaram Mining Co. Ltd., incorporated in England, carried out business in India. Due to unprofitability, it could not pay its creditors, leading to winding-up orders by the High Court of Madras. The Official Receiver of Vizagapatam was appointed as the liquidator, and foreign creditors filed proofs of their claims. The appellant objected, arguing that liquidation proceedings should benefit only Indian creditors.

Appellant's Contention:
1. Separate Entity Argument: The winding-up of an unregistered company in India should be treated as independent from the main company incorporated outside India, limiting the proceedings to Indian assets and creditors.
2. Liquidator's Limitations: The Indian liquidator cannot access foreign assets or contributories, thus foreign creditors should not prove their debts in India.
3. Relation to Indian Business: Even if allowed, foreign creditors should only prove debts related to the company's business in India.

Respondent's Argument:
1. Indian creditors can prove claims in foreign countries, so foreign creditors should be allowed to prove their claims in India.
2. The Act does not distinguish between foreign and Indian creditors.
3. The winding-up pertains to the main company, not just its Indian operations, thus foreign creditors should not be barred.

Legal Provisions and Analysis:
1. Section 270 and Section 271 of the Indian Companies Act, 1913: Define "unregistered company" and allow winding up of companies incorporated outside India but operating in India. The Act applies to such companies without distinguishing between Indian and foreign creditors.
2. Section 272 and Section 156: Define contributories and their liabilities, without distinguishing between Indian nationals and foreigners.
3. Section 166 and Section 167: Allow any creditor, regardless of residency, to apply for winding up and benefit from the proceedings.
4. Section 211 and Section 228: Mandate pari passu distribution of assets to all creditors, including foreign creditors, and allow all claims against the company to be proved.

Case Law and Precedents:
1. In re Commercial Bank of South Australia: Established that winding up in one country can be ancillary to another, ensuring no conflict and considering all creditors' interests.
2. In re English, Scottish, and Australian Chartered Bank: Highlighted the principle of assisting in main liquidation while adhering to local forensic rules.
3. Russian and English Bank v. Baring Brothers: Affirmed that dissolved foreign companies could be wound up as though they continued to exist, ensuring asset distribution among all creditors.
4. In re Azoff-Don Commercial Bank: Emphasized that winding-up orders aim to distribute assets among all creditors fairly.
5. In re Hibernian Merchants Ltd.: Reiterated that the Companies Act does not permit exceptions in winding-up orders to exclude foreign creditors.

Conclusion:
The Supreme Court affirmed that the High Court correctly allowed foreign creditors to prove their claims. The Act's provisions and general principles support the inclusion of foreign creditors in the winding-up proceedings of unregistered companies operating in India. The appeal was dismissed with costs, upholding the principle of equitable distribution among all creditors.

Judgment:
The appeal is dismissed with costs, affirming that foreign creditors can prove their claims in the winding-up proceedings of the unregistered company in India.

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