1971 (11) TMI 96 - HC - Companies Law

Winding up Suits stayed on winding-up order, Custody of company s property, Application of insolvency rules, Overriding preferential payments

Issues Involved:
1. Validity and effect of attachments levied on the company's properties by various creditors.
2. Legal implications of winding-up orders on such attachments.
3. Rights of unsecured creditors in the context of winding-up proceedings.
4. Role and powers of the official liquidator in dealing with attached properties.
5. Jurisdiction and powers of the court under section 446 of the Companies Act.
6. Relevance of sections 529, 531, 531A, 536, 537, and 511 of the Companies Act.
7. Applicability of rules 232 and 233 of the Companies (Court) Rules, 1959.
8. Consideration of section 537(2) regarding dues payable to the Government.

Detailed Analysis:

1. Validity and Effect of Attachments Levied on the Company's Properties by Various Creditors:
The attachments were levied by respondents Nos. 1 and 2, officers of the revenue department, on behalf of various creditors of the company. The liquidator argued that once a winding-up order is made, these attachments no longer survive, and the liquidator can deal with the property as if it was not attached. The court examined the legal effect of such attachments, noting that attachment only prevents alienation and does not confer title. It was emphasized that "attachment creates no charge or lien upon the attached property."

2. Legal Implications of Winding-Up Orders on Such Attachments:
Upon a winding-up order, all the property and effects of the company are deemed to be in the custody of the court. The liquidator, acting on behalf of the court, must take custody or control of all the company's property. The court highlighted that the purpose of winding-up provisions is to ensure just and equitable distribution of the company's assets among all unsecured creditors, who are to be paid pari passu. Therefore, any attachment levied before the winding-up order, without further action, would not survive against the liquidator.

3. Rights of Unsecured Creditors in the Context of Winding-Up Proceedings:
The court reiterated that all unsecured creditors must be treated equally and paid pari passu. The object of winding-up provisions is to avoid a scramble for the company's assets and ensure fair distribution. An attaching creditor, who has not taken further action beyond attachment, is considered an unsecured creditor, similar to others who have not obtained any attachment.

4. Role and Powers of the Official Liquidator in Dealing with Attached Properties:
The liquidator is responsible for collecting all the assets of the company and applying them to discharge its liabilities. If the liquidator encounters obstacles, such as attachments, it is obligatory to remove them through appropriate court proceedings. The liquidator's custody of the property is deemed to be the custody of the court, and the liquidator can sell the property free from all encumbrances.

5. Jurisdiction and Powers of the Court under Section 446 of the Companies Act:
The court has the power to entertain or dispose of any claim made by or against the company, including claims involving attached properties. The court must ensure that no legal cloud subsists over the company's property, and if an attachment cannot be legally sustained, the court has jurisdiction to remove it.

6. Relevance of Sections 529, 531, 531A, 536, 537, and 511 of the Companies Act:
Section 511 mandates that the company's assets be applied in satisfaction of its liabilities pari passu. Sections 531 and 531A address the avoidance of fraudulent preferences. Section 537(1) declares attachments levied after the commencement of winding-up void. These provisions collectively ensure that all unsecured creditors are treated equally and prevent any creditor from gaining an unfair advantage.

7. Applicability of Rules 232 and 233 of the Companies (Court) Rules, 1959:
Rules 232 and 233 place the official liquidator in the position of a receiver, enabling the liquidator to acquire and retain possession of the company's property. These rules support the liquidator's role in ensuring that the company's assets are available for just and equitable distribution among creditors.

8. Consideration of Section 537(2) Regarding Dues Payable to the Government:
Section 537(2) exempts proceedings for the recovery of taxes or dues payable to the Government from the general rule that attachments after winding-up are void. However, the court noted that the full import of this provision could not be examined in this case due to the lack of relevant facts.

Conclusion:
The court concluded that the attachments levied by the first and second respondents at the instance of various creditors are of no effect against the official liquidator and must be raised. The court directed respondents Nos. 1 and 2 to remove the entries from the government records made pursuant to the attachments. The costs of the liquidator are to come out of the assets of the company.

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