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TMI Blog1951 (2) TMI 11X X X X Extracts X X X X X X X X Extracts X X X X ..... as going on under three separate leases. While matters were in this state, O.P. No. 25 of 1946 was filed on the Original Side of this court by the Raja on 29th January, 1946, for winding up the company, which was ordered on 6th March, 1946. Thereafter, further proceedings relating to the winding up were transferred to the District Court of Visakhapatnam and the petitions out of which the above appeals have arisen were taken in the said District Court. On 11th July, 1950, in Application No. 732 of 1950 the proceedings have been re-transferred to the Original Side of this court and we are informed that the Official Receiver, Madras, is now in charge of the liquidation proceedings. C. M. A. No. 80 of 1948 and C. M. A. No. 251 of 1949 go together, and the other appeals, viz., C.M. A. Nos. 249, 250 and 252 of 1949 can also be considered together. We will first of all consider the main appeal, viz., C. M. A. No. 249 of 1949. This arises out of I.A. No. 135 of 1948 in which the petitioner, the Raja of Vizianagaram, was the third creditor and the respondents 2 to 9 were the foreign creditors. The Raja of Vizianagaram applied to the lower court for an order that the proof of the forei ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... onths or until further orders till the Official Liquidator completes the liquidation. It was also held that the Raja was entitled to enforce the right of pre-emption, but only with regard to particular things comprised in the clauses in particular leases for which a commissioner was appointed. Against the disallowance of the distraint in respect of rents C.M.A. No. 80 of 1948 has been preferred. C.M.A. No. 251 of 1949 is against the order in I.A. No. 136 of 1948 which was an application by the Raja under section 183 (5) of the Act and Rule 85 of the rules framed thereunder praying that the court may vary an order of the Official Liquidator dated 13th April, 1948, by adding back to the proof of the applicant as creditor the sums disallowed by the Official Liquidator. The learned District Judge modified the order of the Official Liquidator by allowing a further sum of Rs. 2,189-6-5 but in other respects the order of the Official Liquidator was confirmed; but permission was granted to the Raja to file a suit for a declaration that the acts of the Court of Wards in allowing remissions to the Vizianagaram Mining Co. will not bind him, and if he succeeds in that suit, to prove his clai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... provisions dealing with the winding up of an unregistered company. Section 2 (1), clause (2), of the Indian Companies Act defines a "company" as a company formed and registered under the Act or an existing company; and an "existing company" is defined in clause (7) as a company formed and registered under the Indian Companies Act, 1866, or under any Act or Acts repealed thereby, or under the Indian Companies Act, 1882. The winding up of such a company is governed by the provisions of Part V of the Act containing sections 155 to 247; and Part IX which contains sections 270 to 276 refers to the winding up of unregistered companies, which expression, according to section 270, "shall not include a railway company incorporated by Act of Parliament or by an Indian law, nor a company registered under the Indian Companies Act, 1866, or under any Act repealed hereby, or under the Indian Companies Act of 1882, or under this Act, but...shall include any partnership, association or company consisting of more than seven members." It is in accordance with the provisions contained in Part IX that the company under consideration has been ordered to be wound up. Section 271 is important, because th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the winding up, if there be any, in the country in which the company is registered, and therefore, if the winding up here is an independent proceeding, the creditors of the company who are resident outside India, cannot be recognised as creditors entitled to receive from the assets of the company. On the other hand, Mr. Rajah Aiyar for some of the foreign creditors stresses the fact that even in the case of a foreign company doing business in India, there is only one company and not as many companies as there are places in which it carries on business, because the company is a single legal entity carrying on business in a number of branches. If that argument is accepted, then, Mr. Rajah Aiyar says, in finding out the creditors of such a company, the question of the domicile of the creditors is irrelevant. It is open to find out who the creditors of that single company are. In the case of an ordinary creditor, the monies due to him can be realised from the assets of the company, wherever they may be; but the question in what way the creditor can realise it depends upon the law of the country where the assets are situated. If that were so, though the company is registered in Engla ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is that of the state in which it has its centre of "domicile" : See The Conflict of Laws, A Comparative Study by Rabel, Volume II, pages 31 and 33. Are we therefore constrained to hold that on this principle the foreign creditors of an unregistered company which is being liquidated in India are to be denied the right to prove their debts in Indian courts? For the contention that even if the company is being wound up in the place of its origin, when there is a winding up in India under Part IX of the Act, the proceedings here cannot be called ancillary to the winding up in the place of origin, Mr. Tiruvenkatachari has delved deep into the historical origin of such winding up proceedings and relies upon the dicta contained in various English cases to substantiate his argument that the foreign creditors cannot prove their claim here. In re Matheson Brothers Ltd. was a case where a company registered in New Zealand and having its principal place of business there, but having a branch office, agent, assets, and liabilities in England was being wound up in New Zealand and the question arose whether the English courts can make a winding up order. Kay J. was of opinion that the English c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... observations. What should be the proper procedure when a company is being liquidated in more than one place, viz., at the place of its origin and its branches outside, has been laid down by Vaughan Williams J. in In re English Scottish and Australian Chartered Bank. At page 394 the learned Judge says that, where there is a liquidation of one concern the general principle is ascertain what is the domicile of the company in liquidation; let the court of the country of domicile 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. He further expressed the opinion that the court dealing with the principal liquidation is bound to make provision for creditors in all parts of the world coming in and being heard if they think fit. Since the learned Judge held that the court dealing with the principal liquidation should make provision for creditors in all parts of the world, are we to take it that the courts where ancillary proceedings are going on are not justified in making provision for the entire body of creditors of the company, but only for such of the creditors as are within the jurisdic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... foreign courts do not always take the same view... .if there are two winding up orders, one here and one abroad, it would seem to be impossible to contend that a foreign creditor is not to be allowed to prove his debt abroad, and, if the lex fori permits it, to bring an action abroad." It is doubtful whether the following observations of Lord Atkin at page 428 really mean that foreign creditors cannot prove their debts in liquidation proceedings in an English court: "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." Some of the learned Law Lords especially Lord Russell of Kilowen and Lord Maugham did not see eye to eye with Lord Atkin in most of the conclusions arrived at by him. In this state of conflicting views expressed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d that in the liquidation proceedings, by the combined application of sections 169 and 171, he is unable to apply for the payment of the dividends in such proceedings. The further question as to whether a foreign creditor can be deemed to be a creditor within the meaning of the Companies Act can be determined by a reference to various provisions of the Act. Our attention was invited to very many provisions of the Companies Act, sections 58, 59, 60 and 64, 153, 163,166,167, 169, 171, 173 and 174 as well as to section 177A onwards. The fasciculus of sections beginning with section 221 may also be referred to. Section 228 mentions all the debts and does not exclude a creditor resident in a foreign country and section 271 expressly states that all the provisions in Part V shall apply with the exceptions and additions contained in Part IX. One has necessarily to say that if under Part V a foreign creditor can come in and apply for payment of his debt, then there is nothing to prevent the application of the same law even with respect to winding up proceedings under Part IX. The entire discussion so far has proceeded upon the likeness and similarity between the provisions of the English ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... land with regard to a debt contracted abroad with the sole restriction that he must bring into account the part of the assets which he has got hold of in a foreign country, as only one estate is being administered, is clear from In re Douglas, Banco de Portugal v. Waddell and Wiskemann, In re. Mellish L. J. at page 494 of In re Douglas observes that it is not a case where there are two distinct estates, one being administered by the law of Brazil and another being administered by the law of England, but that it is a case in which the same estate is being distributed, partly in Brazil and partly in England, but where the Brazilian law says that a certain class of creditors are to have a preference and where the law of England says that all creditors should take equally. In those circumstances Mellish L. J. was of opinion that there was nothing to prevent the application of the common rule that if a creditor comes to take the benefit of the English law and proves against the English estate, he cannot take advantage of the preference that he has received under the law of a foreign state. This decision was approved by the House of Lords in Banco de Portugal v. Waddell. To t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e matter our earnest consideration, we find it very difficult to accede to the very ingenious and learned arguments on which Mr. Tiruvenkatachari sought to rest his contention, as he himself stated that the point raised by him is bereft of direct authority: and while it does credit to his ingenuity, we feel constrained to hold that the argument is unacceptable. We are pressed with passages occurring at pages 333 and 334 of Dicey's Conflict of Laws, sixth edition, where the learned author in rule 56 concerning winding up mentions that the winding up of a company under the Companies Act of 1948 impresses the whole of the property of the company in the United Kingdom with a trust for the application, in the course of the winding up, for the benefit of persons interested in the winding up. The case of a winding up of a company not registered in England, according to the learned author, stands on a different footing. Such a winding up can deal only with the corporate character of the company in England, and it does not appear that in such a case, in the distribution of the effects, any regard can be had to matters affecting the. company outside the United Kingdom. At page 264 it is al ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e learned counsel in the case in In re Russo-Asiatic Bank to the effect that in that particular case, the debt must be deemed to be in Russia for the reason ( i ) the locality of the debt of a bank with several branches is the place where it is to be discharged; ( ii ) on the true construction of the documents the debt was an obligation of the head office; and ( iii ) the contract was made in Russia, and no negotiations were ever carried on through the branch house in London, were sought in aid for the contention regarding the situs of the debt. Though there are stray sentences here and there in the judgment of Eve J. regarding the situs of the debt, it seems to us that there are no explicit declarations which can be considered as a guiding principle in a matter like this in that judgment. Other cases relied upon for this branch of the argument are Rex v. Lovitt, New York Life Insurance Co. v, Public Trustee, a well known case, English Scottish and Australian Bank Ltd. v. Inland Revenue Commissioners, and British Columbia Electric Rly. Co. Ltd. v. The King. In Rex v. Levitt, their Lordships of the Judicial Committee were dealing with the actual situs of the prop ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , as we have held, all the creditors of the company have to be recognised as being entitled to be paid out of its assets, the location or the place where the debts were incurred cannot be considered as a prime factor. The situs of the debt becomes important, only with regard to administration and succession. See Dicey's Conflict of Laws, pages ;303 and 307 where the situation of property is discussed.: See also Private International Law by Cheshire, third edition, at pages 595, 597, 599, 602 and 608 and 612. It was further contended that in fixing the contributories of a company that is being wound up, it is only those who are resident in India that can be made to contribute for the debts and conversely with regard to creditors resident outside, they cannot be entitled to prove their claims here. A judgment of this court in Application No. 1847 in O.P. No. 158 of 1938 as well as the decisions in In re The Indian Companies Act and In re Strauss Co. Ltd. were referred to. We do not think that anything useful can be derived from these authorities for the determination of the present question. It seems to us that the Privy Council in State Aided Bank of Travancore Ltd. v. Dh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rch, 1946, the application was filed on 29th January, 1946, and therefore if at that time the debt was subsisting, then there is no difficulty with regard to the proof of it. The learned District Judge refers to Exhibit P-16 also where the provisional liquidator is said to have acknowledged the liability, but neither Exhibit P-14 nor Exhibit P-15 can revise the liability if it was not subsisting after June 1940. Our attention was drawn to Exhibit P-1 filed in I.A. No. 124 of 1948, dated 6th October, 1944, which is a report of the directors of the Vizianagaram Mining Company for the year ended 31st December, 1943, where among the liabilities there is an entry, "Sundry creditors, London, 17,541." We are told that the sum of 9,500 is included in this sum of 17,541. That is proved by the affidavit of one of the directors. It is further contended that in accordance with the decision in Jones v. Bellyrqve Properties Ltd. such a statement in a balance sheet would be sufficient to save limitation. The learned counsel for the Raja invites our attention to Mitra's Law of Limitation and Prescription, Volume I, page 180, seventh edition, as well as to. a decision of this court ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the company could not have sued for the amount due to them as they were detained in enemy occupied country, in the words of section S of Ordinance XXXIII of 1945, then it stands to reason that the debtor in India could not also have paid the amount to the creditor as the latter was in enemy occupied country. Under such circumstances, it cannot be said that the debtor, who, though he would have been ready and willing to pay the amount still for no fault of his was unable to pay to the creditor, should be mulcted with the liability of interest running against him. This also is a consideration for refusing interest during the intervening period even if there has been an agreement to pay interest. The other question which Mr. Dikshitulu has argued is that on a proper construction of Exhibit P-12, the agreement between Vizianagaram Mining Company and the S. A. Beige Miniers et Commerciale, dated 31st December, 1930, there is a charge on the ore quarried from the mines for the loans advanced and therefore the company is entitled to a preferential claim on 9,500. The learned District Judge holds that section 109 of the Indian Companies Act is quite clear that every mortgage or charge ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... idenced, or a copy thereof verified in the prescribed manner, are filed with the registrar for registration in the manner required by the Act within 21 days after the date of its creation. It is urged before us that on a true and proper construction section 109(1) ( e ) and ( f ) of the Act cannot have any application to the facts of the present case and reliance is placed upon In re East Africa Hardware Company where Tendolkar J. held that if the moveable property is stock-in-trade it would not require registration for creating a mortgage or charge. The learned Judge was of opinion that in the punctuation of clause (3) one must read after the word "pledge" a comma in order that the clause may be properly understood and reading in that way, the result would foe that a pledge would not require registration, though a mortgage or a charge on moveable property would require registration provided the moveable property was not stock-in-trade. We feel that the learned Judge's construction of clause ( e ) is one that does not commend itself to us. The expression stock-in-trade at the end of the clause is intended to govern moveable property of the company referred to earlier. In our opin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as also relied upon to show that no registration is necessary. In view of our interpretation of section 109 (1) (e) and (f) we cannot say that section 277-D takes away the compulsory nature of the registration. The above discussion proceeded on the footing that Exhibit P-12 is a valid and concluded agreement between the parties, but Mr. E. Venkatesam for the Official Liquidator contends that Exhibit P-12 has not been signed by anyone on behalf of the company but that it is a unilateral document to which only the Belgian Company's representative has affixed his signature. The Official Liquidator was of opinion that the agreement cannot be accepted as a concluded contract between the Vizianagaram Mining Company and the fifth creditor, the appellant in C.M.A. No. 103 of 1950. He has given various reasons for holding that it is not a completed contract. While not disagreeing with the Official Liquidator in his conclusions, we do not wish to rest our decision on the basis that Exhibit P-12 was a unilateral transaction to which the Vizianagaram Mining Company was not an assenting party, because the subsequent correspondence between the representative of both the companies shows that th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... functions. We are therefore of opinion that the Official Liquidator must pay the Raja of Vizianagaram rent for the building at Rs. 280 per mensem from 6th March, 1946, till the date of surrender. Section 230 of the Act cannot deprive the Raja of his right to be paid rent up to the date of surrender. Mr. Venkatesam contends that with regard to the royalties for 1945 the books of the company were inspected by the Raja's agents and they were not able to find out that any minerals were quarried during that period and as such in the absence of any work having been turned out, the Raja was not entitled to any royalty. Mr. Rami Reddi for the Raja is not able to controvert this statement and therefore we are not in a position to say whether any royalties were due to the Raja for the year 1945. If the Raja is able to show hereafter that there was any working during 1945, then he is entitled to claim royalty on that account also. Exhibits P-1, P-2 and P-3 do not show that there was any rent reserved for the working of the mines except the royalty. With regard to the claim of the Raja to distraint, we agree with the learned District Judge that he is not entitled to distraint. The result is th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... this appeal, Arthur Stanley Lindley, the petitioner in the lower court, claimed a sum of 746-1-2 as being due to him and the question here is one of Imitation. The lower court has held that it is included in the item of 4,897-7-7 relating to sundry creditors as contained in the balance sheet Exhibit P-1. In Jones v. Bellgrove Properties Ltd., the Court of Appeal held that where a balance sheet presented to the shareholders at an annual general meeting of a limited liability company signed by the chartered accountants, etc., contained the statement "to sundry creditors 7,638 6s. 10 d." and it was proved by a witness from the firm of chartered accountants which had signed the balance sheet that the debt of 1,807 owed by the company to the plaintiff was included in the sum of 7,638 6s. 10 d. stated in the balance sheet to be due to sundry creditors, the balance sheet contained an acknowledgment to the plaintiff in writing signed by the agents of the company that the debt of 1,807 at the date of the annual general meeting remained unpaid and due to the plaintiff. Therefore by virtue of sections 23 and 24 of the Limitation Act, 1939, the debt was held to be recoverable. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... company was not in a position to pay either the rents to the lessor or its creditors, the Court of Wards on behalf of the present Raja of Vizianagaram filed O.P. No. 25 of 1946 in this court on 29th January, 1946, for the winding up of the company and the same was ordered on 6th March, 1946, and the Official Receiver of Visakhapatnam has been appointed the Official Liquidator of the company. Thereafter it was transferred to the District Court of Visakhapatnam for further proceedings. Subsequently on an application, I.A. No. 732 of 1950, it was re-transferred to this court In the winding up proceedings, all the available assets of the company in India were sold and a sum of about two lakhs of rupees was realised. In these proceedings, the foreign creditors of the company, most of whom are either the respondents or the appellants in these appeals, also filed proof of their claims before the Official Liquidator. The Raja of Vizianagaram, who is one of the creditors of the company in respect of the various transactions, objected to the claims of the foreign creditors being entertained on the ground that the present liquidation is only for the benefit of Indian creditors and that the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , that would militate against the principle of equality which underlies the scheme of the Bankruptcy Act as well as of the Companies Act. It is urged by him that while the creditors of Indian nationality are precluded from proving their claims in the liquidation of the foreign concern in the country of its domicile or to take any other appropriate proceedings in respect of the balance of amount due to them, the foreign creditors, if allowed to prove their debts here and get a dividend, could proceed against the foreign company and its assets elsewhere which amounts to an invidious distinction between the two sets of creditors. It should therefore be held, argues Mr. Tiruvenkatachari, that the liquidation of the company in India is for the benefit of the local creditors only. According to him Part IX of the Indian Companies Act creates a new statutory entity so far as the Indian branch of the foreign company is concerned and the winding up can only be in regard to the working of the company in India as under sections 270 to 276 of the Companies Act it is treated as a separate concern. The answer given by Mr. Rajah Aiyar, the learned counsel for some of the respondents, is that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the principles of international comity, the English court would have great regard to the winding up order made in the country of domicile and be mainly influenced thereby, the existence of the winding up of the parent concern did not take away the jurisdiction of the English court to make a winding up order in En-land. The observations of the learned Judge at page 231 are apposite: '' .I consider that I am justified in taking steps to secure the English assets until I see that proceedings are taken in the New Zealand liquidation to make the English assets available for the English creditors part passu with the creditors in New Zealand." In In re Commercial Bank of South Australia, a similar question arose, and there also it was held that the fact that at the time when the petition for winding up the English branch of the Commercial Bank of South Australia incorporated in Australia was filed, winding up proceedings in respect of the main concern were pending in Australia, would not affect the jurisdiction of the English court within whose jurisdiction the branch is located. But the learned Judge, North J., expressed the opinion that the winding up in England would be anc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... glish company having a branch in Victoria would bind a non-assenting creditor who has filed a suit against the company in Victoria to recover a loan advanced in Victoria to the company and whether such a scheme of arrangement was a bar to his action in Victoria. Dealing with that question Lord Davey observed that all the creditors of a company are entitled to be summoned to any meeting ordered by the court and to participate therein and that the words ''all creditors" refer to the creditors not only resident in the United Kingdom but in the colonies or in foreign countries. The views of Maugham J. in In re Vocation ( Foreign ) Limited may be referred to usefully. There, a company incorporated in England which was carrying on business in Australia also was ordered to be wound up. An English creditor who had a claim against an Australian branch filed a suit in Australia. The question arose whether the creditor should be restrained from proceeding with his suit. In dealing with that point, Maugham J., at page 207, after stating that it has been the view of the English courts that the principal winding up should be in the principal domicile of the company, and that any other win ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nly indicate that the question was left open. In re Banca Commerciale Italiana, the Banca Commerciale Italiana which was a bank established under the laws of Italy was carrying on banking business in England also. The English branch of the bank was directed to be wound up by an order made under the Defence (Trading with the Enemy) Regulation?, 1940, It was held there that the winding up order under the Regulations created a new entity which can take into consideration its assets and liabilities in England only. But this case does not afford us any help as the liquidation was under the Defence Regulation of 1940 which has specifically provided for such a procedure. In In re Suidair Ltd, Wynn-Parry J. laid down that although the court of the country of domicil acts as the principal court to govern the liquidation and the other courts act as ancillary to the principal liquidation, the desire to assist in the main liquidation should not make the court acting as the ancillary to give up the forensic rules which govern the conduct of its own liquidation. The passage on which reliance was placed by the counsel for the appellants occurs at page 924: "It appears to me that the sim ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... far as possible to secure equal distribution for all creditors, British India or foreign. The underlying principle seems to be one of co-operation based on the essential principles of justice and equity". A reference to the relevant passages in the standard books on company law has convinced us that there is no basis for a distinction based on the nationality of a creditor as sought to be drawn by the learned counsel for the appellants, that is, between the creditors of the company resident within the jurisdiction of the court over the unregistered company and its foreign creditors. At page 409 of Buckley on the Companies Acts, 12th edition, under the topic 'Class of Creditors', it is stated that, "Foreign or colonial creditors (in the sense in which these words are used above) may of course come in and prove; and as against the assets within the jurisdiction, they may, upon the principles above suggested, be bound by the scheme." Palmer in his book on Company Law (19th Edition by Topham) says at page 379 that any person to whom money is due by a company is a creditor entitled to present a petition for the winding up of the company. This view seems to be shared by the other ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... egistered company and could also apply for its liquidation, is precluded from proving his debt the moment that company's affairs are wound up. It has also to be noted that by reason of sections 169 and 171, a creditor is prevented either from filing a suit or from continuing it if he has already filed it the moment the company is liquidated. It follows that if a creditor is prevented from pursuing his remedies against the company by the intervention of its liquidation, he would be entitled to prove his claim in liquidation, and the winding up cannot be to his disadvantage. Further an examination of relevant sections of the Companies Act shows that no such distinction between the creditors resident in India and foreign creditors as sought to be made on behalf of the appellants is contemplated under the Act. It is not necessary to refer to them in detail. Suffice it to say that the scheme of the Act seems to be to treat all the creditors alike irrespective of their nationality. In reaching a conclusion on this question, I think the principle laid down in the following cases with regard to the proof of debts in bankruptcy is a valuable guide: Graham v. Chambell, Banco de Portugal ..... X X X X Extracts X X X X X X X X Extracts X X X X
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