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Chittoor District Co-operative Marketing Society Ltd. Vs. Vegetols Ltd. (In Liquidation) and ors. - Court Judgment

LegalCrystal Citation
SubjectTrusts and Societies;Company
CourtAndhra Pradesh High Court
Decided On
Case NumberCompany Application Nos. 79, 83 and 122 of 1965 in Original Petition No. 4 of 1957
Judge
Reported in[1968]38CompCas687(AP)
ActsMadras Co-operative Societies Act, 1932 - Sections 61; Andhra Pradesh Co-operative Societies Act, 1964 - Sections 129; Companies Act, 1956 - Sections 536(2)
AppellantChittoor District Co-operative Marketing Society Ltd.
RespondentVegetols Ltd. (In Liquidation) and ors.
Appellant AdvocateP. Ramachandra Reddy, ;E. Kalyanram, Advs. in Application Nos. 79 and 122 of 1965 and ;T. Lakshmaiah, Official Liquidator in person in Application No. 83 of 1965
Respondent AdvocateP. Ramachandra Reddy, ;E. Kalyanram, Advs. in Application No. 83 of 1965 and ;T. Lakshmaiah, Official Liquidator for 3rd Respondent in Application Nos. 79 and 122 of 1965
Excerpt:
trusts and societies - winding up - section 61 of madras co-operative societies act, 1932, section 129 of andhra pradesh co-operative societies act, 1964 and section 536 (2) of companies act, 1956 - respondent (company in liquidation) was member of appellant society - appellant advanced sum to respondent - arbitration reference under section 51 filed for recovery of sum - society received some amount after commencement of winding up - official liquidator (ol) claimed refund under section 536 - any disposition of property of company made after commencement of winding up shall unless court otherwise orders be void as per section 536 (2) - payment made by company in liquidation after commencement of winding up are refundable to ol - provisions of indian companies act pertaining to.....order of single judgenarasimhan, j. 1. in company application no. 79 of 1965 the chittoor district co-operative marketing society ltd., chittoor, is the applicant and has preferred the same against the order of the official liquidator allowing the society's claim for rs. 38,070.98 as that of an ordinary creditor. the grievance of the society is that it should be deemed as a secured creditorand not an ordinary creditor and that is the matter which arises for consideration on merits in c. a. no. 79 of 1965.2. company application no. 83 of 1965 was filed by the official liquidator under sections 468, 477 and 536 of the companies act, 1956, read with rule 9 of the companies (court) rules, 1959. inter alia, the official liquidator alleged that as per the account books of the company in.....
Judgment:

ORDER OF SINGLE JUDGE

Narasimhan, J.

1. In Company Application No. 79 of 1965 the Chittoor District Co-operative Marketing Society Ltd., Chittoor, is the applicant and has preferred the same against the order of the official liquidator allowing the Society's claim for Rs. 38,070.98 as that of an ordinary creditor. The grievance of the Society is that it should be deemed as a secured creditorand not an ordinary creditor and that is the matter which arises for consideration on merits in C. A. No. 79 of 1965.

2. Company Application No. 83 of 1965 was filed by the official liquidator under sections 468, 477 and 536 of the Companies Act, 1956, read with rule 9 of the Companies (Court) Rules, 1959. Inter alia, the official liquidator alleged that as per the account books of the company in liquidation (the Vegetols Ltd.) it was found that sums aggregating Rs. 62,231.25 were paid to the Society from the company's assets during the period from June 10, 1957, to March 31, 1960. The sums were set out in a schedule appended to the application. As these payments were made after April 11, 1957, the date of commencement of the winding up of the company, he claimed a refund of these amounts under Section 536 of the Companies Act. He stated in the application that the receipt of the said amounts was also admitted by the society in the proof affidavit filed before him, and that he had also required the society to pay the amounts by notice which was not complied with. He also claimed to summon and examine a representative of the society under Section 477 of the Companies Act.

3. It is said that no counter has been filed for this application. The respondent in this petition is the society.

4. C. A. No. 122 of 1965 is a petition under Section 536(2) of the Companies Act in which the petitioner is the society and the respondents are the company in liquidation (R-1), C. P. Sarathy Mudaliar, partner of the managing agency of the company, Khalsar & Co. (R-2) and the official liquidator (R-3). In that application the petitioner prayed to validate Rs. 62,231.25 received subsequent to the filing of the petition for liquidation, that is to say, the commencement of the liquidation.

5. The official liquidator has filed a counter opposing the petition stating that the payments cannot be validated.

6. Shri P. Ramachandra Reddy, the learned counsel for the society, a creditor of the company in liquidation, raised a legal point that the provisions of the Companies Act, 1956, do not apply to the society and referred to section 61 of the Madras Co-operative Societies Act, 1932 (Madras Act VI of 1932) and Section 129 of the Andhra Pradesh Co-operative Societies Act, 1964 (Act No. VII of 1964). The latter enactment repealed the earlier enactment and had come into force on the 1st of August, 1964. He invoked section 61 of the Madras Co-operative Societies Act, 1932, with reference to C. A. No. 79 of 1965 as the claim was filed by the society before the official liquidator on October 17, 1960, i.e., prior to the coming into force of the Act of 1964. He invoked Section 129 of the Andhra Pradesh Co-operative Societies Act, 1964, with reference to C. A. No. 122 of 1965 filed after coming into force of the Act of 1964. Relying on these provisions the learned counsel has argued that the company court has no jurisdiction to go intothese matters and that as it is a jurisdictional matter, he could raise that question here and is not estopped by reason of his having invoked certain reliefs under the Companies Act, before the official liquidator and before this court. It is in the said circumstances that the question has arisen as to what is the scope of the said provisions. The said provisions may be reproduced here for convenience.

7. Section 61 of the Madras Co-operative Societies Act, 1932 (Madras Act VI of 1932) adopted by the Andhra Pradesh Co-operative Societies Act, 1964, reads as follows :

'The provisions of the Indian Companies Act, 1913 (VII of 1913) shall not apply to registered societies.'

8. Section 129 of the Andhra Pradesh Co-operative Societies Act, 1964 (Act No. VII of 1964) reads as follows :

' Certain Acts not to apply.--The provisions of the Companies Act, 1956 .........shall not apply to societies.'

9. By reason of Section 18 of the Andhra Pradesh General Clauses Act, 1891 (1 of 1891), it is submitted that a reference in Section 61 of the Madras Co-operative Societies Act, 1932, to the Indian Companies Act, VII of 1913, must be understood as a reference to the Companies Act, 1956.

10. The learned counsel urged that by reason of these provisions, the applications made by the Society for the reliefs mentioned and the application made by the official liquidator do not lie.

11. The learned official liquidator has contended that the provisions relied on have to be understood in a limited sense in that the provisions of the Companies Act shall not apply to Societies to the extent to which express provisions are made under the Co-operative Societies Act with regard to registration, management, winding up of societies, etc., and secondly he contended that if a wider meaning is canvassed, viz., that the provisions of the Companies Act are entirely excluded, the sections are invalid as trenching on the law enacted by the Central Legislature or the Parliament. The learned official liquidator also submitted that if the provisions of the Companies Act are entirely excluded, the material provisions of the Companies Act about the collection and distribution of assets would be contravened. As an instance, he recalls that under Section 456(2) of the Companies Act, all the property and effects of the company shall be deemed to be in the custody of the court as from the date of the order for the winding-up of the company and under Section 537 of the Companies Act where any company is being wound up, any attachment, distress or execution put in force against the estate or effects of the company, after the commencement of the winding-up, or any sale held of any of the properties or effects of the company after such commencement shall be void. If, as is urged for the Society, the Co-operative Societies Act pushed through any attachment,distress or execution for recovery of debts by sale of properties without reference to the company court and obtained its loan, that would be directly conflicting with this provision. He also submits that if the Society as its creditor seeks its own remedies de hors the provisions of the Companies Act, that would be directly in conflict with the principle of pari passu distribution among the creditors. He also instanced several other provisions which would be contravened by excluding the provisions of the Companies Act altogether. He would, therefore, say that the provision has to be understood in a restricted sense; and if it is construed otherwise it has to be invalid as offending the provisions of a Central enactment.

12. My attention is invited to a ruling of the Privy Council, Prafulla Kumar Mukherjee v. Bank of Commerce Ltd, A.I.R. 1947 P. C. 60.., which considered the question of the validity of the Bengal Money-Lenders Act, 1940. That Act provided certain limits for the recovery of the amount by a money-lender on his loans for principal and interest due on promissory notes. A contention was raised that the money-lenders who were engaged in banking and were holders of promissory notes, matters which were solely within the federal jursidiction, could not be affected by an Act of the provincial legislature and so the Act was void so far as it concerned promissory notes or banking. The questions which were posed for consideration, were :

1. Does the Act in question deal in pith and substance with money-lending ?

2. If it does, is it valid though it incidentally trenches upon matters reserved for the federal legislature ?

3. Once it is determined whether the pith and substance is money-lending, is the extent to which the federal fields is invaded a material matter

13. The Judicial Committee held that the pith and substance of the Act being money-lending it was within the competence of the provincial legislature and it was not rendered invalid because it incidentally trenches upon matters reserved to the federal legislature.

14. The Supreme Court has also adopted the reasoning of the Privy Council in A.S. Krishna v. State of Madras, : 1957CriLJ409 ., where the validity of Sections 4(2) and 28 to 32 of the Madras Prohibition Act No. X of 1937 arose for decision. It was contended that those provisions were repugnant to the provisions of the existing Indian laws respecting the same matters, viz., Indian Evidence Act (I of 1872) and Criminal Procedure Code (No. V of 1898). In paragraph 12 of the judgment (at page 303) the Supreme Court in the light of the decisions expressed itself thus :

' The position, then, might thus be summed up: When a law is impugned on the ground that it is ultra vires the powers of the legislaturewhich enacted it, what has to be ascertained is the true character of the legislation. To do that, one must have regard to the enactment as a whole to its objects and to the scope and effect of its provisions. If on such examination it is found that the legislation is in substance one on a matter assigned to the legislature, then it must be held to be valid in its entirety, even though it might incidentally trench on matters which are beyond its competence. It would be quite an erroneous approach to the question to view such a statute not as an organic whole, but as a mere collection of sections, then disintegrate it into parts, examine under what heads of legislation those parts would severally fall, and by that process determine what portions thereof are intra vires, and what are not. '

15. Having stated so the learned judges considered the provisions and upheld the validity.

16. In the present case also, the question raised is one of importance and Has far-reaching consequences. The matter does not appear to be covered by any authority. The learned counsel have expressed their desire that the matter deserves the attention of a Division Bench. I agree with them. I, therefore, refer the questions of law raised before me to a Division Bench.

17. The questions of law raised are--firstly, what is the true scope of Section 61 of the Madras Co-operative Societies Act, 1932 (Madras Act VI of 1932) and Section 129 of the Andhra Pradesh Co-operative Societies Act, 1964 (Act No. VII of 1964); and secondly, whether those provisions conflicting with the express provisions of the Indian Companies Act, 1913, formerly and the Companies Act, 1956, as now enacted are invalid.

18. The matter may be placed before the Honourable Chief Justice for orders to constitute a Bench for hearing the matter.

19. The disposal of these applications will await the decision of the Bench.

20. In pursuance of the above said order these applications came up for hearing on February 12, 1968, before a Bench consisting of the Honourable P. Jaganmohan Reddy, Chief Justice and the Honourable Mr. Justice A.D.V. Reddy and the Court made the following order on 13-2-1968.

ORDER OF DIVISION BENCH CONSISTING OF P. Jaganmohan Reddy C.J. and

A. D. V. Reddy J.

P. Jaganmohan Reddy, C.J.

21. Our learned brother, Narasimhan J., has referred the following questions of law for our decision, namely :

' 1. What is the true scope of Section 61 of the Madras Co-operative Societies Act, 1932 (Madras Act VI of 1932), and Section 129 of the Andhra Pradesh Co-operative Societies Act, 1964 (Act No. VII of 1964) and

2. Whether those provisions conflicting with the express provisions of the Indian Companies Act, 1913 formerly, and the Companies Act, 1956, as now enacted, are invalid ?'

22. These questions arose out of the following facts, namely, that the Chittoor District Co-operative Marketing Society Ltd., Chittoor, hereinafter referred to as the Society, had advanced certain amounts to the Vegetols Ltd., Chittoor, hereinafter referred to as the company. The managing director of the company appears to have executed a personal bond undertaking to pay the sums so advanced in the event of failure of the company to repay the amounts. It may be stated that the company was also a member of the Society. The Society demanded repayment of the monies advanced by it to the company, and on a dispute being raised, the matter was heard under Section 51 of the Madras Co-operative Societies Act, 1932 (Madras Act VI of 1932), hereinafter called the Societies Act, by the Registrar who ultimately passed an award. A compromise was effected before the Registrar, who passed a decree on August 10, 1955, for payment of Rs. 97,000 with interest at the rate of five per cent. per annum till the full amount is discharged in favour of the Society by the company. The above decree was an instalment decree payable at the rate of Rs. 3,000 per month with a default clause that, if any three consecutive instalments were not paid, the entire decree was capable of being executed either by the Deputy Registrar or the civil court. After this decree certain amounts appear to have been paid by the company when ultimately it went into liquidation on a creditor's petition in O.P. No. 4/57 filed on April 11, 1957. A winding-up order in relation to the company was passed by a company judge of this court on February 23, 1958.

23. Against this an appeal, being O.S. Appeal No. 3 of 1958, was filed and stay was obtained. After the stay order was passed and during the pendency of the appeal, it appears--and these facts are not denied by either party--the managing director, pursuant to the bond executed by him in favour of the Society undertaking to pay the amounts in default of the company repaying the sums, paid certain amounts from time to time amounting to Rs. 62,231.25 p. Ultimately, the said appeal when it came up for hearing was dismissed on March 22, I960.

24. The official liquidator thereafter took out a petition being C.A. No. 83/65 under Sections 468, 477 and 536 of the Indian Companies Act, 1956, hereinafter called the Companies Act, read with Rule 9 of the Companies (Court) Rules, 1959, for recovery of the; amounts paid to the Society after April 11,1957. i.e., after the commencement of the winding-up proceedings. It is also not disputed that though the order was made subsequently on February 23,1958. the winding-up order under the law by virtue of Section 41(2) of the Companies Act, will be deemed to have commenced from the date of the application, and in this case from April 11, 1957. The payments made to the Society were from June 10, 1957 to March 31, 1960, i.e., after April 11, 1957.

25. On the application of the official liquidator the court directed notice to the Society and proceedings were taken for the recovery of the amounts. The persons concerned were examined under Section 477 of the Companies Act. It may be stated that the Society filed an application C.A. No. 79/65 before the official liquidator asking him to pay Rs. 38,070.98 nP. being the balance of the amount due after adjustment of Rs. 69,000. This amount was claimed as a secured creditor. The official liquidator allowed the Society's claim as an ordinary creditor and not as a secured creditor. It may be stated that immediately after the official liquidator took out proceedings to recover the amounts, the society took out C.A. No. 122/65 which was under Section 536(2) of the Companies Act for the validation of the amounts received subsequent to the filing of the application for liquidation.

26. It appears that when the matter came up before our learned brother Narasimham J., an objection was taken by the Society that having regard to the provisions of Section 61 of the Societies Act which made the Companies Act inapplicable to societies registered under the Societies Act, the company court has no jurisdiction to adjudicate upon these applications filed by the official liquidator. It was then contended by the official liquidator that, if the provisions of the Companies Act were inapplicable in a manner as to deprive the company court of its jurisdiction over the assets and liabilities of the company registered under the Companies Act, such a provision would be ultra vires the State Legislature which has no legislative competence in respect of matters exclusively within List I of the Seventh Schedule to the Constitution of India.

27. Before we consider this last question, it would be necessary first to examine the scope and ambit of Section 61 of the Societies Act and if we agree with the contention of the Society that the legislature had, by incorporating Section 61, intended to and did exclude the jurisdiction of the company courts, then it would be necessary to consider the second question. But, if that is not the legal position, it will be unnecessary for us to determine the constitutional validity of Section 61 of the Societies Act, 1932, or Section 129 of the Co-operative Societies Act, 1964. Section 61 is in the following terms:

' The provisions of the Indian Companies Act VII of 3913 (now 1956) shall not apply to registered societies.'

28. Section 129 also says that the provisions of the Companies Act, 1956, shall not apply to societies. This provision was inserted because till the first Co-operative Credit Societies Act was passed in this country in 1904 the co-operative societies were being registered under the Companies Act, 1882, under Section 6 of which :

' Any seven or more persons associated for any lawful purpose may be subscribing their names to a memorandum of association (i) and otherwisecomplying with the requisition of this Act in respect of registration form an incorporated company (ii) with or without limited liability.'

29. Once a society or a body of persons get themselves registered under the Companies Act either of 1882 or subsequent Acts containing similar provisions in respect of the incorporation and registration of companies, the provisions of the Companies Act will apply to it. The Companies Act relates to formation, incorporation, regulation and winding up of a company registered under the Act. All these provisions were considered cumbersome and discouraging to co-operative societies, which were necessary to reduce rural indebtedness and encourage thrift. The history of the introduction of the co-operative movement in the country can be found in the Madras Cooperative Manual, volume I, but it is not necessary to deal with it at any length except to cite a few observations at pages 4 and 5 which are:

' Various countries have adopted co-operation as a solution of various economic problems. Thus Great Britain adopted co-operation for establishing co-operative stores to promote the economic interest of consumers ... In Madras, as in the rest of India, co-operation was introduced as a remedy for rural indebtedness. Rural indebtedness is a common feature of all countries depending largely on agriculture . . . The earliest attempt in this direction was made by the Government of Madras in 1892.........After making adetailed study of the systems of ' popular ' and mortgage credit prevalent in Europe, Sir Frederick Nicholson submitted a valuable and comprehensive report, the main recommendation in which was the starting of rural co-operative societies more or less on the lines of the Reiffesen Societies of Germany for the provision of credit on reasonable terms and for the development of thrift among the rural population. While this report was under the consideration of the Government of India a volume entitled Peoples Banks for Northern India was published by Mr. H. Dupernex, I.C.S., an Officer of the United Provinces. In the meantime, a few small experimental societies were also instituted by Mr. Dupernex and other officers in different parts of India. They were registered under the Indian Companies Act. But as long as they were governed by the complicated provisions of this Act, it was impossible to expect much progress. A committee was therefore appointed in 1901 by Lord Curzon, the then Viceroy of India.........The committeerecommended the introduction and promotion of co-operative credit societies and for this purpose suggested a separate legal enactment to regulate and to confer on them certain special privileges. A bill was accordingly introduced in the Legislative Council and was subsequently passed as the Co-operative Credit Societies Act (Act X of 1904, India).'

30. Section 28 of this Act, it may be stated, contained a provision that the Indian Companies Act, 1882, shall not apply to societies registered under this Act. The object and intendment of the Legislature in incorporating thisprovision is clear, namely, that the provisions of the Companies Act relating to incorporation, regulation and winding up were not to apply to societies registered under the Co-operative Societies Act, 1904. We think these words were added by way of abundant caution having regard to the practice that was prevalent immeditately prior to the passing of the first Cooperative Societies Act. Subsequent Acts also contained similar provisions. Co-operative Societies Act, 1912 (Act II of 1912) which repealed the Co-operative Societies Act, 1904, provided for this exclusion in Section 48, and similarly Section 61 of the Co-operative Societies Act, 1932, excluded the application of the provisions of the Companies Act. The Co-operative Societies Act of 1932 was repealed by the Andhra Pradesh Co-operative Societies Act, 1964 (Act No. VII of 1964) which contains similar provision in Section 129. We may also at this stage mention that in every State in India, Co-operative Societies Acts contain similar provisions excepting in Gujarat and Maharashtra where the Legislatures presumed that the Indian Companies Act does not apply to Co-operative Societies but none-the-less proceeded to clarify that position for purposes of removing doubts. Section 170 of the Gujarat Act and Section 167 of the Maharashtra Act are in the following terms :

' For the removal of doubts, it is hereby declared that the provisions of the Companies Act, 1956, shall not apply to societies, registered, or deemed to be registered, under this Act. '

31. These provisions support the view which we have taken, namely, that the object of excluding the provisions of the Companies Act in their application to societies registered under the Co-operative Societies Act was by way of abundant caution and to ensure that the provisions of the Companies Act will not apply to the Co-operative Societies Act either with respect to formation, regulation or winding up of society. Even under Section 2(7) of the Companies Act, 1956, the definition of ' body corporate' specifically excludes a co-operative society registered under the Co-operative Societies Act and it reads thus :

' ' Body corporate' or ' corporation ' includes a company incorporated outside India but does not include-

(a) a corporation sole ;

(b) a co-operative society registered under any law relating to co-operative societies; and

(c) any other body corporate (not being a company as defined in this Act) which the Central Government may, by notification in the official gazette, specify in this behalf. '

32. The definition, it may be noted, was amended in order to exclude the co-operative societies from its application. The original definition of the terms ' body corporate ' under the previous Companies Act was, it may benoted, amended to exclude co-operative societies from its purview. Broadly speaking, the terms, while not including any of the bodies specifically excluded by the definition, may include any aggregate of persons which has been or is incorporated under some statute of this or any foreign country and which exists as a legal entity distinct from the members constituting it, and having perpetual succession and common seal. For this reason, it was found necessary to specifically exclude the said ' body corporate ' and it may be stated that a co-operative society registered under the Co-operative Societies Act is a body corporate. There are certain provisions in the Companies Act which relate to ' body corporate ' and for that reason the co-operative societies were excluded from its purview. We are, therefore, clear in our minds that Section 61 by excluding the provisions of the Indian Companies Act, 1913, or Section 129 of the new Act by excluding the provisions of the Indian Companies Act, 1956, does nothing more than exclude the provisions relating to incorporation, regulation and winding-up. This view also is supported by a reference to the legislative powers under items 43 and 32 under Lists I and II to Seventh Schedule of the Constitution of India dealing with the legislative powers of the Parliament and the States respectively. Item 43 of List I relates to incorporation, regulation and winding up of trading corporations, including banking, insurance and financial corporations but not including co-operative societies. Item 32 of List II relates to incorporation, regulation and winding-up of corporations, other than those specified in List I, and Universities; unincorporated trading, literary, scientific, religious and other societies and associations, co-operative societies. It is obvious from a perusal of the above items, in Lists I and II that while Parliament has no power to legislate in respect of co-operative societies, the State Legislatures have no power to legislate in respect of regulation or winding-up of trading corporations, etc. Specific exclusion from the legislative power of the Parliament of co-operative societies and its specific mention in item 32 that the State Legislature has all powers except those specified in List I in respect of incorporation, regulation and winding-up of trading corporations leads to the only conclusion that neither a State nor Parliament intended to legislate in respect of matters which did not pertain to it. The exclusion of the application of the provisions of the Companies Act to the co-operative societies registered under the Co-operative Societies Act is not inconsistent with the exercise of the legislative power vested in the State. Nor does the question whether the provisions of the Companies Act pertaining to liquidation being made applicable to the society arise in this case since the society has not gone into liquidation. Also there is no application even to liquidate the society so that any objection can be taken that the provisions of the Act cannot be made applicable to a society registered under the said Act. This is ouranswer to the first question. Having regard to the answer of ours to the first question it is not necessary to consider the second question.

33. With the above answer the case is remitted to the learned company judge.

34. [In pursuance of the above orders of the Division Bench the case was again heard by Narasimham J. who made the following order on March 28, 1968.]

Narasimham, J.

35. These two applications are connected and are therefore heard together.

36. C.A. No. 83 of 1965 is taken out by the official liquidator seeking a direction for the refund of a sum of Rs. 62,231.25 with interest being the aggregate of the sums received from time to time by the respondent herein, The Chittoor District Co-operative Marketing Society Ltd., Chittoor, towards the debts due from the company in liquidation. The official liquidator has claimed the refund as, according to Section 536(2) of the Companies Act, 1956, any disposition of the property of the company made after the commencement of the winding-up, shall, unless the court otherwise orders, be void.

37. The application is opposed by the respondent Society pleading, inter alia, that the Society received the amount in execution of a valid decree and as such it ceased to be the property of the company. The Society also took the plea that if the payments were void for any reason the official liquidator had to file suits. A further objection was that the application filed by the official liquidator was barred by time. Apart from the said pleas, it was said that the provisions of the Indian Companies Act were not made applicable to the co-operative societies formed under the Andhra Pradesh Cooperative Societies Act. It was also brought to the notice of this court that the society had filed an application for the validation of the payments by way of abundant caution.

38. The points, which arise on these allegations in the petition and the counter, are :

'1. Whether the payments made by the company in liquidation after the commencement of the winding-up are refundable to the official liquidator under Section 536(2) of the Companies Act

2. Whether the official liquidator's application for the refund of the said amount is barred by time

3. Whether the official liquidator should have filed suits to recover the payments made and not have made this application

4. Whether the relevant provisions of the Indian Companies Act are not made applicable to the co-operative societies, the respondent being one such ?'

39. Company Application No. 122 of 1965 is an application under Section 536(2) of the Companies Act, 1956, seeking validation of the paymentsamounting to Rs. 62,231.25 received by the Society from the company in liquidation. It was stated that the company in liquidation was a member of the Chittoor District Co-operative Marketing Society Ltd., Chittoor, and that the Society advanced two sums of Rs. 50,000 each to the company. The Society filed an arbitration reference under Section 51 of the Madras Co-operative Societies Act on May 16, 1953, for the recovery of a sum of Rs. 99,450-15-8, being the balance of the amount due to the society from the 1 st respondent-company. Eventually, the Deputy Registrar, exercising powers under Section 51 of the Madras Co-operative Societies Act, passed the decree in terms of the compromise for an amount of Rs. 97,000 with interest at 5% per annum till the amount is fully discharged. In pursuance of the said compromise decree dated August 10, 1955, the Society received Rs. 62,231.25. The Society was never intimated of the riling of the winding-up application. Nor was it made a party to the said proceedings. The Society cannot be treated as having been fraudulently preferred to the other creditors under any circumstances. On the said allegations validation of payments was prayed for.

40. The application was opposed by the official liquidator pleading, inter alia, that there was no valid ground disclosed for the validation of the payments, and that the transactions such as could be validated could only be those entered into for the benefit of the company and for preserving the business of the company in order to enable it to carry on its business and to avoid its business being paralysed. The payments made to the Society were subsequent to the commencement of the winding-up in discharge of a debt incurred prior to such commencement and as such could not be validated. The official liquidator also stated that the business manager of the applicant society stated before him during the investigation of the claim of the society that he knew that the winding-up order of the company was passed on February 28, 1958, and that he was aware of the date on which the winding-up petition was presented. It was also made clear that the winding-up order was published in the official gazette under Section 445 of the Act and it could not be said that the Society had no notice of the presentation of the winding-up petition as well as the winding-up order.

41. The point which arises on the said allegations is whether the petitioner (society) has made out a case under Section 536(2) of the Companies Act, for validation of the payments made after the commencement of the winding-up proceedings.

42. I will now consider the points raised in the first petition.

43. There is no controversy with regard to the sums received by the Chittoor District Co-operative Marketing Society Ltd., Chittoor, aggregating to Rs. 62,231.25. The winding-up petition was presented on April 31, 1957. The winding-up order was passed on February 28, 1958, in O. P. No. 4 of 1957.

44. Under Section 441(2) of the Companies Act, the winding-up of a company by the court shall be deemed to commence at the time of the presentation of the petition for the winding-up. The payments were unquestionably towards a debt under a decree passed on August 10, 1955, i.e., prior to the commencement of the winding-up. Under Section 536(2) of the Companies Act, any disposition of the property of the company, made after the commencement of the winding-up, shall, unless the court otherwise orders, be void.

45. In similar applications, Company Applications Nos. 89 and 133 of 1965 in the same petition, I went into the question of validation of payments which was argued elaborately and gave a decision that transactions that would be validated by the court were transactions which were bona fide entered into and completed in the ordinary course of the company's current trade and I stated that that was the principle underlying the decisions in Official Liquidator, Gorakpur Electric Supply Co. Ltd. v. Siemens (India) Ltd, [1941] 11 Comp. Cas. 17., Tuhidas Jasraj Parekh v. Industrial Bank of Western India, A.I.R. 1931 Bom. 2., R. K. Sundaram Asari v. T. R. Abdul Haleem Saheb, A.I.R. 1956 Mad. 692. and Syed Haidar Sahib v. M. Jayaram Pillai, [1956] 26 Comp. Cas. 164; [1957] 1 M.L.J. 141. . I also referred to the passage in Buckley on the Companies Act, 13th edition, page 494--commentary under section 227, English Companies Act, 1948, which may be extracted here for convenient reference :

' But payment by the company after petition presented, and after the creditor must be taken to have notice of the petition, of even a perfectly bona fide debt of the company, is not a transaction to which the court will give validity : Re Civil Service and General Stores, [1887] 57 L.J. (Ch.) 119.. To do so would be against a cardinal principle of the Act, viz., pan passu distribution.'

46. I do not consider the payments in discharge of debts incurred prior to the winding-up could be validated. In the said decision given by me, I also held that the application of the official liquidator was not barred by time and that the official liquidator's application was maintainable.

47. I may state herein that I referred the plea raised in Company Application No. 83 of 1965 by the Society, that the provisions of the Companies Act did not apply to the co-operative societies formed under the Andhra Pradesh Co-operative Societies Act, to a Bench and the Bench, consisting of the Honourable the Chief Justice and the Honourable Sri Justice A. D. V. Reddyt answered rejecting that plea. The Bench observed :

' Nor does the question whether the provisions of the Companies Act pertaining to liquidation being made applicable to the society, arise in this case since the society has not gone into liquidation.'

48. 1 would, therefore, answer the points arising for consideration in C.A. No. 83 of 1965 and C.A. No. 122 of 1965 thus:

49. C.A. No. 83 of 1965:

Point No. 1.--The payments made by the company in liquidation after the commencement of the winding-up are refundable to the official liquidator under Section 536(2) of the Companies Act.

Point No. 2.--The official liquidator's application for the refund of the amount is not barred by time.

Point No. 3.--The official liquidator's application is maintainable.

Point No. 4.--The question whether the provisions of the Indian Companies Act pertaining to liquidation are made applicable to the Society does not arise in this case since the Society has not gone into liquidation.

50. C.A. No. 122 of 1965 :

The Society (petitioner) has not made out a case under Section 536(2) of the Companies Act for validation of the payments made after the commencement of the winding-up proceedings.

51. In the result, C.A. No. 83 of 1965 is allowed, and the Chittoor District Co-operative Marketing Society Ltd., Chittoor, will refund the amount of Rs. 62,231.25 with interest at 6% per annum from the date of the application till date of payment to the official liquidator with costs of this application.

52. C.A. No. 122 of 1965 is dismissed, but I award no costs as the matters were heard together and costs are awarded in C. A. No. 83 of 1965.


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