1. I have before me five matters arising out of the winding up of the Gorakhpur Electric Supply Co. Ltd., (in liquidation). There are four applications by the official liquidators that order should be issued to Messrs. Siemens (India) Ltd,, Messrs. Nariman & Co., Syed Jawad Ali Shah and Ram Kishen Das Khanna to refund sums of money paid to them by the managing agents of the company after the petition for winding up had been filed. Then there is an application by Ram Kishen Das Khanna that the order of the official liquidators disallowing his claim for salary should be set aside and the official liquidators should be directed to pay him the amount due. The four applications by the liquidators raise substantially the same questions of law and principle and I think it will be convenient if I dispose of them in one order. As the application of Ram Kishen Das Khanna is connected with the application of the liquidators against him, I will deal with that matter also at the same time. The questions which arise out of the applications by the liquidators are whether this Court has any jurisdiction to pass an order for payment against the parties from whom money is alleged to be due and whether the payments, if void, should be validated under the provisions of Section 227(2), Companies Act.
2. On the question of jurisdiction I do not think there can be any doubt. It seems to me that the jurisdiction of the ordinary Courts to pass decrees arising out of disputed claims can be ousted only by specific provisions of law. Section 185, Companies Act, empowers the Court exercising jurisdiction under the Act, to require contributories and certain agents and officers of the company to deliver any money, property or documents in their hands to the liquidator. It does not give the Court any power to pass orders against persons other than those mentioned in the section. Section 188 of the Act says that the Court may order any contributory, purchaser or other person from whom money is due to the company to pay the same into the account of the official liquidator in any scheduled bank instead of to the official liquidator and any such order may be enforced in the same manner as if it had directed payment to the official liquidator. It seems to me that the provisions of this section are intended to give the Court power merely to direct payment into a bank instead of to the official liquidator himself and are not intended to give the Court wider powers for payment into a bank than for payment to the official liquidator. It follows that this section does not give the Court power to direct payment from any persons other than those mentioned in Section 185 of the Act. All those against whom the liquidators have claimed are persons to whom Section 185 would not apply. The view which I have taken is supported by the authority of a Bench of this Court. I refer to the case in John Bros. v. Agra Spinning and Weaving Mills Co. Ltd. : AIR1936All808 . It appears that a similar view has been taken in the English Courts: In re United English and Scottish Assurance Co.: Ex parte Hawkins. (1868) 3 Ch A 787 and In re Vimbos Ltd. (1900) 1 Ch 470. It has been argued that there are English cases in which orders have been passed for payment of money to liquidators by persons such as those from whom the liquidators are now claiming, but there is nothing to show that those orders were not made by consent, the parties concerned being interested only in the question whether the money was due and not in the question of procedure as to how payment should be enforced. In my view of the law I have no jurisdiction to pass the orders for payment for which the liquidators have asked.
3. As the question of validating the payments have been raised, I proceed to Consider it. In the case of Messrs. Siemens Ltd. there was an amount of money due from the company on account of machinery supplied. Messrs. Siemens obtained a decree after the petition for winding up was presented to this Court. The managing agent of the company made payments at various times thereafter towards the satisfaction of the decree. The principles upon which the Court should act in validating payments under the provisions of Section 227(2), Companies Act, are clearly set forth in Tulsidas Jasraj v. Industrial Bank of Western India, ('31) 18 AIR 1931 Bom 2.
4. I must say with the greatest respect that I agree with every thing that has been said by the learned Chief Justice in that case. It is true that the Court will usually validate payments made in good faith in the ordinary course of the business but what such payments are can be deduced from the principles laid down in the judgment to which I have referred. There can be no doubt that the ordinary principle is that all creditors to whom money is due at the date of the petition for winding up should be treated equally with certain exceptions in favour of those who have priority under the express provisions of the Act. Where the company or its officers make preferential payments to some creditors, they are obviously acting in contravention of this rule. On the other hand, where the business of the company is continued in good faith either because it is hoped that it may not be necessary eventually to wind up the company or because in the interests of all concerned it is better that the company should on being wound up be transferred as a going concern, it is necessary for the company to enter into various transactions and it would be impossible for it to do so if it was not able to make any transfers. I do not suppose that it is possible to make a definite rule to meet all circumstances because these may be extremely varied, but generally speaking it would not be just for the Court to validate a transaction which amounted to no more than the payment of a debt which was due to one creditor or some creditors at the date of the petition for winding up, if that would result in loss to other creditors who should be treated equally with those who have been paid.
5. Messrs. Siemens Limited were creditors at the date of the winding up just as others were, and I can see no reason that they should get any preference. It is said that they could have executed their decree and put a stop to the business of the company, but that argument ignores the fact that proceedings were not open to them without the leave of the Court. Then it is said that the company now in liquidation was an Electric Supply Company and could not carry on its business without the supply of spare parts which Messrs. Siemens Limited alone could supply. It is argued that they would not have supplied parts if their debt had not been paid. It seems to me that this argument, if analysed, is based on an alleged principle that any creditor who can bring pressure to bear on a company should have preference over a creditor who cannot. This is a principle which I consider no Court could accept. If Messrs. Siemens Limited had supplied spare parts after the winding up petition and had claimed the price of them and it had been paid, it is probable that the Court would have validated such payment, but as matters stand, I am not prepared to direct that the payments should be considered valid.
6. The case of Messrs. Nariman & Co., is that they obtained a decree long before the petition for winding up was presented and that they would have recovered their money before the date of presentation if the managing agents of the company had not by various means delayed execution. The fact, however, remains that Messrs. Nariman & Co., were ordinary creditors under a decree at the date of the presentation of the petition and I can see no reason why they should get preference over other creditors. It is possible that there may be other creditors who could also have recovered their money before the date of the presentation of the petition if they had not been defeated by dilatory tactics on the part of the company. In my judgment there is no sufficient reason for holding that the payments made to Messrs. Nariman & Co., on the basis of their decree after the presentation of the petition should be held not to be void.
7. Syed Jawad Ali Shah obtained a decree against the company and he was paid in accordance with a compromise which is entered into on 6th March 1935, after the presentation of the petition. He reduced his claim and it was agreed that the amount which the company agreed to pay should be set off against their dues for electricity. It may be that the managing directors did their best for the company by getting this gentleman to reduce his claim, but the fact still remains that he has obtained preference in some measure over other creditors or will obtain preference if the amount which he received is more than that which he would receive from the liquidators out of the assets of the company. As no money was paid to him, it may perhaps be said that there is no question of any payment being void and therefore no question of validating the payment. Possibly the proper view to take of the matter is that the company has a claim against this gentleman on account of the price of electricity supplied and that he may be sued on that claim. I must, however, make it clear that if there is any question of the Court validating any transaction, I am not prepared to validate it.
8. Ram Kishen Das Khanna was an employee at the head office of the company in Allahabad. It must be explained that there was an agreement between the company and its managing agents, Messrs. F.L. Jaitly & Co., that the latter would receive a fixed monthly payment from the company towards the expenses of the head office and would in its turn supply such clerks and accommodation and so forth as was necessary. It is quite clear that the result of this arrangement was that clerks employed in the head office were the employees of Messrs. P.L. Jaitly & Co., who were responsible for making payment of their salaries. The company had no contract with these employees because it paid a fixed sum to Messrs. P.L. Jaitly & Co. Ram Kishen Das Khanna applied to the liquidators for payment of arrears of salary upon the allegation that he was an employee of the company. This claim was rejected. It must be mentioned that he instituted a suit against the company in order to recover these arrears and obtained an ex parte decree. He also sued in that case Messrs. P.L. Jaitly & Co.
9. It is suggested that the company is bound by the decree, but in my judgment there is no force in that suggestion. It is the duty of the liquidators to decide what is properly due from the company to various claimants and they are entitled to go behind decrees which they consider were not properly obtained. In this case the decree was ex parte. The company was represented by the managing agents, Messrs. P.L. Jaitly & Co., who were interested in the matter of avoiding their own liability and I do not think that the decree can be accepted as binding on the liquidators who are acting on behalf not only of the company but also on behalf of the creditors who were not parties to the decree. I have been referred to the letter from Messrs. P.L. Jaitly & Co., appointing Ram Kishen Das Khanna as a clerk. This letter purports to have been issued by them as managing agents of the company on behalf of the company and it is suggested that this shows that Ram Kishen Das Khanna was employed by the company through its managing agents. It seems to me that this was merely a matter of the form in which letters were issued. Ram Kishen Das Khanna worked as an accountant in the head office of the company and he must have known very well, as indeed he admits, that he was paid by Messrs. P.L. Jaitly & Co. No payments made to him passed through the books of the company which he himself kept. I hold that he was not an employee of the company and that the decision of the official liquidators to disallow his claim was correct. Messrs. P.L. Jaitly & Co., paid part of the amount due under the decree and the official liquidators have applied that Ram Kishen Das Khanna should be directed to refund this sum. For the reasons I have already given I hold that the Court has no jurisdiction to pass such an order. As for validating the claim there was no reason why Ram Kishen Das Khanna should have any preference even if any money was due to him. Any priority which he had would be recognized by the liquidators.
10. The result is that I dismiss the application of Ram Kishen Das Khanna with costs and I also dismiss with costs the four applications of the official liquidators upon the ground that I have no jurisdiction to require the persons concerned to make payments to the official liquidators, The official liquidators may seek such remedy as they can in the ordinary Court.