Subramonian Poti, Actg. C.J.
1. In these three appeals, the Sudarsan Chits (India) Limited, a company registered under the Indian Companies Act, is the appellant. The appeals arise out of a common order of winding up passed in Company Petitions No. 9/81, No. 8/81, No. 49/81, respectively. These petitions are by the creditors of the company and are petitions under Section 439 of the Companies Act, read with Sections 433 and 434 of the Act for winding up on the ground that the company was unable to pay its debts. The petitioner in Company Petition No. 9/81 claimed a sum of Rs. 41,500 in Chit No. 76 of the Salem branch of the appellant company, the petitioner in Company Petition No. 8/81 claimed a sum of Rs. 77,000 as due in Chit No. 66 of the Salem branch and the petitioner in Company Petition No. 49/81 claimed a sum of Rs. 32,500 as due in Chit No. 39 of 1981 of the Salem branch. There were a series of similar petitions from other personsSeeking the same relief before the Company Judge some of whom did not later choose to press the petitions perhaps by reason of some understanding being reached. It is not now disputed that very huge sums are outstanding from the company to its subscribers and in the normal course- the Company will not be able to meet these liabilities. The appellant company was conducting a number of chits or kuries through its 133 branches. The company has ceased to function effectively for some time past and evidently whatever amounts are to be collected by the company from its subscribers cannot easily be collected in the present situation. It is in these circumstances that a plea that the company is unable to pay its debts has been urged and winding up sought. Before a winding up order was passed, one of the shareholders, Sri T. P. Ravindran, came up with Application No. 491/81, Under Section 391 of the Companies Act, for sanctioning a scheme of compromise between the company and its creditors. According to him, if the creditors stayed their hands for some time, it would be possible to pay all the creditors in full within a period of five years in which case the winding up of the company could be avoided. It is further said that in the public interest this must be permitted as otherwise the creditors will not be able to realise any appreciable amount through the process of winding up. This application by the creditor was supported by the company, but was opposed not only by some of the other creditors but also by the Regional Director, Company Law Board, Madras, and the Registrar of Companies, Kerala, who have filed counter-affidavits. It may be stated here that from the Company Law Board as well as the Registrar of Companies, Kerala, there has been very serious objection to the sanction of any scheme mainly for the reason that in the present financial condition of the appellant company, resurrection would be impossible and any attempt at resurrection would only serve to postpone the winding-up proceedings. This, in turn, it is said, would cause further loss to the creditors and even the amounts that could be collected would become irrecoverable. Further, those who have been responsible for the present condition of the company may be able to use that opportunity to their on advantage. Having filed a petition for settling a scheme, the shareholder, Sri T.P. Ravindran, also moved Application No. 703/81, therein alleging that 16 winding up petitions under Section 439 of the Companies Act, filed by various creditors, were pending in the company court and inasmuch as the petitioners therein were likely to get amounts due to them from the company within a period of five years if the scheme proposed by the appellant was accepted, the winding up applications by the creditors will have to be stayed. Therefore, in Application No. 703/81 made in Application No. 491/81, the shareholder, Sri T. P. Ravindran, applied for stay of the winding up petitions. The Company Judge in the order impugned in these appeals directed winding up of the company holding that the circumstancesjustified such an order. Since that order is passed on the three different petitions, the three appeals have been filed by the company. The Company Judge dismissed the application filed by the creditor, Sri T. P. Ravindran, as Application No. 703/81 in Application No. 491/81, for stay of the winding up petitions pending the settlement of the scheme. Against that, an appeal has been filed by Sri T. P. Ravindran as M.F.A. No. 521/81-We are dealing with that appeal separately. In a way the decision of the appeal will depend more or less on the decision of these appeals. Sri T. P. Ravindran has also challenged in M.F.A. No. 256/82, an order passed by the Company Judge on June 16, 1982, in Application No. 491/81. Pursuant to the scheme proposed, a meeting of the creditors of the company was directed to be held for ascertaining their consent to the scheme. Though the meeting was convened, there was pandemonium at that meeting and, consequently, the meeting could not transact the business for which it was convened. The learned judge, therefore, gave certain consequential directions for taking necessary steps for holding a proper meeting on the assumption that the meeting was not convened on March 3, 1982, in accordance with the directions earlier issued by the court. That order by the court is challenged by Sri T. P. Ravindran in M.F.A. No. 256/82, which also we will deal with independently.
2. We may also have to refer in this context to another appeal, M.F.A. No. 258/82, which also we are taking up and disposing of independently. That again is by one of the creditors of the company who is the first applicant in Application No. 68/82, praying for issue of an order of injunction restraining the directors and all officers of M/s. Sudarsan Trading Company Ltd. of which the appellant company here is a wholly owned subsidiary from alienating any of the properties Owned or held by M/s. Sudarsan Trading Company Ltd. till final orders are passed by this court in the winding up matter. The appellant in M.F.A. No. 258/82 is said to be a creditor to whom a sum of Rs. 1,51,000 is due from Sudarsan Chits (India) Ltd. and it is the case of the applicant therein that the holding company which was holding out promises of repayment of the amount of Rs. 10.5 crores due from it to the appellant company was disposing of its assets and that would defeat the rights of the creditors of the appellant Company. For that reason, an injunction restraining the holding company from alienating its assets was sought for. That prayer was not allowed by the learned judge and, hence, the appeal M.F.A. No. 258/82. -We will dispose of that appeal too independently after we dispose of these appeals.
3. It may now be necessary to refer to the sequence of events relevant for the purpose of these appeals. Company Petitions Nos. 8 and 9 of 1981 were filed oh January 16, 1981, and Company Petition No. 49/81 was filedon April. 13, 1981. These and some other company petitions relating to the winding up of Sudarsan Chits (India) Limited were pending when, on June 16, 1981, the Company Judge passed an, order appointing a provisional liquidator for the company. There was an appeal against that Order to the Division Bench and on June 17, 1981, the Division Bench ordered status quo. On June 19, 1981, a creditor, Sri T.P. Ravindran, filed Application No. 491/81 for settling a scheme of compromise between the creditors and the company. On June 19, 1981, as also on June 26, 1981, the Division Bench passed orders in the appeal against the order appointing provisional liquidators modifying its earlier orders. On August 10, 1981, on behalf of the Central Government, the Regional Director of the Company Law Board filed an affidavit in the application for settlement of scheme, No. 491./81. A counter-statement and an additional counter-statement were filed by the official liquidator on August 10, 1981, and August 11, 1981, respectively. It appears that, in the meanwhile, the creditor, who had filed Company Petition No. 13/81 and on whose application the provisional liquidator was appointed, had come to some understanding with the company so much so that a series of petitions along with C.P. No. 13/81 were dismissed by the court on September 2, 1981. Evidently because of this, the company sought withdrawal of its appeal against the order appointing the provisional liquidator. The Union of India and the Registrar of Companies, Kerala, thereupon filed the appeal M.F.A. No. 447/81 and on their motion the provisional liquidator appointed in C.P. No. 13/81 was directed to continue to function until further orders. Against this order special leave to appeal was sought from the Supreme Court and an order of stay of further proceedings was also obtained from the Supreme Court. In the meanwhile, the petitions, C.P. Nos. 8,9 and 49/81, came up for hearing before the learned Company Judge and in those cases the court passed winding up orders. The official liquidator was appointed liquidator. This was by order dated October 13, 1981. On the same day, the application for stay moved by Sri T. P. Ravindran, a shareholder, in Application No. 491/81 was dismissed. Though a special leave petition was filed before the Supreme Court against the order of the Company Judge, that seems to have been withdrawn later and M.F.A. Nos. 518, 519 and 520/81 were filed before the Division Bench of this court.
4. We may now refer to the proceedings in Application No. 491/81. As indicated earlier, this application was very seriously opposed by the Company Law Board and it is suggested in the counter-affidavit that the application is one filed in collusion with the company and is really intended to put off the liquidation of the company which must, in the circumstances, be found to be inevitable, regard being had to the financial position of the company. In support of this it is averred in the counter-affidavit filed onbehalf of the Central Government as follows: The applicant in Application No. 491 of 1981 has no locus standi to file the application. He holds only one share of M/s. Sudarsan Chits (India) Ltd. (hereinafter referred to as ' the S.C'.I.'). He is only a nominee shareholder of M/s. Sudarsan Trading Company (hereinafter referred to as ' the S.T.C.'), and as such he has' actually no financial interest or stake in the affairs of the company. Sri T. P. Ravindran is the chief executive of the S.T.C. The S.C.I., though described as a board managed company, is, in fact, managed by Sri M. Velayudhan duly assisted by the applicant, Sri. T. P. Ravindran, and one V. P. Balaram. The financial position of the company as disclosed by its accounts for the financial year ending April 30, 1979, that being the latest year for which balance-sheet and profit and loss account are available, discloses an alarming situation. While the amount due to the company from prized chit subscribers, fully secured, is only Rs. 4,07,74,449 and secured by personal liabilities is only Rs. 19,00,85,566, thus totalling Rs. 23,08,60,015, the liability to chit subscribers far exceed this amount, that being a sum of Rs. 31,65,40,616. The S.C.T. is a fully owned subsidiary company of the S.T.C. which is having ten subsidiary companies including the S.C.I. The net worth of the S.T.C. for the period ending July 31, 1979, is said to be Rs. 39,04,896. Regarding the S.C.I., it is stated that the paid up capital is only Rs. 30,00,000. While so, the holding company S.C.I. has taken a sum of Rs. 10.44 crores from the S.T.C. The share capital of Rs. 30,00,000 in the S.C.I, is so structured that virtually Sri M. Velayudhan has control of the S.C.I. The origin of the S.C.I, which is now the company sought to be wound up is related to the suggestion made by the Reserve Bank of India to segregate the chits business of the Sudarsan Trading Company from its other activities. Thereupon the S.C.I, entered into an agreement with the S.T.C. on April 23, 1973, and the latter started the business of conducting chits and also took other chits that were being conducted by the S.T.C. Under the agreement, the S.C.I, undertook to maintain a current account between it and the S.T.C. and agreed to advance monies to the S.T.C. as and when required by it subject to a maximum of Rs. 15 crores. The amount so advanced was to be repaid interest free within a period of 15 years from the date of the advance and interest was to be charged at the rate of 6% per annum on, the amount outstanding at the end of the 15th year, in case the amount was not repaid within the period of 15 years. Further, it was agreed that a sum of Rs. 24 lakhs per annum was to be paid by the S.C.L to the parent company, S.T.C. There is also an obligation on the S.C.I, to pay either a sum of Rs. 2.5 lakhs or 75% of the total salary and allowances, etc., of Sri Velayudhan and four other executives of the S.T.C., whichever was lower, annually. The S.C.I. is found to have diverted a substantial part of the funds amounting toRs. 10,43,77,000 as per the balance-sheet as on April 30, 1979, to the S.T.C., the holding company, and this diversion by the company whose share capital was only Rs. 30 lakhs was possible only by diverting funds collected from the chit subscribers. This affected substantially numerous chit creditors of the company and the main beneficiary of this arrangement is the parent company, S.T.C. There are many other matters mentioned in the counter to which we are not making specific reference as we are not proposing ,to discuss each of these since that may not be necessary in view of the manner of disposal of this appeal we are adopting. It may be necessary to point out that elaborate reference is made to diversion, of funds by way of payments made to various persons in whom the holding company of Mr. Velayudhan was interested. As illustration, mention may be made of an advance of a sum of Rs. 2,06,809 to Sri M. Velayudhan, to his wife K. M. Sarada, and her sister. A similar diversion of a sum of Rs. 3,93,812 to K. R. Vijaya, said to be a close associate of Sri. Velayudhan, is referred to. It is attempted to be pointed out in the counter- affidavit that by reason of the diversion of huge amounts to parties in whom the director, Sri Velayudhan, was interested and in paying the amounts without proper security, the solvency of the company was so seriously affected and the financial position of the company is such that even if the entire outstandings are realised, it will not be possible to meet the liabilities.
5. After directing the issue of a notice on Company Application No. 491/81, the court directed holding of a creditors' meeting on March 3, 1982, by its order dated October 10, 1981. The court also appointed Sri S. Sivaraman, an advocate of this court, as chairman for conducting the meeting. The copies of the scheme along with notices of the meeting were sent to the creditors. The meeting was to be held at Calicut where the registered office of the company was situate. The proxies had to be deposited 48 hours before the meeting at the registered office. A number of proxies were received before the appointed time. According to a report filed by Sri S. Sivaraman, at the meeting held on March 3, 1982, about 2,000 persons attended in person and two registers had been provided to mark attendance of those who attended the meeting. The chairman, Sri S. Sivaraman, reporting on the meeting submits:
' Unfortunately there was an unnecessary stampede at the entrance and several persons forced their way in without entering the necessary particulars. It is possible that persons who are neither creditors nor proxies would also have entered and joined the assembly. A portion of the creditors' list which was kept on a bench near Mr. Subramanian was also snatched away by someone. That related to the Maharashtra creditors. But from the entries made, it became clear that there was sufficient quorumfor the meeting which had been fixed at 20,000 creditors including proxies subject to a minimum of Rs. 6 crores in terms of value. '
6. That when the meeting commenced the public address system failed is all admitted fact. That made it difficult to conduct the proceedings particularly with such a huge crowd which perhaps was unruly too. According to the chairman, ' a section of the creditors also became unduly vocal and vociferous'. He also states that though he had arranged three stenographers, they could not attend to their work and had to withdraw from the dais. It appears that though the chairman wanted a poll to be taken, this was not permitted since ' a large section opposed the taking of poll'. It was represented by those who spoke that sanction ought not to be granted. Ultimately, the meeting had to be adjourned at the stage of taking poll for obtaining further directions from the court. As a matter of fact, what appears to have happened is that the company was successful in getting a good number of proxies to make up the quorum, but those creditors who were present were vociferously protesting against the scheme and wanted it to be rejected. Advocate Sri Govind Bharathan, who, as the spokesman and representative of a body of creditors, seems to have initiated the protest at the creditors' meeting on March 3, 1982. He opposes the appeals here. According to him, the proxies themselves were obtained by misrepresentations made to the creditors that their signatures were being taken in order to see that the amounts which were due to them were being paid. We are not going further into this matter now and we are only referring to these to understand the sequence of events. It is under these circumstances that the court directed steps for a fresh meeting to be held properly and in accordance with the provisions of the Companies Act.
7. Before the learned Company Judge, the company had raised the contention that the petitioners in C.P. Nos. 8, 9 and 49 of 1981 were not creditors of the company at all and that no amount was due to them from the company. We are not called upon to go into this question here for the reason that it was categorically submitted before us that such a plea was not being urged in this court. If so, the finding of the learned Company Judge that substantial amounts were due to the petitioners in the petitions has to be upheld. The learned Company Judge found that amounts were due to the petitioners and the company was unable to pay its debts within the meaning of Section 434. The court went into the further question whether, merely for that reason, an order for winding up should be passed. Reference was made to the stay application filed in the application for settlement No. 491/81 and the rejection of the said application. In that order, the reason why the discretion could not be exercised infavour of the company had been indicated. The court found that in the interest's of the creditors, the company should be wound up without any further delay. The amount payable to about 50,000 creditors was quite huge. The assets said to be realisable from the debtors were mostly debts secured only by personal guarantees. The court found that it may not be easy to realise them. Of course that the company could not meet its current demands or even function effectively was evident in the circumstances. In these circumstances, the learned judge directed winding up of the company.
8. There are certain facts which are more or less admitted or proved in the case. That the company was unable to carry on its business of conduct of chits or kuries regularly is a fact on which there could be no dispute now. Since the prized subscribers remain unpaid for a long period of time, the credibility of the company as a kuri company must be taken to be seriously affected. Realisation of outstandings cannot be easy. The company has to meet a huge commitment of about Rs. 2 crores by way of salary to its employees every year and as it is, such recurring liability could be met only from whatever amounts are collected by way of arrears of subscription. After all, the profit in a kuri is only the commission due to the foreman, and it is from out of such profit that expenses by way of salary of the staff has to be met. Under an agreement entered into with the holding company, a substantial part of the collections of the company had been diverted to the holding company. An amount of Rs. 10.44 crores was-so diverted and if so, it is not surprising that a kuri company could no longer function since subscriptions collected from the subscribers have to be paid to the prized subscribers but such amounts were diverted to the holding company. In these circumstances, without anything more, there will be very little to argue in favour of vacating the order for winding up. In fact no attempt was made before us to show that the company, as it is, is solvent enough to pay its debts or that if the winding up order is cancelled, without anything more, the company would be able to function and pay its debts due to its creditors. What was suggested was that in the circumstances rather than preparing an obituary note, it would be in the interests of the creditors to attempt to revive the company. It is said that if the court feels that it would be reasonably possible to revive the company, the court should do its best to revive it by giving an opportunity to the board of directors of the company to make a last minute attempt to infuse life into the company which has been directed to be wound up.
9. A company which is unable to pay its debts is liable to be wound up under the provisions of the Indian Companies Act. But there is a discretion vested in the court which calls for exercise before the court passes awinding-up order. There may be instances where winding-up may be a more effective way of settlement realising for the creditors and even the shareholders whatever could be salvaged from the assets of the company. That will really be so in the case of companies whose continuance would not be commercially viable and may result only in incurring further commitments by way of avoidable overheads. It may be that the line of business adopted by the company may no longer be feasible or economical and, therefore, it may be in the interests of the company that it disbands its establishment, conserves whatever assets it has and, then, functions only to effectively distribute such assets to its creditors and if there is something left over, pay that equitably to its shareholders. In such a case, there would be no purpose in trying to keep alive the company and allow it to continue its uneconomic functioning. That may only result in further liabilities being created against the company necessarily causing corresponding reduction in the distributable assets. But it may be possible that a company which at the moment is in adversity and is passing through evil days could be successfully revived by reason of change of circumstances and on account of factors which may make it possible for the company to function economically once it is revived. No doubt at the moment it may be that it is unable to meet its liabilities. But if there is reasonable, if not certain, prospect of its revival and effective and commercially successful functioning, then a short wait by the creditors may be worthwhile. They may then get better returns.
10. It should be the policy of the court to promote revival of a company which at the moment may not be solvent and may not be able to meet its obligations to its creditors, if it is shown that there is reasonable prospect of resurrection and survival. It is easy for a court merely on finding that a company is unable to pay its debts to bury it deep and distribute its assets, whatever is available, to the creditors standing in the queue, but it will not only be more equitable, fair and just, but indeed the court's duty to make an earnest study of the prospect of the company being brought back to life, put on its feet again and provided with congenial circumstances in which it could begin once again to throb with life. We must observe that it is not in any and every case that the court should direct continuance of the functioning of the company even subject to terms and conditions. The predominant test would be whether it would be in the best interests of the creditors primarily and the company secondarily to attempt the revival and resuscitation of the company. That would be the case where taking into account circumstances such as the degree of solvency, the likelihood of confidence of the customers in the company in view of its history and the resources at its command or at the command of those who may come to its rescue, the court is satisfied that its continued functioning would not resultin reducing the realisable assets, but would enable the company to function normally and economically.
11. Thus, while there should be an anxiety on the part of the court to promote life rather than affirm the death, the court should very judiciouslydetermine in every case whether that would be a feasible proposition. Ifthere is a scheme before it, such scheme calls for study in this background.Matters relevant in that context would be the extent of assets and liabilities of the company, the prosepect of realisation of outstandings withinreasonable time which, in turn, may depend on the solvency of the debtorsand the nature of the securities by which the debts are secured: if thescheme envisages resuscitation of the company and its commercial running,the feasibility of such resuscitation keeping in view how far the credibilityof the company has suffered, and to what extent the solvency of the company has been affected: if resuscitation is proposed, then the initial outlayand the recurring commitment on that account and the availability of resources for the same, and whether such recommencement of the business ofthe company is likely to reduce further the distributable assets of the company. These may be broad guidelines but they cannot be applied to a caseas one would apply a precise mathematical formula. The overall circumstances of a case may enable the court to reach a correct decision on thequestion whether it will be in the best interests of the creditors to approvea scheme for revival rather than affirm the warrant of death of the company.
12. Now, let us examine the facts. Sudarsan Chits (India) Limited, a wholly owned subsidiary of Sudarsan Trading Company Limited, undertook an obligation to divert an amount not exceeding Rs. 15 crores of its working capital as interest free loan to the holding company repayable after 15 years. Pursuant thereto, it diverted 10.44 crores. It was not as if the company had any capital to justify such a diversion, for its share capital was only Rs. 30,00,000. It cannot be said that there was any other source of working capital, for, in the business of chits, the foreman collects chit subscriptions and pays it to the prized subscribers. The periodical collections would be just sufficient to meet the periodical payments to the prized subscribers, leaving and leaving only the commission in the hands of the foreman if the chit is honestly and efficiently run. Whatever is left out of this commission, after meeting the expenses, administrative and otherwise, is alone available to the company to be diverted. It is in this background that the fact of diversion of Rs. 10.44 crores, interest free, gains significance. Prima facie in this background, the premature death of the company seems to be an inevitable event. Creditors who have prized their chits four or five years ago remain to be paid. About Rs. 31 crores -- the exact amountremains still to be determined -- remains to be paid. In a chit or kuri company, it is not easy to realise outstandings when the creditors feel that the solvency of the company is seriously affected. It is more so if the outstandings are not properly secured. A large part of the amount due to thecompany is said to remain unsecured or insufficiently secured such as bymere personal bonds. Other diversions have also been highlighted by theCentral Government, but it may not be necessary to refer to them here.Suffice it to say that apart from the fact that a huge liability has to be met,the credibility of the company must have necessarily suffered. The business of conducting kuries of chits is one dependent mainly on the confidenceof subscribers. It is by commencing chits from time to time that a company like Sudarsan Chits (India) Limited remains afloat particularlywith such a wide network of offices and such huge staff, nearly about5,000. Once that confidence is eroded, it is not easy to get back the goodwill. The company here seems to have started in a big way. The biggerthe company, the greater the loss of confidence when it fails to keep up tothe expectations of its customers. In the case of the appellant company, ifit starts functioning again, it will have to meet recurring commitments byway of pay of the staff. That would be a fairly huge periodical liabilityand, as pointed out, that cannot be met from out of the outstandings. Ifso, that can be only by starting new chits in a big way which, in turn, wouldhe impracticable unless it be that steps to regain the confidence of thepublic is attempted in a big way. Unless the public are convincinglytold that the Sudarsan Chit, Company, once a nourshing company, isback again on its feet, any revival would have no beneficial impact. Thecourt if it enables the company to start afresh again without makingproper safeguards would be taking the responsibility for the companyadopting any measures which may mislead the public into reposing confidence in the company. Therefore, any recommencement of the chits must be such as would not result in any loss to the innocent public. The question is, should the Sudarsan Chits (India) Limited which has certainly lostthe confidence of the people and which has huge liabilities be allowed tofunction again? If it is to be permitted, what safeguards should be takento see that a further generation of creditors do not face the same fate asthe existing creditors
13. Learned counsel, Sri Venugopal, appearing, for the appellants in these appeals, presented the case for the appellants thus : When, pending-consideration of petitions for winding up of a company, a scheme for keeping the company as a going concern is presented to any court, the application so made under Section 391 of the Companies Act should be considered as an alternative to winding up and, hence, the court would have no jurisdiction to order winding up once it has chosen to issue notice on the motion madeunder Section 391 of the Act. Alternatively/it is urged that, in any event, it would not be a proper exercise of jurisdiction to order winding up while an application under Section 391 of the Act is pending.
14. We have already referred to the circumstances under which application for settlement of a scheme has been moved by a creditor and how stoutly it is opposed not only by the contesting creditors but also by the Central Government and the Registrar of Companies, Kerala. The question, as posed by the learned counsel for the appellant, posits that the mere issue, of notice on an application made under Section 391 of the Act would act as a bar to passing an order winding up the company. We will examine this question here.
15. Section 433 of the. Act deals with the circumstances under which the company may be wound up by court and one of such circumstances that is mentioned in Section 433(c) is that the 'company is unable to pay its debts '. Section 433 of the Act deals with the powers of the court hearing the petition for winding up. Sub-section (2) of that section provides that where the petition is presented on the ground that it is just and equitable that the company should be wound up, the court may refuse to make an order of winding up, if it is of the opinion that some other remedy is available to the petitioners and that they are acting unreasonably in seeking to have the company wound up instead of pursuing that other remedy. Section 447 provides that an order winding up a company shall operate in favour of all the Creditors and of all the contributories of the company as if it had been made on the joint petition of a creditor arid of a contributory. While Section 449 provides for the appointment of the official liquidator as the liquidator of the company on the Winding up order being made in respect of a company, Section 450 deals with an 'earlier stage. It provides for appointment of a provisional liquidator. Section 458A, inserted by Act 65 of 1070, provides for exclusion of certain time in computing periods of limitation. That is in respect of a company which is being wound up by a court. The period from the date of commencement of the winding up of the company to the date on which the winding up order is made and a period of one year immediately following the date of the winding up order are to be excluded.
16. Section 391 of the Act appears in Chapter V, Part VI, providing for 'Arbitration, compromises, arrangements and reconstructions'. Section 433 and subsequent sections to which we have referred appear in Chapter II of Part VII of the Companies Act. The compromise or arrangement proposed between a company and its creditors or any class of them is to be considered in accordance with Section 391 of the Companies Act. The compromise orarrangement proposed need not be in respect of a company which is being wound up. It is profitable to quote Section 391 here:
' Section 391. Power to compromise or make arrangements with creditors and members.--(1) Where a compromise or arrangement is proposed-
(a) between a company and its creditors or any class of them; or
(b) between a company and its members or any class of them ; the court may, on the application of the company or of any creditor or member of the company, or, in the case of a company which is being wound up, of the liquidator, order a meeting of the creditors or class of creditors, or of the members or class of members, as the case may be, to be called, held and conducted in such manner as the court directs.
(2) If a majority in number representing three-fourths in value of the creditors, or class of creditors, or members or class of members, as the case may be, present and voting either in person or, where proxies are allowed (under the rules made under Section 643), by proxy, at the meeting, agree to any compromise or arrangement, the compromise or arrangement shall, if sanctioned by the court, be binding on all the creditors, all the creditors of the class, all the members, or all the members of the class, as the case may be, and also on the company, or in the case of a company which is being wound up, on the liquidator and con tributaries of the company:
Provided that no order sanctioning any compromise or arrangement shall be made by the court unless the court is satisfied that the company or any other person by whom an application has been made under Subsection (1) has disclosed to the court, by affidavit or otherwise, all material facts relating to the company, such as the latest financial position of the company, the latest auditor's report on the accounts of the company, the pendency of any investigation proceedings in relation to the company under Sections 235 - 251, and the like. (3) An order made by the court under Sub-section (2) shall have no effect until a certified copy of the order has been filed with the Registrar.
(4) A copy of every such order shall be annexed to every copy of the memorandum of the company issued after the certified copy of the order has been filed as aforesaid, or in the case of a company not having a memorandum, to every copy so issued of the instrument constituting or defining the constitution of the company,
(5) If default is made in complying with Sub-section (4), the company, and every officer of the company who is in default, shall be punishable with fine which may extend to ten rupees for each copy in respect of which default is made.
(6) The court may, at any time after an application has been made to it under this section, stay the commencement or continuation of any suit or proceeding against the company on such terms as the court thinks fit, until the application is finally disposed of.
(7) An appeal shall lie from any order made by a court exercising original jurisdiction under this section to the court empowered to hear appeals from the decisions of that court, or if more than one court is so empowered, to the court of in/erior jurisdiction.
The provisions of Sub-sections (3) to (6) shall apply in relation to the appellate order and the appeal as they apply in relation to the original order and the application;'
17. There is nothing in Section 391 that prohibits proceedings for winding up being continued or a winding up order passed merely because a scheme or arrangement has been proposed. Of course, if-the scheme or arrangement is accepted by the court and, accordingly, settlement proceedings commenced, that would serve to avoid winding up. That does not mean that merely because a settlement or scheme has been presented to the court under' Section 391 of the Act and the court orders notice on it, its hands are stayed in regard to its powers contemplated under Section 443 of the Act. In support of counsel's plea it is said that a proposal for settlement or compromise, when noticed by the court, operates as an alternative mode of winding up and, therefore, until the court finally pronounces on that mode, it would be improper for the court to order winding up and thereby cause the civil death of the company. We are not persuaded to agree with this contention, for, we see no reason to assume any bar in the court exercising its power to order winding up, if circumstances justifying the exercise of such a power exists, merely by reason of the fact that some creditor or other has proposed a settlement in regard to the affairs of the company. Whether the settlement would be feasible and would enable resuscitation of the company would depend upon consideration of the application and the objections thereto in the light of the materials disclosed on the trial of such petition. In other words, merely because such a motion has been made, the court does not and cannot assume that the application would be granted and the position would not in any way be different merely because notice is orderect on the petition. In fact, even if the winding-up order has been passed by the court, there is no reason why the motion under Section 391 of the Act should not be considered. The passing of the winding-up order could not quite often afford to wait, for, if the company ceases to function either because of financial breakdown or the breakdown of its administrative machinery, it is in the interests of all creditors and the shareholders that there is someone or other to attend to the affairs of the company forthwith. By mechanicallyputting off winding up merely because there is a scheme, which scheme may turn out to be feasible or not feasible, bona fide or not bona fide, honest or otherwise, practicable or impracticable, the court would be failing to perform its duty to deal with the winding-up application in time. An application under Section 391, as we have already indicated, need not plate to a' Company which is being wound up or to a company in respect of which any motion for winding up is pending consideration. Even in respect of a company concerning which no motion for winding up is: pending in court, a motion under Section 391 of the Act will lie. Evidently, therefore, a motion made under Section 391 will not operate as a motion to adopt an alternative mode of liquidation. While winding up may be avoided by a feasible scheme so found by a court, for that reason it does not become an alternative mode of liquidation. It will then be an alternative to liquidation. Liquidation may be avoided by adopting it. If so adopted, it operates to obviate liquidation. That would mean that the company is then not under liquidation. Therefore, to say that proceedings under Section 391 operates an alternative mode of liquidation as contended by the learned counsel,. Sri Venugopal does not appear to us to be correct.
18. Counsel's contention is said to be supported by certain observations of Venkataramana'Rao J. in Travancore National and Quilon Bank Ltd., In re  9 Comp Cas 14 (Mad). The learned judge was considering an application under Section 153 of the Indian Companies Act, 1913 (corresponding to Section 391 of the Companies Act, 1956), by three creditors of the Travancore National and Quilon Bank Ltd., purporting to be on behalf of a large body of creditors of the said bank in the petition for winding up of the bank which was pending. In the application, the prayer was for an order for calling for a meeting of the creditors for considering and approving a scheme of arrangement proposed to be made with or without modification. The registered office of the bank was in Quilon within the jurisdiction of the Travancore State though it had the central office at Madras. Owing to an unprecedented run on the bank, the bank was obliged to adjourn its business temporarily and this led to the making of application for winding up both in Travancore and in Madras. It was contended in that case before the High Court of Madras in opposition to the application made under Section 153 of the Companies Act, 1913, as amended by Act 22 to 1936, that in the case of a foreign company, Section 153 of the Act was not applicable at all and at any fate it would not be applicable before an order for winding up was made by the Madras High Court. That was because the company having been registered in the Travancore State, outside British India, Was a foreign company. Though the plain language of Section 153 of the Act of 1913, as amended, showed that it was applicable both to a going company and a company in liquidation, in regardto foreign companies it was applicable only subject to certain limitations. This was on the basis of the definition of a foreign company as a company liable to be wound up under the Act. In Section 153 of the Indian Companies Act, when it was first enacted, the expression ' company ' meant company liable to be wound up. The Travancore National and Quilon Bank, though an unregistered company so far as British India was concerned, was a company liable to be wound up under the Act and the term ' court' in Section 153 was understood to mean a court in which the company was liable to be wound up. That gave jurisdiction to the Madras High Court as a court in which the foreign company was' liable to be wound up to entertain an application under Section 153 of the Act. It is in this context that it was urged before the Madras High Court that any scheme, which could be proposed in the case of a foreign company, must be with respect to winding up and if an application of the nature in question before it was not with respect to winding up, Section 153 could not be invoked for that purpose. Dealing with this, Venkataramana Rao J. said thus (p. 32):
' I do not see much substance in this argument. Under Section 271, all the provisions of the Act with respect to winding up would apply to an unregistered company and a provision to avert a winding up will be a provision with respect to the winding up. A scheme under Section 153 provides an alternative mode of winding up and it cannot be doubted that Section 153 being a general law as to winding up is as much applicable to the winding tip of a foreign company and the corresponding section of the English Adt has always been employed to give effect to a scheme of compromise already arranged in a simultaneous winding up abroad.'
19. No doubt it has been said by the learned judge that a scheme under Section 1.53 provides an alternative mode of winding up. The ides the learned judge seems to convey in that context is that the provisions of the Act with regard to winding up being applicable to an unregistered company, a provision to avert a winding, up must be treated as a provision with respect to winding up. With that proposition we respectfully agree. A provision which would serve as an alternative mode of winding up would be a provision with respect to winding up.
20. The observations of Vaughan Willams J. in London Chartered Bank of Australia, In re  3 Ch 540 at 546 may be quoted here :
' The scheme of arrangement Under the Act of 1870 is--as I have had occasion to point out in several cases--an alternative mode of liquidation which the law allow the statutory majority of creditors: to substitute for the pending winding up, 'whether voluntary or under the court, just as the Bankruptcy 'Act, 1869, allowed the creditors the substituted liquidation byarrangement under Section 125, or composition under Section 126, of that Act, for a pending bankruptcy.'
21. It may be profitable in this context to refer to an illuminating discussion by S.R. Das C.J., speaking for a Full Bench of the East Punjab High Court in Bhagwanti v. New Bank of India  20 Comp Cas 68 (EP). Referring to the corresponding provision in the English law, the learned Judge said thus (p. 77):
' Under the English Companies Act, 1862 (25 and 26 Vie. C. 89), the only provision for a scheme or arrangement was in Section 136 which was in the following terms:
' Any arrangement entered into between a company about to be wound up voluntarily, or in course of being wound up voluntarily, and its creditors, shall be binding on the company if sanctioned by an extraordinary resolution, and on the creditors if acceded to by three-fourths in number and value of the creditors, subject to such right of appeal as is hereinafter mentioned.' Section 137 of that Act dealt with the right of appeal but it is not necessary to refer to it. It will be noticed that under that Act (i)' an arrangement could be entered into only when the company was about to be, or in course of being, wound up voluntarily, and (ii) the arrangement could only be between the company and the creditors only and that no arrangement could be entered into between the company and its members. The Act made no provision for a scheme in respect of a company which -was being wound up by or under the supervision of the court or which was not about to be or in the course of being wound up at all. This inconvenience was to a certain extent removed by Section 2, English Joint Stock Companies Arrangements Act, 1870 (33 and 34 Vie. C, 104), which read as follows:
' Where any compromise or arrangement shall be proposed between a company which is, at the time of the passing of this Act or afterwards, in the course of being wound up, either voluntarily or by or under the supervision of the court, under the Companies Acts, 1862 and 1867, or either of them, and the creditors of such company, or any class of such creditors, it shall be lawful for the court, in addition to any other of its powers, on the application in a summary way of any creditor or the liquidator, to order that a meeting of such creditors or class of creditors shall be summoned in such manner as the court shall direct, and if a majority in number representing three-fourths in value of such creditors or class of creditors present either in person or by proxy at such meeting shall agree to any arrangement or compromise, such arrangement or compromise shall, if sanctioned by an order of the court, be binding on all suchcreditors or class of creditors, as the case may be, and also on the liquidator and con tributaries of the said company.' By Section 3 of that Act, the word ' company' was defined to mean ' any company liable to be wound up under the Companies Act, 1862 '. It will be seen that even this Act made no provision for any arrangement or compromise between the company and its members. But what is more important to note is that under this Act, the scheme could be proposed only when the company was ' in the course of being wound up, either voluntarily or by or under the supervision of the court' and that no provision was made for a scheme when the company was not actually being wound up. Further, and this is also very important, the powers of the court to direct meetings to be summoned and to sanction the scheme were ' in addition to any other of its powers' which must mean, since the company was ' in the course of being wound up ' in addition to all its powers as the winding up court. The net result of this was that a scheme could be proposed only when the company was being wound up and the purpose of the scheme was to avert further proceedings in winding up and to substitute for the winding up proceedings a scheme approved by the requisite majority of creditors and sanctioned by the court and that the power of the court to direct the holding of meeting and to sanction the scheme was in addition to its powers as the winding up court. The order sanctioning the scheme in the course of winding up provided for the stay of the winding up except for the purposes of carrying the scheme into effect (see Forms Nos. 940 and 944 in Palmer's Company Precedents, 15th edn., Part II, pp. 959-960 and 962). This meant that the power of the court as the winding up court was retained for the purpose of giving effect to the scheme. The provision of Section 2 of the English Act of 1870 to the effect that the power of the court to sanction the scheme was in addition to its powers as the winding up court and the continuation of the winding up for the purpose of giving effect to the scheme naturally and obviously had the effect of enabling the court to make ancillary, incidental and consequential orders to implement the scheme as if they were matters arising in winding up. This is how, I apprehend, the matter stood under the English Acts of 1862 and 1870. As long as those Acts were in force, it was, therefore, only a truism to say that a scheme was an alternative mode of winding up. It was Vaughan Williams J., who in In re London Chartered Bank of Australia  3 Ch 540 at p. 546, said :
' The scheme of arrangement under the Act of 1870 is--as I have had occasion to point out in several cases--an alternative mode of liquidation which the law allows the statutory majority of creditors to substitute for the pending winding up, whether voluntary or under the court, just as theBankruptcy Act, 1860, allowed the creditors the substituted liquidation by arrangement under Section 125, or composition under Section 126 of that Act, for a pending bankruptcy.' The words 'substitute for the pending winding up' and the words 'substituted liquidation...for a pending bankruptcy ' are important and clearly indicate that the scheme was a substitute or alternative to the winding up or bankruptcy which was actually pending. In the headnote of this case, the reporter omitted the word 'pending ' and in later times. Judges in England as well as in India quoted the sentence from the head-note and applied it generally to every case of a scheme irrespective of whether the scheme was made in course of a pending winding up or otherwise as if a scheme was always an alternative mode of winding up, even where there was no winding up. For example, one may refer to the case of Madan Gopal v. Peoples Bank of Northern India Ltd.  16 Lah 1029 ; 5 Comp Cas 313, where the observations of Vaughan Williams J. are quoted in bald form and applied to a case where there was no winding up at all. '
22. That under the provisions of the Companies Act, 1956, a scheme under Section 391 cannot be said to be an alternative mode of liquidation but only an alternative to liquidation has been said by Tek Chand J. in Himalaya Bank Ltd. v. Roshan Lal Mehra  31 Comp Cas 333 (Punj). Reference was made in that context to the decision of the Madras High Court in In re Travancore National and Quilon Bank Limited  9 Comp Cas 14 (Mad) also. The learned judge observes thus (at p. 337 of 31 Comp Cas): -
' He has rested his argument on three decisions reported in Madan Gopal v. Peoples Bank of Northern India Ltd.  5 Comp Cas 313 (Lah), Motilal Kanji and Co. v. Natvarlal M, Jhaveri  2 Comp Cas 64 (Bom), In re Travancore National and Quilon Bank Limited  9 Comp Cas 14 (Mad). In Madan Gopal's case  5 Comp Cas 313, Tek Chand J. said: ' Section 153, Indian Companies Act, makes provision not merely for schemes for the ' resuscitation ' or 'reorganisation' of companies, but it also provides for ' schemes of arrangement' which in the words of Vaughan Williams J. (used in reference to the corresponding section of the English Act) provide an alternative mode of liquidation, which the law allows the statutory majority of creditors to substitute for winding up, whether voluntary or under the court: In re London 'Chartered Bank of Australia  3 Ch. 540 at 546.' On the strength of these decisions, itwas argued that the scheme of arrangement was an alternative mode of liquidation. This does not appear to be so either under the Companies Act, 1956, or under the Indian Companies Act, 1913, which preceded the present statute. Provisions of the Companies Act relating to Arbitration, Compromises,Arrangements and Reconstruction' covered by Sections 389 - 396 are placed in Chapter V of Part VI which deals with management and administration. Part VII is devoted to winding up. A scheme, therefore, cannot be said to be an alternative mode of liquidation but only an alternative to liquidation. The incidents of a scheme of arrangement and of a winding up are distinct both in principle and in consequences.'
23. The dictum of Vaughan Williams J. which was cited in the three decisions adverted to in the above passage was also referred to by the learnedjudge. The learned judge observes thus:
' It was held by a Full Bench in Sm. Bhagwanti v. New Bank of India Ltd.  20 Comp Cas 68 (EP), that in the corresponding English Act all the sections relating to the scheme were contained within the part dealing with winding up; and, therefore, a scheme of that particular kind was correctly described as an alternative mode of winding up. That particular provision which was being considered was applicable only to a company in liquidation.'
24. In this view, the learned judge found that the scheme of arrangement could not be treated as a specie of liquidation.
25. It appears to us that the observations by Vaughan Williams J. mustbe limited to the context of the English Acts with which the learned judgewas dealing and understood in the background of the Act. The viewexpressed by the Full Bench of the East Punjab High Court that the provision in Section 391 is not a provision relating to winding up, but is plainly aprovision which relates to settlement not necessarily limited to the companies which are being wound up, has our concurrence. Even in respectof companies which are being wound up, proceedings under Section 391 operateas modes the adoption of which may serve to avert winding up and ifadopted, winding up of the company may be avoided.
26. We, therefore, see no reason to find that merely because a petition under Section 391 of the Act is pending consideration, the order of winding up could not be passed.
27. Now we will come to the other ground urged by learned counsel, Sri Venugopal According to him, the discretion of this court should not be exercised to order winding up when the court has chosen to issue notice on the proposal to settle a scheme. That will be a question of assessment by the court of all circumstances relevant to the motion for winding up. Whether it would be to the advantage of the creditors and even of the company that the court stays its hands on the winding up motion because a motion for settlement has been made in a matter on Which the court should Certainly deliberate anxiously and to that we advert now. Such advertence must necessarily be keeping in mind the background which hasbeen fairly elaborately sketched by us in the earlier paragraphs of this judgment. Referring us the following passage in Lawrence Dawson v. J. Hormasji  3 Comp Cas 57 (Rang), at p. 74 :
' The court is of course not a mere machine for registration. It will look into the proposed scheme much as a court of appeal will canvass, if asked to do so, the decision of a jury, to ascertain if there was reasonable evidence to support their verdict; but it will, I think, always also prefer a living scheme to a compulsory liquidation bringing about an end to a company and, usually, without any hope of payment in full...:'
28. Justice Desai in In re Maneckchowk and Ahmedabad Mfg. Co. Ltd. 40 Comp Cas 819 (Guj) said that the approach of the court whileexamining the scheme must be on the basis of the principle pointed out inthe decision in In re Sidhpur Mills Co. Ltd., AIR 1962 Guj 305, and keepingin view all the aspects of the matter, the court must prefer a living schemeto compulsory liquidation bringing about an end to a company. We respectfully agree. By passing an order of winding up, the company does notbecome civilly dead and as said by Leach C.J. in In re Calicut Bank Ltd. 8 Comp Cas 313, even if an order for winding up is passed, it willnot interfere with any proper scheme being considered. The same view wasexpressed by the Travancore-Cochin High Court in Vassan Bros. v. OfficialLiquidator, AIR 1952 TC 170.
29. Now, back to the facts of our case. As at present, the company is unable to pay its debts. Its debts far exceed its realisable assets and since such realisation is bound to be a long drawn out process, there is no possibility of the company meeting its obligations within a reasonable time as matters stand. Hence, there are circumstances which would sufficiently warrant winding up. As indicated by us, the question is, even so, should winding up be ordered or should the court examine the feasibility, of revival of the company on the lines suggested by Sri Venugopal. A note has been submitted by counsel on behalf of the company as to how such revival could be effected. We would consider whether that is worth a trial. What we have said above about the present condition of the company is sufficient to indicate that if the winding up order is vacated, that by itself will not enable the company to function effectively and there would be up reasonable prospect of all the creditors being paid substantially, let alone fully within any reasonable period of time. Whatever driblets may come in by way of realisation of outstandings would be eaten up by the recurring operational expenses of the company unless it be that fresh business is canvassed by the company. That would be impracticable so long as something demonstrative is not done to inspire confidence in the customers, despite the long history of default. It will be too much to expect that bybeing allowed to open the offices again and function in the normal way, new subscribers will flock in to subscribe to new chitties.
30. In this background, the question that we mainly deliberated on and on which also we heard all concerned interests was that of reasonable possibility of resuscitation in the event the holding company was prepared to, offer it helping hand in the fullest measure not by way of gratuitous obligation on its part but as a necessary part of its moral, if not legal obligation. We have already indicated that it was the siphoning off of funds by the holding company, no doubt under the authority of an agreement, that has resulted in the present distressing situation. The amount of rupees 10.44 crores must have been utilised by the holding company in' profitable ventures. It is submitted that there has been investment by the holding company in landed property. Perhaps the holding company stands to advantage by such investment, for, the unparalleled inflation of land price may confer advantages to the holding company by such investment. Though under the terms of the agreement with the appellant company, the holding company is bound to repay rupees 10.44 crores only within a period of 15 years of payment, perhaps, if, the holding company is able to offer the entire amount now as a measure, of backing up the appellant company and helping it to restore its stability and more than that helping to restore the confidence of the customers in the company, perhaps that may go a long way to bring back the company to life. In that event, perhaps promoting the company to start fresh kuries subject to very many safeguards concerning which we had deliberated, may be feasible and the profit by way of commission may be utilised to pay the staff from time to time. In that event, outstandings collected from the debtors of the company together with the amount advanced by the holding company may be available to pay at least part of the amount due to the creditors within a reasonable time. Hence we asked learned counsel whether the holding company would be prepared to meet such a commitment. The holding company is said to be considerably anxious to see that the appellant company does not meet its death which is inevitable, as it is. But it is said 'that it may not be possible for the holding company to meet the commitment all on a sudden, though the company would do so within a period of 5 years, payments to be made periodically once in three months or once in six months. This may not be quite satisfactory. But all the same, taking into account the circumstance that perhaps it may give better return to the creditors, We are inclined to give a trial to this and an opportunity to see whether this could result in an effective functioning bringing in better returns than now to the creditors of the company. In this view, we have discussed the whole question of commitment, administration and management, duties and responsibilities of the liquidator and consequential orders to be passed bythis court, We are happy to record that there is a large measure of agreement with what we propose, from the appellant company, the Company Law Board, the Registrar of Companies and the body of creditors represented before us. Of course, we are aware that this agreement on the part of the respondents is only because they are also interested in seeing that if by any means the company could be resuscitated, that should be attempted before finally sealing its fate. Accordingly, we make the following directions:
Obligations to be undertaken by the holding company:
1. For the entire amount of Rs. 10.44 crores due from the holding company to the appellant company, a security bond will be executed securing assets sufficient and adequate to cover the said amount. This shall be done within three months from this date.
2. The sum of Rs. 10 44 crores due will be paid within a period of 5 years from this date by the holding company into a separate account of the appellant company, an account not to be dealt with without orders of this court. Such payment shall be in the following manner.
Rs. 25,00,000 within a period of four weeks from this date,Rs. 35,00,000 within 12 weeks from this date,Rs. 50,00,000 within 6 months from this date,Rs. 50,00,000 within 9 months from this date, andRs. 50,00,000 within 1 year from this date, thus totalling Rs. 2,10,00,000 within one year. Thereafter, payments will be made at the rate of Rs. 55,00,000 before the end of every succeeding three months (one instalment within 1 year 3 months from this date, the next before 1 year 6 months from this date and so on) until the whole amount of Rs. 10.44 crores is paid off.
3. If the board of directors of the appellant company decide upon commencing new chits, the funds necessary for starting such new chits shall be provided by the holding company with no obligation in the appellant company to pay interest thereon and that shall be considered for settlement with the holding company by the appellant company only after the appellant company discharges all its other obligations.
4. The holding company shall not take any amounts from the appellant company either as any advance under the earlier agreement or as remuneration for its services or towards any payment of Rs. 24,00,000 per annum as contemplated in the agreement without any specific orders from this court. The holding company shall not be entitled to any remuneration for its services till such period as the appellant company is able to function on its own and that will be determined by this court.
5. The holding company shall not alienate any of its properties without obtaining the prior permission of this court.
6. The holding company must undertake to meet the obligation of payment of the staff in so far as such payment cannot be met out of the commission that is received in the new chits. On no account shall the commitment on account of the salary or other establishment expenses be met from out of the present assets of the appellant company or from the payments made by the holding company into the account of the appellant company as mentioned in this judgment.
7. The holding company shall undertake not to start any new chit business directly by itself or indirectly through its subsidiaries other than the appellant company or otherwise.
1. The affairs of the appellant company shall be managed by its board of directors, but a person nominated by this court to function as an additional director of the company will have to be taken in by the appellant company into its board. Such person shall not only sit on the board of directors as a director but also keep a watch over the affairs of the company and shall advise the company. In case any decision of the company is, according to the said additional director, not in the interests of the body of the creditors or of the company, such resolution shall not be enforced until orders of this court thereon are obtained. Such person shall have access to all the books and other records of the company in all the offices, shall have power to oversee the functioning and report to this court from time to time. He shall see that the relations of the official liquidator who is being appointed as the provisional liquidator by this judgment visa-vis the company is smooth and effective. The additional director so appointed shall submit a report to this court once in three months making an objective assessment of the affairs of the company and particularly whether the object with which the company is being sought to be brought back to life is being achieved by the functioning of the company.
2. The additional director so appointed shall be paid a remuneration of Rs. 30,000 besides a sum of Rs. 15,000 towards expenses that he may have to incur by making arrangements such as having private personal assistant or staff. He is not liable to account for the same to the company. One-half of this amount shall be paid within a month and the balance within 3 months. Expenses by way of travelling allowance for stay at places he visits in connection with his duties as additional director and all other legitimate expenses incurred by him will have to be reimbursed by the company from time to time. If his function does not cease withina period of one year from the date of appointment, the question of additional remuneration that will have to be paid to him will be considered.
3. The board of directors, if they decide to open new chits, shall not utilise the available funds of the company for expenses in connection with the opening of the chits. That will have to be provided by the holding company. The amount received from subscribers shall be scrupulously earmarked for the chits concerned and shall be kept in separate accounts and the amount so received shall be utilised only for payment of amounts to the prized subscribers in those chits except the commission earned by the appellant company. If such commission would not be sufficient for payment of staff and other establishment expenses, the holding company will have to undertake to meet such commitment.
4. The amounts realised as outstanding from the subscribers of current or terminated chits shall be utilised only for paying off the existing creditors and for the time being shall be remitted from time to time into a bank account earning interest. The question of settlement of the claims of creditors from out of the account will be taken up by the court after a sizable amount comes into such account sufficient to pay a reasonable portion of the amount due to the creditors.
We have been persuaded to adapt, in a large measure, conditions suggested by the appellant company itself and that is because of our understanding that without the wholehearted participation of the holding company, now speaking through the appellant company, any scheme for survival may not be realistic or effective. If the appellant company which of course necessarily depends upon the holding company to support it is unable to agree to these conditions, we think it will be adverse to the interests of the creditors to attempt any other arrangment and,, therefore, we consider the alternative to be only to affirm the winding up order passed by the learned company judge. It is only because we are assured by learned counsel, Sri K.K. Venugopal, appearing for the appellant company, that the holding company would do its best thought, it is not a party to this appeal, and the appellant company will be able to persuade the holding company to act so that we have chosen to impose obligations on the holding company as a condition precedent for further action in this case. In these circumstances, the appellant company and the holding company must undertake within a period of two weeks that they are willing to abide by the conditions imposed in this judgment and undertake the obligations under the judgment. If there is any default in the matter of performing the commitments so imposed, or if the appellant company or the holding company does not submit to the undertaking as directed, there will be no further proceedings for revival and that chapter will remain closed. The winding up order by thelearned company judge will then stand confirmed unless it be that on a motion made by any of the interested parties, this court takes the view that there is sufficient reason to condone such default. On the first payment of Rs. 25,00,000 being made within four weeks from this date, the winding up order will be held in abeyance and, thereupon, the official liquidator will be considered as appointed to function as the provisional liquidator subject to such restrictions on his powers and privileges as we may indicate here. The provisional liquidator is specifically empowered to file suits and take all steps necessary for the conduct of the suits. Since it may not be possible for the provisional liquidator to verify the records in all the offices as he is, allowed to function as a provisional liquidator only in a limited manner and as the company is allowed to function, it shall be the duty of the company to supply him with all material necessary to see that suits are filed in time and to furnish him with all materials necessary for the purpose of filing the suits and adducing evidence therein. The appellant company shall not cause any default by omitting any claim from being brought to the notice of the provisional liquidator for filing suits in time and supplying him with necessary materials therefor. The amounts realised by the .provisional liquidator shall be passed on to the account of the company which is to be opened for the purpose of depositing the collections made by the company on account from which no amount other than the expenses of litigation shall be expended by the company except with the express and specific sanction from the court. The fee payable to the provisional liquidator shall be such as the court may fix from time to time considering the work of the provisional liquidator. The parties will be free to approach this court for such other necessary directions as may be called for to implement this judgment. It is also open to the additional director to be nominated by us to approach this court for directions as and when required. We nominate Sri K.S. Venkataraman, I.C.S., Retired Judge of the Madras High Court, as the additional director.
5. On the expiry of four weeks from this date, if the amount of Rs. 25,00,000 is paid by the holding company into a separate account as directed herein and for that reason the winding-up order is held up in abeyance and further the provisional liquidator commences his functions with restricted powers, the provisional liquidator shall expeditiously hand over the offices taken possession of together with the books, records and other materials so taken over to the nominee or nominees of the board of directors after preparing inventory of such materials if required by the appellant company. Expenses, if any, incurred by the official liquidator may be claimed and appropriate orders will be passed thereon by this court. The expenses that the provisional liquidator will have to incur for filingsuits may be claimed from time to time from the company. If there is any dispute, the matter should be brought to this court for necessary orders.
31. We make it clear that we are only holding the winding up in abeyance and on consideration of the quarterly reports if at any time we find that a stage is reached when under the arrangement that we have made the company is likely to function on its own, we may then consider revoking the winding up order so much so the company will function on its own or subject to such restrictions as are called for in the circumstances. If on the other hand, on a consideration of any report, even though there may not be any specific default on the part of the appellant company, we think it is not feasible to allow the functioning of the company and it is not to the advantage of the creditors to allow such functioning, it is open to this court to pass orders affirming the order of winding up, a situation justifying winding up having already been found in this order, and the attempt by this judgment being only to avert winding up by an alternate mode, if possible.
32. The appeals are disposed of as above.