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Rajendra Prosad Agarwalla and ors. Vs. Official Liquidator - Court Judgment

LegalCrystal Citation
SubjectCompany
CourtKolkata High Court
Decided On
Case NumberAppeal No. 335 of 1976 (C.A. No. 192 of 1976)
Judge
Reported in[1978]48CompCas476(Cal),82CWN14
ActsCompanies Act, 1956 - Section 391
AppellantRajendra Prosad Agarwalla and ors.
RespondentOfficial Liquidator
DispositionAppeal dismissed
Cases ReferredMohammed Abdulla Tharaganar v. Offl. Liq.
Excerpt:
- .....for convening separate meetings of the unsecured creditors and shareholders of the company. the learned judge dismissed the said application. it appears that the learned judge dismissed the said application mainly on two grounds. firstly, the learned judge held that on a true construction of section 391(1), the said application by the contributories of the company was not maintainable as the company was in liquidation, it is the view of the learned judge that when the company is in liquidation, an application for sanction of a scheme can only be made by the official liquidator. the second ground of dismissal of the said application by the learned judge was that the said application was not bona fide and, on the merits, no proper case had been made out.2. mr. mukherjee, learned counsel.....
Judgment:

A.N. Sen, J.

1. This appeal arises out of the judgment and order passed by Salil K. Roy Chowdhury J. on the 13th day of July, 1976, in an application by the contributories of Tatanagar Iron Foundry Co. Ltd. (in liquidation) under Sections 391(1), 392 and 393 of the Companies Act for framing of a scheme and for convening separate meetings of the unsecured creditors and shareholders of the company. The learned judge dismissed the said application. It appears that the learned judge dismissed the said application mainly on two grounds. Firstly, the learned judge held that on a true construction of Section 391(1), the said application by the contributories of the company was not maintainable as the company was in liquidation, It is the view of the learned judge that when the company is in liquidation, an application for sanction of a scheme can only be made by the official liquidator. The second ground of dismissal of the said application by the learned judge was that the said application was not bona fide and, on the merits, no proper case had been made out.

2. Mr. Mukherjee, learned counsel appearing in support of this appeal, has contended before us that the views expressed by the learned trial judge are not right. He has submitted that on a true construction of Section 391(1), it cannot be said that if the company is in liquidation, the liquidator is the only person competent to make the application and the shareholders and the creditors do not have any right to make any application for sanction of a scheme. In support of this submission Mr. Mukherjee has drawn our attention to the said section itself, Rules 67 and 68 of the Companies (Court) Rules, 1959, and the prescribed forms under the rules bearing Forms Nos. 33 and 34. Mr. Mukherjee has also relied on the decision of the Madras High Court in the case of In re Travancore National & Quilon Bank Ltd. [1939] 9 Comp Cas 14 and also on the decision of the Travancore-Cochin High Court in the case of Mohammed Abdulla Tharaganar v. Off,. Liq., Cape Comorin General Traffic Co. Ltd. [1953] 23 Comp Cas 161 (TC). Mr. Mukherjee has also drawn our attention to a passage at page 398 in the Indian Companies Act, 1913, by Sircar & Sen. The passage relied on by Mr. Mukherjee reads as follows :

' The application for the holding of a meeting as contemplated in subsection (1) may be made, either by the company or by any member or creditor of the company. Where the company is being wound up, the application may be made also by the official liquidator.' The material portions of Section 391 may be set out:

' 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 representating 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 contributories of the company : .....'

3. A plain reading of the section clearly indicates that the legislature intended that if any compromise or arrangement is proposed, the company or any creditor or any member of the company will be entitled to make the necessary application and in case where the company is being wound up, as the board has ceased to function and is no longer there and the company is represented by the liquidator, the liquidator will also be entitled to make the necessary application. The right which is conferred on the contributories or the creditors is not intended to be taken away when the company has gone into liquidation and in such a case an additional right is also conferred on the liquidator. The provisions contained in Sub-section (2) which require the approval of the majority of the creditors or class of creditors or members or class of members in case of any compromise or arrangement for the same being sanctioned, even when the company is in liquidation, clearly go to indicate that the legislature never intended that the wishes of the creditors or contributories would be ignored. In our opinion, in the case of a company in liquidation, apart from the rights which are conferred on the creditors or contributories of a company, an additional right is also conferred on the liquidator. The passage in Indian Companies Act by Sircar and Sen, which we have earlier quoted, in our view, correctly represents the legal position.

4. The provisions contained in the Companies (Court) Rules, 1959, in Rules 67 and 68 and the forms prescribed under the said Rules also clearly go to indicate that even in the case of a company in liquidation the contributories and the creditors of the company are entitled to make an application under Section 391.

5. This identical question came up for consideration before the Madras High Court in the case of In re Travancore National and Quilon Bank Ltd. [1939] 9 Comp Cas 14 and Venkataramana Rao J. held at page 23 :

' It is finally conceded by the learned advocates who appeared for most of the creditors that after an order for winding up is made, this court will have jurisdiction to entertain this application, but the objection that was raised as to the maintainability of the petitition was that the application after a winding-up order could only be made by the liquidator and not by a creditor of a company and this argument is based on the language of Section 153, namely, ' in the case of a company being wound up, of the liquidator'. There does not seem to be much substance in this argument. The section was intended to confer rights both on the company and on the creditors and members of the company. When it is a going concern the object will be to avert a winding up. Even after an order for winding up is made, an application can be made to cancel a winding up by the sanction of a scheme and allow the company to resume its normal business.

The creditors and members arc the persons vitally interested in the life of a company and are the best judges of their interests. It could not have been therefore the intention of the legislature to deprive the creditors of the right once an order for winding up is made and place them at the mercy of the liquidator who may or may not choose to move in the matter. All that is intended by the section is that the liquidators should also have the right to make the application. At any rate, this is the view taken by Palmer on the corresponding section of the English Act. In his book on Winding up (Palmer's Company Precedents, Part II, Winding up (15th edition), page 906), he observes thus :

'A proposal for an arrangement or compromise is not confined to the company or its liquidator (if any). It is open to any creditor or member to take the initiative. The Act expressly provides that the court may, on the application, in a summary way, of the company, or of any creditor or member of the company, or in the case of a company being wound up, of the liquidator, order a meeting, etc. ' I think that the same view must be adopted in the interpretation of the Indian Act and I have therefore no hesitation in holding that even after an order for winding up, a creditor or member can move the court under Section 153 of the Act. '

6. We are in agreement with the view expressed by the learned judge.

7. In the case of Mohammed Abdulla Tharaganar v. Offl. Liq., Cape Comorin General Traffic Co. Ltd. [1953] 23 Comp Cas 161 (TC), a Division Bench of the Travancore-Cochin High Court while construing the provisions contained in Section 153(1) of the Act of 1913, which is more or less similar to Section 391 of the present Act, held (page 162);

' The introduction of the words, ' in the case of a company being wound up, of the liquidator ' is intended to provide an additional and not an exclusive person who could make the application. If a company, or a member, or a creditor may make the application under Section 153(1) proposing a compromise or arrangement in the case of a company which is not under liquidation, there is no reason why any of them should not be competent to make the application in the case of a company which is being wound up. The interest that entitled the company, member or creditor to make the application in the case of a going concern subsists even after an order for winding up is made to sustain a similar application even at that stage.

' The application for the holding of a meeting as contemplated in Sub-section (1) may be made, either by the company or by any member or creditor of the company. Where the company is being wound up, the application may be made also by the official liquidator '.'

8. We are, therefore, of the opinion that the view expressed by the learned trial judge, that the contributories and the creditors have no right to make the application when the company is being wound up and the liquidator alone is competent to present the petition is not correct. This contention of Mr. Mukherjee, therefore, succeeds.

9. Though this contention of Mr. Mukherjee succeeds, we are, however, of the opinion that on a proper consideration of the materials which were placed before the learned trial judge, the learned judge was right in rejecting the said application on merits. The learned judge has already noted in his judgment that a good part of the assets had already been sold and the landlord has refused to grant any renewal of the lease of the land on which the factory site of the company is situate. The landlord in fact has already instituted a suit. We have also carefully considered the provisions of the scheme which the contributories seek to propound and to place at the meetings of the creditors and also of the contributories.

10. Without going into the question of bona fides, we are of the opinion that, in the facts and circumstances of this case, the learned judge was right in dismissing the said application even before the scheme had been considered at any meeting of the creditors or the contributories.

11. This appeal, therefore, fails and is dismissed. All interim orders are vacated. Official liquidator will retain his costs out of the assets. The appellants will pay and bear their own costs.

Bimal Chandra Basak, J.

12. I agree.


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