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PETITIONER: THE RAJAH OF VIZIANAGARAM

       Vs.

RESPONDENT: OFFICIAL RECEIVER, VIZIANAGARAM

DATE OF JUDGMENT: 06/11/1961

BENCH: DAYAL, RAGHUBAR BENCH: DAYAL, RAGHUBAR SUBBARAO, K. SHAH, J.C. MUDHOLKAR, J.R.

CITATION:  1962 AIR  500            1962 SCR  Supl. (1) 344  CITATOR INFO :  RF         1973 SC 602  (73)

ACT:      Winding up-Company  Incorporated in  England- Unregistered  company-Foreign   creditors-If   can prove their claims-Indian Companies Act, 1913 (VII of 1913), ss. 270 to 276.

HEADNOTE:      The company  was incorporated in England. The company  took  lease  of  certain  land  from  the appellant. On the application of the appellant the company was  being wound  up  as  an  unregistered company. Certain  foreign creditors of the company filed proofs  of their  claim before  the official liquidator. The appellant objected to their claims being  entertained   on  the   ground  that  these liquidation proceedings  were only for the benefit of the  Indian creditors,  and  that  the  foreign creditors were  not entitled  to prove their debts in  these  proceedings.  The  official  liquidator rejected these  objections and allowed the foreign creditors to prove their claims. ^      Held,  that   both  on  account  of  specific provisions  of   the  Act   and  of   the  general principles,  foreign  creditors  can  prove  their claims  in  the  winding  up  of  an  unregistered company.      The order  of winding  up of  an unregistered company operates  in favour  of all  the creditors and of  all the  contributories  of  the  company. There is  no reasonable  basis for  depriving  the foreign  creditors   from  participating   in  the distribution  of   the  assets  collected  by  the official liquidator  in the winding up proceedings in India.  All the creditors including the foreign creditors will  get rateably  out of the assets of the company  which have  been collected. When that company itself  is wound  up, all of them would be

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entitled to 345 similar rateable  share in  the  assets  collected during the  winding up  proceedings of the company in the  country  where  it  is  incorporated.  The liquidation of the company in countries other than where the  company is  incorporated  and  has  its principal  office,   is  just   ancillary  to  the simultaneous liquidation  of that  company in  the country of  its domicil  or any  winding up of the company in future.      The rights  and liabilities  of the creditors and contributories  respectively when a company is wound up  in the  country of  its domicil  will be limited to  their original  rights and liabilities after taking  into consideration how much of those rights and liabilities have been already satisfied during the  winding up  proceedings of its offices in other countries.      The Courts  of a  country  dealing  with  the winding up  of a  company can ordinarily deal with the assets  within their jurisdiction and not with the  assets   of   the   company   outside   their jurisdiction. It  is therefore necessary that if a company carries  on business  in  countries  other than the  country in which it is incorporated, the courts of  those countries  too should  be able to conduct winding up proceedings of its business, in their respective countries. Such winding up of the business in  a country  other than  the country in which the  company was  incorporated is  really an ancillary winding  up of  the main  company  whose winding up  may have been taken up already in that country or may be taken up at the proper time.      In re  Commercial Bank of South Australia, L. R. [1886] 33 Ch. D. 174; In re Hibernian Merchants Ltd., L.  R. [1958]  1 Ch.  D. 76;  In re English, Scottish, and  Australian Chartered  Bank,  L.  R. [1893] 3  Ch. D.  385; Russian and English Bank v. Baring Bros. [1936] 1 All. E. R. 505 and Re Azoff- Don Commercial  Bank, [1954]  1  All  E.  R.  947, referred to.

JUDGMENT:      CIVIL APPELLATE  JURISDICTION :  Civil Appeal No. 225 of 1961.      Appeal from  the  judgment  and  order  dated February 9,  1951, of  the Madras High Court in A. A. O. No. 249 of 1949.      R. Thiagarajan  and P.  Ram  Reddy,  for  the appellant.      K. Bhimasankaram  and T. V. R. Tatachari, for respondent No. 1.      D.  N.   Mukherjee  and   B.  N.  Ghosh,  for respondent No. 2. 346      1961. November  6. The  Judgment of the Court was delivered by      RAGHUBAR  DAYAL,  J.-This  is  an  appeal  on certificate granted  by the  High Court of Madras. The question  for determination  in this appeal is whether foreign  creditors of  a firm which was in corporated in  England and  carried on business in

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India can  prove their  claims in  the winding  up proceedings of the firm as an unregistered company in India.      The facts  leading to the appeal are that the Vizianagaram Mining  Co. Ltd.,  hereinafter called the company,  was incorporated  in England,  under the  English  Companies  Act  then  in  force,  on December 8,  1894, the object of the company being to mine  manganese ore  and some other minerals in India. Its  principal place  of business  in India was at Kodur, Vizagapatam District.      The company  took certain  land on lease from the Rajah  of  Vizianagaram,  the  appellant.  Its business did  not prove  profitable and it was not in a  position to pay the rent to the lessor or to pay its creditors. On the application on behalf of the Rajah  Vizianagaram, orders for the winding of the company were passed by the High Court on March 6, 1945.  The Official Receiver of Vizagapatam was appointed  Official  Liquidator  of  the  company. Thereafter,  the   liquidation  proceedings   were transferred to  the District Court of Vizagapatam. The Official  Liquidator realised  about two lakhs of rupees from the assets of the company in India. Certain foreign  creditors of  the  company  filed proofs  of   their  claims   before  the  Official Liquidator. The appellant objected to their claims being  entertained   on  the   ground  that  these liquidation proceeding  were only  for the benefit of the Indian creditors and that foreign creditors were not  entitled to  prove their  debts in these proceedings. The Official Liquidator 347 rejected these  objections and allowed the foreign creditors to prove their claims.      The appellant then filed an application under s. 183  of the Indian Companies Act, 1913 (Act VII of 1913),  hereinafter called  the  Act,  for  the expunging of  the proofs  of all foreign creditors and for  deleting their names from the certificate of the  Official Liquidator filed under rule 90 of the rules  framed under  the Act,  in the Court of the District  Judge, Vizagapatam.  The application was dismissed  by the District Judge. Against this order the  appellant filed an appeal, C. M. A. 249 of  1949,  in  the  High  Court.  The  High  Court dismissed the  appeal  holding  that  the  foreign creditors  could   prove  their   claims  in   the proceedings. Thereafter, the appellant applied for a certificate  under Art. 133 of the Constitution. The High  Court granted  the certificate and hence this appeal.      Learned  counsel   for  the   appellant   has supported the  contention that  foreign  creditors cannot prove  their debts  in a  winding up of the company in India, on three grounds. They are:           (i)  the   winding  up   of  a   company      incorporated outside India as an unregistered      company, in  pursuance of  the provisions  of      sub-s. (3) of s. 271 of the Act is really the      winding up  of the unregistered company as an      independent and  separate entity from that of      the main  company incorporated outside India,      and is  therefore limited  to the realisation      of Indian  assets and  their distribution  to

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    Indian creditors;           (ii) as  the Liquidator appointed by the      Court in  India cannot  get  at  the  foreign      assets and  contributories, it  is just  that      foreign creditors  be not  allowed  to  prove      their debts here; 348           (iii)  even  if  foreign  creditors  can      prove  their   debts  in   such  winding   up      proceedings they  should be  allowed to prove      only such  debts which  have some relation to      the business of the company in India.      On the  other hand,  it is  contended for the respondents that  the Indian creditors are free to prove  their   claims  in  foreign  countries  and therefore  no  prejudice  is  caused  to  them  by allowing foreign  creditors to  prove their claims in the  winding up  proceedings in India, that the Act made no distinction between foreign and Indian creditors for the purpose of the proceedings under the Act and that in reality it is the main company which is  being wound  up though only with respect to  the  business  conducted  by  it  through  its offices in  India and therefore there should be no bar to  the proving of their claims by the foreign creditors. We  are of  opinion that the High Court took the  correct view  of the  legal position  in holding that  the foreign  creditors  could  prove their claims in these winding up proceedings.      Section 270  of the  Act defines unregistered company’  and   it   includes   any   partnership, association or  company consisting  of  more  than seven  members   and  does   not  include  certain companies which come within the companies excluded by the  section. This  definition of ’unregistered company’ is for the purpose of Part IX of the Act, which consists  of ss.  270 to  276 and deals with the winding  up of  unregistered  companies.  Sub- section (3)  of  s.  271  provides  that  where  a company incorporated  outside India which has been carrying on  business in  India ceases to carry on business in  India, it  may  be  wound  up  as  an unregistered    company     under     Part     IX, notwithstanding that  it  has  been  dissolved  or otherwise ceased to exist as a company under or by virtue of  the laws  of the country under which it was incorporated. It is in pursuance of 349 the  provisions   of  this  sub-section  that  the company is  being  wound  up  as  an  unregistered company.      Sub-section (1)  of s.  271 which  deals with the winding up of unregistered companies, provides that any  unregistered company  may  be  wound  up under the  Act and  all the  provisions of the Act with respect  to winding  up shall  apply  to  the unregistered  company,  with  the  exceptions  and additions specified in the sub-section. This makes all the  winding up  proceedings  subject  to  the provisions in  other parts  of the  Act  as  well. Clause  (iii)   of  sub.   s.  (1)   mentions  the circumstances in which an unregistered company may be wound up.      Section 272  deals  with  the  contributories with the winding up of unregistered companies, and

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does not  make any distinction between the persons who can  be contributories  on the ground of their being Indian  nationals or foreigners. All persons who  are  liable  to  make  certain  payments  are considered   contributories.    Similarly    other provisions of  the Act which have a bearing on the winding  up   proceedings  makes   no  distinction between Indian  or foreign  creditors  or  between debts with  respect to  the business carried on in India or  with respect  to  the  business  of  the company outside India.      Section 156 provides, in its sub-section (1), that every present and past member would be liable to contribute  to the assets of the company to any amount sufficient  for payment  of its  debts  and liabilities when  a company  is  being  wound  up. Section 158  defines the expression ’contributory’ which means  ’every person liable to contribute to the assets  of the  company in  the event  of  its being wound up.      Section 166  provides for  an application  to the Court  for the  winding up  of a  company. Any creditor or  contributory is entitled to apply for the winding  up of  the company. No distinction is made between  the creditors  resident in  India or outside India.  Section  167  specifically  states that 350 an order for winding up of a company shall operate in favour  of all  the creditors  and of  all  the contributories of  the company  as if  made on the joint  petition   of   a   creditor   and   of   a contributory. It  is not  possible  therefore,  to urge successfully, that the order of winding-up of an unregistered company does not operate in favour of all the creditors and of all the contributories of the  company. All  the creditors of the company can take  advantage  of  the  winding  up  of  the company as  operating in  India when it has ceased to carry on business there. There is no reasonable basis for depriving them from participating in the distribution of  the assets  collected by Official Liquidator in  the winding  proceedings.  All  the creditors including the foreign creditors will get rateably out  of the  assets of  the company which have been  collected. When  that company itself is wound up, all of them would be entitled to similar rateable share  in the assets collected during the winding up  proceedings  of  the  company  in  the country where it is incorporated.      Likewise, s.  211, provides that the property of a  company shall, on its winding up, be applied in satisfaction  of its liabilities pari passu and subject to  such application,  shall,  unless  the articles otherwise  provide, be  distributed among the  members   according  to   their  rights   and interests in  the company,  and thus make it clear that all  the creditors of the company have to get a rateable  share  out  of  the  property  of  the company  and   that  surplus,   if  any   will  be distributed among the members of the company.      Section 228 provides that in every winding up all debts  payable on a contingency and all claims against the  company shall  be admissible to proof against the company. No exception is made. All the

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debts against the company in the winding up can be proved. Such  claims can  include  the  claims  of foreign creditors. 351      It is  therefore clear that no support can be found for  the contention  for the  appellant from the provisions of the Act.      The Courts  of a  country  dealing  with  the winding up  of a  company can ordinarily deal with the assets  within their jurisdiction and not with the  assets   of   the   company   outside   their jurisdiction. It  is therefore necessary that if a company carries  on business  in  countries  other than the  country in which it is incorporated, the Courts of  those countries  too should  be able to conduct winding-up proceedings of its business, in their respective countries. Such winding up of the business in  a country  other than  the country in which the  company was  incorporated is  really an ancillary winding  up of  the main  company  whose winding up  may have  already  taken  up  in  that country or may be taken up at the proper time.      It appears  that so  long as  the company  as such is  able to  carry on business profitably and be in  a position to meet its liabilities, neither the company  nor its creditor nor its contributory would think  of the winding up proceedings even if the company  ceases to  carry on  business in  any particular country.  The persons interested in the company will be getting their proper return on the amount  lent   or  contributed.   Ordinarily,  the winding up  of  the  company  will  be  proceeding simultaneously in  the various  countries where it carried on  business whenever  the business of the company  has  ceased  to  be  profitable  and  the company is  reduced to  a position  in which it is not expected to make good its liabilities.      It is  the company incorporated outside India which  is  really  wound  up  as  an  unregistered company in  this country.  In fact,  there  is  no separate  un-registered  company  which  is  being wound up  here. The  various branch offices of the company in  India  cannot  be  deemed  to  be  the branches of 352 an independent  unregistered company.  Sub-section (3)  of  s.  271  itself  says  that  the  company incorporated outside  India may  be wound up as an unregistered company  when it  ceases to  carry on business in  India. Further, there are no separate creditors  or  contributories  of  the  so  called unregistered  company.   There  are   no  separate creditors or  contributories  of  the  offices  or branches  of   the  company   in  India.  All  the creditors and  contributories are really creditors and contributories  of  the  company  incorporated outside  India  and  therefore  all  of  them,  on principle, should be able to do what creditors and contributories resident  in India  can do  in  the winding up proceedings.      There has  been case  law with respect to the nature of  winding up  proceedings in  the various countries  and  the  procedure  followed  in  such winding up.      In   In   re   Commercial   Bank   of   South

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Australia(1) a  company incorporated  in Australia carried on  business in  England where  it  had  a large number  of creditors  and a  large number of assets. A  petition for  winding up  was  made  in England. Subsequently, proceedings for the winding up of  the company  were also  taken in Australia. The jurisdiction  of the English Court to continue the winding  up  proceedings  was  questioned.  In considering this  question, North J., said at page 178 :           "I think,  therefore, that  the  English      creditors are  entitled to  have a winding-up      order made  by this  Court. I do not think it      would  be   right  to   insert  any   special      directions in  the order;  this  is  not  the      proper time for giving such directions. But I      will say  this, that  I think  the winding-up      here will  be ancillary  to a  winding-up  in      Australia, and,  if I have the control of the      proceedings here, I will take care that there      shall be no conflict between 353      the two  Courts, and  I shall  have regard to      the interests  of all  the creditors  and all      the contributories  and  shall  endeavour  to      keep down  the expenses  of the winding-up so      far as  is possible.....I do not think that I      ought to insert any special directions in the      order. But  I think that the liquidator ought      not to  act without the special directions of      the Judge in Chambers, except for the purpose      of getting in the English assets and settling      a list of the English creditors." This  order  was  construed  in  In  re  Hibernian Merchants Ltd.  (1) to be not a restriction of the rights of  the liquidator to deal with the English assets  alone  for  the  benefit  of  the  English creditors only,  but to  be a  direction  for  the English Liquidator to take directions of the Judge when he  had to  take action  with respect  to the other assets and when settling a list of creditors other than  the English  creditors. It  is  to  be noticed that  North J., himself said that he would have regard  to the  interest of all the creditors and of all the contributories which means that the winding-up proceedings  were  not  concerned  with respect to the English creditors alone.      In In  re English,  Scottish, and  Australian Chartered Bank  (2) a  chartered banking  company, the principal  business of which was in Australia, stopped payment, and was ordered to be wound up in England.  Meetings   of   the   shareholders   and creditors were  held under the orders of the Judge to ascertain  their  wishes  as  to  the  proposed scheme  of   reconstruction.  The  wishes  of  the creditors  resident  in  Australia  were  obtained through proxy  papers which  were  sent  to  those creditors. The  creditors recorded  their views on those papers  and deposited them at the offices of the company  at the principal cities in Australia. The particulars  and number of the proxies for and against the scheme were then 354 telegraphed to  the Official  Receiver in England. It was  found that  if the votes of the Australian

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creditors  were   taken  into  consideration,  the scheme had  the necessary  majority in its favour, but if  they  were  excluded,  the  majority  were against  the  scheme.  The  Judge  sanctioned  the scheme. On  appeal, objection  was  taken  to  the proceedings on several grounds. The objections did not include an objection similar to the one before us for  determination, but considering the various objection, it was said at page 394 :           "One  knows   that  where   there  is  a      liquidation  of   one  concern   the  general      principle is-ascertain what is the domicil of      the company  in liquidation; let the Court of      the country  of domicil  act as the principal      Court to  govern the liquidation; and let the      other Courts act as ancillary, as far as they      can,  to   the  principal   liquidation.  But      although that  is so, it has always been held      that  the   desire  to  assist  in  the  main      liquidation-the desire to act as ancillary to      the Court where the main liquidation is going      on-will not  ever make  the Court give up the      forensic rules  which govern  the conduct  of      its own liquidation." This makes  it clear  that the  liquidation of the company in  countries other than where the company is incorporated  and has  its principal office, is just ancillary  to the simultaneous liquidation of that company  in the country of its domicil or any winding up  of the  company in  future. That is to say, the  winding  up  of  the  company  in  those countries is  just complementary to the winding up of the  company in the country of its domicil. The rights  and   liabilities  of  the  creditors  and contributories  respectively  when  a  company  it wound up  in the  country of  its domicil  will be limited to  their original  rights and liabilities after taking  into consideration how much of those rights and liabilities have 355 been  already  satisfied  during  the  winding  up proceedings of its offices in other countries.      In  Russian   and  English   Bank  v.  Baring Brothers the facts were that the Bank incorporated in Russia  under Russian law, with its head office at Petrograd,  was dissolved  sometime in  January 1918. This  Bank had  a  branch  in  England.  The London branch  of the  Bank had  two large sums of money with Baring Brothers. On March 23, 1921, the Bank brought an action against the Baring Brothers in the  Chancery Division  of the  High  Court  of Justice for the recovery of those sums. The Baring Brothers prayed  that all  further proceedings  in the action be stayed on the ground that the action had been  commenced or,  at all  events, was being continued in  the name of a plaintiff who was non- existent. In  considering this  matter, Lord Atkin said:           "The legislature  has  provided  that  a      dissolved foreign corporation may be wound up      in accordance  with  the  provisions  of  the      Companies  Act.   The   provisions   of   the      Companies Act  as  to  winding  up  are  only      applicable  to   corporations  which  are  in      existence. Are we to say that the legislative

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    enactment is  completely futile : or is there      another solution?  My Lords,  I think that we      are entitled to imply, indeed I think it is a      necessary  implication,  that  the  dissolved      foreign company  is to  be wound up as though      it  had  not  been  dissolved  and  therefore      continued in existence. This seems to me with      respect the  necessary result  of saying that      it shall  be wound  up in accordance with the      provisions of  the Act.........I  see nothing      incongruous  in  the  legislature  saying  in      effect, we  accept the existence of a foreign      corporation coming  to trade in this country;      we shall only 356      impose a  condition of  registration. But  if      the corporation  does  trade  here,  acquires      assets here,  and incurs debts here, we shall      not accept  its dissolution  abroad without a      stipulation that if desirable it may be wound      up here  so that  its assets  here  shall  be      distributed amongst  its creditors  (I do not      stay  to   consider   whether   its   English      creditors or creditors generally) and for the      purpose of  the winding up it shall be deemed      not to  have been  dissolved: for  that event      would defeat  our  municipal  provisions  for      winding  up  a  corporation.  This  does  not      appear   to   me   to   be   re-creating   or      reconstituting a  new corporation:  it is for      particular and  limited purposes  refusing to      recognise the dissolution of the old." It is  clear  from  these  observations  that  the winding up  of the  dissolved company incorporated in Russia  was deemed to be the winding up of that very company  and not  of any  factitious  company composed of the branch of that company in England. The  main   question   before   us   however   was deliberately left  open for  consideration  later. The   observations    however   go   against   the appellant’s contention  that  the  so  called  un- registered company  which is being wound up should be  deemed  to  be  a  separate  entity  from  the original company incorporated in England.      In Re  Azoff-Don Commercial  Bank proceedings for the  winding up of a Russian company which had been carrying  on business in England was taken in England. This  company had been dissolved prior to the proceedings  under the  laws of  the Union  of Soviet Socialist  Republics. The  petitioners  for the  winding  up  of  this  company  were  certain Norwegian Banks who were creditors of the company. The petition  was opposed by the Crown and another person who was held to have no locus 357 standi to  object. Of  the grounds  on  which  the Crown objected  to the  petition, one was that the Court should  not make  a winding  up order at the suit of  foreign creditors  in  respect  of  debts payable in  Norwegian kroner,  but that  it should leave the  Crown to get in the English assets with a view  to the  Crown being  in a position to make exgratia  payments   among  English  creditors  in respect  of  rouble  debts.  In  considering  this objection it was said at page 956 :

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         "The object  of a winding-up order is to      ensure distribution  of the  assets among the      whole body  of creditors.  No other  basis of      distribution would be fair."      In In  re Hibernian Merchants Ltd. a creditor applied  for   the  winding   up  of   a   company incorporated in the Republic of Ireland and having a place  of business  and  assets  in  the  United Kingdom. A  request was  made that  the winding up order should  include  the  expression  ‘that  the Liquidator shall not act in pursuance of the order except for  the purpose  of getting in the English assets  and  settling  the  list  of  the  English creditors  without   applying  to  the  Court  for directions’. It  was held  that the  provisions of the Companies Act, 1948, do not provide for making such exceptions in the winding up order.      We are  therefore of  opinion  that  both  on account of  the specific provisions of the Act and of the  general principles,  the view taken by the Court below that foreign creditors can prove their claims in  the  winding  up  of  the  unregistered company is correct.      We therefore dismiss the appeal with costs.                                  Appeal dismissed. 358