The Rajah of Vizianagaram v. Official Receiver, Vizianagaram

Vi::ianogart7m

v. RAGHUBAR DAYAL, J.-This i~ an appeal un Official Rei:efrer, certificate granted by the H;igh Court of Madras. Vi.:Mrtagd1am

The question for determination in this appeal is lf aglmbar Dayal J, whether foreign creditors of a firm which was in-

corpox:ated in England and carried on business in India can "'prove their clailps in the winding up proceedhigs of the firm as an unregistered company in India.

The facts leading to tho appeal are that the Vizial.lAgaram Mining Co. Ltd., hereinafter called the company, was incorporated in England, u~der the English Companies Act then in force, on December 8, 180.4, tho object of the company being to mine manga~~se ~re and some other minerals hi India. Its princ,ipal pl1j-pe of business in India was at Kodur, :Vizagapatam. District. · The company took certain land' on lease from tho Rajah ofV-izianagaram, 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 tho application on b&half of the Rajah Vizianaga-ram, ordE.>rs for the winding qf the company were passed by the High Court on March 6, 194<>. The Official Receiver of Vizagapatam was appointed Official Liquidator of the company. Thereafter, the liqui~tion proceedings were transferred to the District Court of Vizag'apatam. The. Official Liqui-dator realised about two lakhs of rupees from the assets of the company in India. Corbin foreign creditors of the company...filed proofs of their 'claims before the Official ~iqdidator. The appellant objected to their claims4/eing entertained on the ground that these liquidation proceedings were only for the benefit of tho~ndian creditors and that foreign creditors were not entitled to prove their debts in these proceedings. 'The Officia1 Liquidator ( lJ S.U.lt. SUPREME COUltT REPOlt'l'S 347 rejected these objections and allowed the foreign 1961 crnditors to prove their claims. The RaJah 1J,, Vizianagaram The appellant then filed an ap]Jlicatiu11 under v. s.183 of the Indian Companies Aut, 1913 (Act VII of Offitial Receiver, Vizianagaram 1913), hereinafter called the Act, for the expunging of the proofs of all foreign creditors and for delet· Raghubar Dayal J. ing 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 appel-lant filed an appeal, C. M. A. 249 of 1941), in the High Court. The High Court dismissed the appeal holding that the foreign creditors could prove their claims in the proceedings. Thereafter, the appel-lant applied for a certificate under Art. 133 of the Constitution. The High Court granted the certi-ficate and hence this appeal.

Learned counsel for the appellant has sup-ported the contention that foreign creditors cap.not prove their debts in a winding up of the company in India, on three grounds. They are :

(i) the winding up of a comI.Jany incor-porated outside India as an unregistered com-pany, 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 reali-sation of Indian assets and their distribution to Indian creditors;

(ii) as the Liquidator appointed by the Court in India cannot get at the foreign as-sets and contributories, it is just that foreign creditors be not allowed to prove their debts here;

:J-!8 SUPREME (;OURT REPORTS f 1962] SUPP.

19GJ (iii) ev,011 if foreign creditors can prove lit Raja11 of their debts in such winding up procet->dings Vi.:ianqo1a111 v. they should be allowed to prove only such Uffi1ia/ 11trticr, debts which have some relation to the busi-

Vi;;ianagar.,,11 ness 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 there-fore no prejudice is caused to them by allowing foreign creditors to prove their claims in the wind-ing up proceedings in India, th<lt the Act made no distinction between foreign and Indian creditors for tho 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 tho 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. \Ve are of opinion that the High Court took tho correct view of the legal position in holding that the foreign creditors could prove their claims in these winding up proceedinge.

Section 27 0 of the Act defines 'unregistered company' and it include& any partership, associat-ion 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, w hi oh consists of as. 270 to 276 and deals with the wind-ing up of unregistered oompanies. Sub-section (3) of a.271 provides that where a company incorpor-ated outside India which has been carrying on busi-ness 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 othorwiRe oeased 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 the provisions of this sub.section that the company 1961 is being wound up as an unregistered company. Th, Rq:ah of Vizianagarll?'I Sub-section (1) of s. 271 which deals with the winding up of unregistered companies, pruY:des OfficialRectfoer, VizianagarQJn that any unregistered company may be wound up under the Act and all the provisions of the Act RagAuhar Dayal J. with respect to winding up shall apply to the un· registered company, with the exceptions and addi· tions 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 unrei;istered company' may be wound up.

Section 272 deals with the contributories with.

the winding up of unregistered companies, and does not make any distinction between the persons who can be contributories on the ground of their being Indian na tional8 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 pro-ceedings 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 (I), that every present and past mem her would be liable to contribute to the assets of the company to any amount sufficient for payment of its debts and liabitities when a company is being wound up.

Section 158 defines tho 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 SUPREME CO"L'RT REPORTS [1962] SUPP.

11~1 an order for winding up of a company shall operate Tiu Rajah of in favour of all the creditors anrl of all the contri-Vi.:ianataram

Y, butories of the company 11s if made on the joint O.lfi~iol &uft·fY, petition of a creditor and of n contributory. It is f,.z.:1cnagmam

not possible therefore, to urge succes~fully, that Ilaihuhar Da;al J. thn order of winding-up of an unrPgistcred company

does not operate in favour of nil the l·rcditors and of all the contributories of the cr•mpnny. All the creditors of the company ca.n tiikc advantage of the winding up of tho company aR opcrnting in India when it has ceased to carry on lmsinc,s tlwrc. There is no reasonable basis for 1.lepri\•i.J1g thPm from participating in the distribution of the ns8ets collected by Official Liquirlator in tht> win<ling up proceedings. All the creditors including tho foreign creditors will got rateably out of the assds of the company which ha.vo been collected. When that company itself is wound up, a.II of them won Id br entitled to similar rateable share in the nBActs collcckd during the winding up proceedings of tl1e cfJmpuny in tho country where it is incorporatcrl. Likewise, s. 211, provides th<tt the property of a company shall, on its winding up, be applier! in satisfaction of it~ liabilit.ie8 pari prr..~.m and, subject to such application, shall, unlt>ss the articles otht>rwis€l provi<le, be <listrihutrd amoug tht> mem!wrs <tccording to their riizhts and interests in thr company. and thns me.kc~ it f'l<•ar t.hat all the creditors of th" company ha\"c to get a rnteab)P share out of the property of the company and that surplus, if any, will be disrrihnkcl among the memhers of the company.

Section 228 provides t.hat in every winding np all dcbta payable on a contingency and al! claimg against the company shall be admi•sible to proof against the company. No exception is made. All the debts against the company in the winding up can be proved. Such claims can include the claims of foreign creditors.

It is therefore clear that no support can be 1961 found for the contention for the appellant from the The Rajah of J' i,;;ianagaram provisions of the Act. v.

The Courts of a country dealing with th"' win-Official Receii·er, Vizianagaram ding up of a company can ordinarily deal with the, assets within their jurisdiction and not with the Ra:hubar-Dayal J. 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 coun-tries 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 profit'l.bly 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 bnsine~ in any parti-cular country. The persons interested in the company will be getting their proper return on the amount lent or contributed. Ordinarily, the wind-ing up of the company will be proceeding simulta-neously 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 un-registered com-pany 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 SUPREME COURT REPO~TS [1962] SUPP. l

1961 an independent unregistered company. Sub-section Th Rajah of (3) of s. 271 itself.say~ that-·the ·company incorpo. Viziatiagarmn rated outside India may be wound up as an un-

Y. re_gistered company_ whei:i it ce;ises to carry on OJTuial P.euiver, Vi.:ianagaram brisiness in tndia. Further, th~re are no separate Raghu'bar Dayal ·J, creditors or contriblJtories of "the so called un-

registered company. There arc. no separate credi-tors. or contri~utories pf thti: offices or branches of the company .in India. All the creditors and co1}trib4totiea are really oreditors and contrihi1-tories of the corripa:ny incorporated outside India and.therefore .all of, the;m, on· princfple, should be able to do what creditors and -contribu.torios resident in India cap d~ in the will¢!ing up proceed. in~. . . - - . There hall' been ca,se ' law _with respect to the rn,i.ture of winding 'up proceedings in the various countries and the procequre followed in such wind. ii)g up.

In In .re Gommer()ial Bp,nk.of South A1tstralfo(i) a company incorpm;ated in Australia. carried on business in England where it haa a large number of creditors and a large nmpbe'r, of assets. .A. pet_1.ion for winding up was miide in England. Subsequeµtly, proceedings for the winding µp of the !lOmpany were also taken in Australia. The jurisdiction of the English Court to continue the winding up pro-ceedings was questioned. In considering this ques-tion, North J., said at·pa,ge 178:

"I think, tlierefore, that the English cre-tlitors are entitled to have a winding-up· order made by this Court. I do not think it would be ·right ~o insert any special ~irections i~ ~he order; tlhs is not the proper time for g1vmg such-<lirecti~. But l. 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 (l) L.R. [l886P3 Ch.D. 174.

the two Courts, and I sha.11 have regard to the 1961 interests of all the creditora and all the con-The Rajah of tributories and shall endeavour to keep down Vizionagaram •• the expenses of the winding-up so far as is Offuial Rereiver1 possible ...... I do not think that I ought to Vizianagaram insert any special directions in the order. But Baehub11r Da1al J. 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. {') 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 Liquida-tor to take directions of the Judge when he had to take action with respect to the other assets and when settling a list of cr'lditors other than the Eng-lish creditors. It is to be noticed that North J., himself said that he would have regard to the inte-rest 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 a.lone.

In In re English, Scottish, aiul .4.ustmlian Char-tered Bank {') a chartered banking company, the principal business of which was in Australia, stopped payment, and was ordered to be wound up in Eng-land. Meetings of the shareholders and creditors were held under the orders of the Judge to ascertain their wishes as to the proposed scheme of recons-tructbn. 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 pro-xies for and against the scheme were then

(I) L.R. [1953) I Ch. D. 76. (2) L.R. [1893] 3 Ch. D. 365.

354 SUPREME COURT :REPORTS [1962) SUPP.

/!Ml telegraphed to the Official Receiver in England. It Th. Rajah of was found that ifthe votes of the Australian creditors J'~iana1.,am were taken into consideration, the scheme had the

v. necessary majority in its favour, but if they were 0 Jf~~a/ Rutiur, Vi.:umt1garam excluded, the majority were against the scheme. .Haghubar DIJJa/ J, The Judge sanctioned the scheme. On appeal,

objection was taken to the procet'ldings on several grounds. The objections did not include an objec-tion similar to the one before us for determination, but considering the various objections, it was Haid at page 394 :

"One knows that where there is a liquida-tion of one concern the general principle is-ascertain what is the domicil of the comp1my in liquidation; let the Court of the country of domicil act as the principal Court to govern tho liquidation; and let the other Courts act as ancillary, as far as they can, to the princi-pal liquidation. But although that is so, it has always been held that the desire to assist in tho main liquidation-the desire to act as ancillary to the Court where the main liquida-tion 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 ha.s its principal office, is just ancillary to the simultaneous liquidation of that company in the country of its domicil or any win-ding 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 respllctively when a company is wound up in the country of its domicil will be limited to their qri-ginal rights and liabilities after taking into conside-ration how much of those rights and liabilities have be<'n already satisfied during the winding up proce-1961 edings of its offices in other countries. The Rajah of Yititinagaral'JI •• In Russian and English Bank v. Bari111J Bro-tliers(') the facts were that the Bank incorporated Official Rtceivu, Vizianagaram in Russia under Russian law, with its head office at Petrograd, was dissolved sometime in January R•g/,,,bar D'!)'al J. 1918. This Bank had a branch iin England. The London branch of the Bank had two large sums of money with Baring Brothers. On March 23, 1921, ·the Bank brought a.n action against the Ba.ring Brothers i_n 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 bad 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 ea.id: .

"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 Com-panies Act as to winding up are only appli-cable to corporations which are in existence.

Are we to say that the legislative enactment is completely futile : or is there another solu.

tion? My '.Lords, I think that we are entitled to imply, indeed I think it is a necessary implication, that the dissolved foreign com-p'lny 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 -f the existence of a foreign corporation coming

to trade in this country;, we shall only

10~/ impose a condition of registration. But if T/,, R•jal: of the corporation does trade here, acquires Vi;:iana:aram assets here, and incurs debts here, we

Y, 0 fficial R#flHr, shall not accept its dissolution abroad VUianagmam 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 considert 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 corpo-ration: it is for particular and limited pur-poses refusing to recognise the dissolution of t.he 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 com-posed of the branch of that company in England. 'fhe main qut>,stion before us however was delibera-toly left open for consideration later. The observa-tions however go against the appellant's contention that the so called un-£egistered company which is being wound up should be deemed to be a separate entity from the original company incorporated in Englll.nd.

In Re AzoJf-Don Commercial Bank(') proceed-ings 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 Republios. 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 (1) [l 9S4] I. All. E. R. 947.

st.andi to object. Of the grounds on which the 1961 Crown objected to the petition, one was that the TlieRajaliof Court should not make a winding up order at the Vizillrlagaram suit of foreign creditors in respect of debts payable v. Official Receiver, in Norwegian kroner, but that it should leave the Vi.cianagaram Crown to get in the English assets with a view to Rathuhar Dayal J, the Crown being in a position to make ex gratia payments among English creditors in respect of rouble debts. In considering this objection it was said at page 956 :

"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 HibernwnMerchants Ltd.(') a creditor applied for the winding up of a company incorpora-ted 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 aot in pursuance of the order except for the purpose of getting in the English assets and settl-ing 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 coats.

Appeal disrnissed.

-- L.R. [1958] I Cb. D. 76.