THE RAJAH OF VIZIANAGARAM versus OFFICIAL RECEIVER, VIZIANAGARAM

1961

;.·tsar Sing.'a V, Ba/u:ant SinKh

1Vanrh~ J.

1961

}lo~mbtr G.

;144 SUPHEME COURT REPORTS (19li2] SUPP. 1

which they arc servitors. In view of our decision on issue No. li, it is unnecessary to consider issull No. 2 on which a finding was called for by this Court by ita interlocutory judgment in 1958.

The appeal therefore fails;

there would be

no order as t-0 costs.

Ap11eril dismissed.

THE RAJAH OJ<' VIZIANAGAHA!il v. OFFICIAL RECEIVEit, VIZIANAGARAM (K. SUBBA RAO, J. c. SHAH, RAGHUHAR DAYAL and J. R MUDHOLKAR, JJ.)

JV inding up-Com puny

in England-U11- 1-.uistered their claims-Indian Companies Act, ]913 (VII of 1913), ss. 270 to 276.

company-Fureign credit-Or1-l/ can prove

I 11Wrporaled

The company was incorporated in England. The com pany took lease of certain land from the appellant. On the application of the appellant the company was being wound up as an unrcghtcrcd company. Certain foreign creditors of the company filed proofs of their claim before the official liqui dator. The appellant objected to their claim• being entertain ed 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 crediton to prove their claims.

Htld, 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 unrcgiitercd company operates in favour of all the crcd.itors and of all the c_ontri butorics of the company. There 1s no reasonable basu for from participa~in~ in t~e depriving the foreign creditors distribution of the assets collected by the official hqu1dator m the winding up proceedings in India. All the creditors including the foreign creditors will get ratcably out of the assets of the company which have been collected. When that company itself is wound up, all of them would be enutled to

I

1961

The Rajah of Vizianagaram

••

Official Rtctiver,, Vizianegaram

(1) S.C.H..

SUl'REME COURT REPORTS

345

similar rateable •hare in the assets collected during the wind ing up proceedings of the company in the country Y..'here it is incorporated. The liquidation of the company_in countr~es 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 contri butories respectively when a company is wound up in the country of its domicil will be limited to their original rights and liabilities after into consideration how much of those rights and liabilities have been already satisfied during the winding t 1p proceedings of its offices in other countries.

taking

The couits of a country dealing with the winding up of a co1npany can ordinarily deal with the assets within their jurisdiction and not with the assets of the company outside It is therefore necessary that if a company their jurisdiction. carries on business in countries other than tht 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 Met·chants Ltd., L. R. [1958] I Ch. D. 76; In re English, Scottish, and Australian Chartered Bank, L. R. [!893] 3 Ch. D. 385; Russian and English Bank v. Baring Bros. [l 936] I All. E. R. 505 and Re Azoff-Don Commercial Bank, [!954] I All. E. R. 947, referred to.

CIVIL APPELLATE JumsDIOTION: Civil Appeal

No. 225 of 1£61.

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. 'I'atachari, for

respondent No. 1.

D. N. Mukherjee and B. N. Ghosh,

respondent No. 2.

for

,

-

I

j !JtjJ

'J'/1e ltajah oJ. Vi::ianogart7m v. Official Rei:efrer, Vi.:Mrtagd1am

lf aglmbar Dayal J,

34U

SUPREME COl.JRT RJ<.:.i:'ORTS [l!l62] SUPP.

Court was delivered by -

l961. November 6. The Judgment of the . RAGHUBAR DAYAL, J.-This i~ an appeal un certificate granted by the H;igh Court of Madras. The question for determination in this appeal is 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, 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.

tho object of the company being

·

its creditors. On

tho Rajah ofV-izianagaram,

The company took certain land' on

lease the appellant .. from profitable and Its business did not prove to pay the rent to it was not in a position the tho lessor or to pay 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 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 'The Officia1 Liquidator debts in these proceedings.

~iqdidator.

'

1961

The RaJah 1J,, Vizianagaram v. Offitial Receiver, Vizianagaram

Raghubar Dayal J.

( lJ S.U.lt.

SUPREME COUltT REPOlt'l'S

347

rejected these objections and allowed the foreign crnditors to prove their claims.

The appellant then filed an ap]Jlicatiu11 under s.183 of the Indian Companies Aut, 1913 (Act VII of 1913), hereinafter called the Act, for the expunging of the proofs of all foreign creditors and for delet· 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 the appel claims in the proceedings. Thereafter, 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.

1

19GJ

7 lit Raja11 of Vi.:ianqo1a111 v. Uffi1ia/ 11trticr, Vi;;ianagar.,,11

(iii)

ev,011 if foreign creditors can prove their debts in such winding up procet->dings they should be allowed to prove only such debts which have some relation to the busi 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

..

1961

Th, Rq:ah of Vizianagarll?'I

OfficialRectfoer, VizianagarQJn

RagAuhar Dayal J.

(1) S.C.R.

SUPREME COURT REPORTS

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, pruY:des 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 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

11~1

Tiu Rajah of Vi.:ianataram Y, O.lfi~iol &uft·fY, f,.z.:1cnagmam

Ilaihuhar Da;al J.

350 SUPREME CO"L'RT REPORTS [1962] SUPP.

an order for winding up of a company shall operate in favour of all the creditors anrl of all the contri butories of the company 11s if made on the joint petition of a creditor and of n contributory. It is not possible therefore, to urge succes~fully, that 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.

provi<le, be <listrihutrd amoug

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 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.

1961

The Rajah of J' i,;;ianagaram v. Official Receii·er, Vizianagaram

Ra:hubar- Dayal J.

(I) s.c.R. SUPREME COURT REPORTS

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 th"' win ding 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 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 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.

than the country in which

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 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.

interested

in

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

1961

Th Rajah of Viziatiagarmn Y. OJTuial P.euiver, Vi.:ianagaram

Raghu'bar Dayal ·J,

352 SUPREME COURT REPO~TS [1962] SUPP.

l

- -

an independent unregistered company. Sub-section (3) of s. 271 itself.say~ that-·the ·company incorpo. rated outside India may be wound up as an un re_gistered company_ whei:i it ce;ises to carry on brisiness in tndia. Further, th~re are no separate 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 to do what creditors and -contribu.torios able 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 .A. pet_1.ion creditors and a large nmpbe'r, of assets. 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 Rajah of Vizionagaram

1961

••

Offuial Rereiver1 Vizianagaram

Baehub11r Da1al J.

{I) S.C.R. SUPREME COURT REPORTS

353

the two Courts, and I sha.11 have regard to the interests of all the creditora and all the con tributories and shall endeavour to keep down far as is the expenses of the winding-up so 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." in In re Hibernian This order was construed 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 then xies for and against

the scheme were

(I) L.R. [1953) I Ch. D. 76.

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

/!Ml

Th. Rajah of J'~iana1.,am v. 1 0 Jf~~a/ Rutiur, Vi.:umt1garam

.Haghubar DIJJa/ J,

354 SUPREME COURT :REPORTS [1962) SUPP.

telegraphed to the Official Receiver in England. It was found that ifthe votes of the Australian 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 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

The Rajah of Yititinagaral'JI

1961

••

Official Rtceivu, Vizianagaram

R•g/,,,bar D'!)'al J.

(l) S.C.R. SUPREME OOURT REPORTS

355

be<'n already satisfied during the winding up proce edings of its offices in other countries.

In Russian and English Bank v. Bari111J Bro tliers(') 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 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. 'considering this matter, Lord Atkin ea.id: .

In

that

"The legislature has provided

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 the existence of a foreign corporation coming in this country;, we shall only to

trade

(I)

(1936) I. All. E. R. 505, SIS.

-f

1

10~/

T/,, R•jal: of Vi;:iana:aram Y, 0 fficial R#flHr, VUianagmam

356 SUPREME COURT REPORTS [1962] ruPP.

impose a condition of registration. But if the corporation does trade here, acquires assets here, and incurs debts here, we its dissolution abroad shall not accept 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.

1961

TlieRajaliof Vizillrlagaram v. Official Receiver, Vi.cianagaram

Rathuhar Dayal J,

( l) S.C.R SUPREME COURT REPORTS

357

st.andi 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 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.