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Case study - The Rajah of vizianagaram v/s Official Receiver and Official liquidator of vizianagaram

The Rajah of Vizianagaram v/s Official Receiver, Vizianagaram - The company was integrated in England. The company took lease of certain land from the appellant. On the request of the appellant the company was being wound up as an unregistered company.

Certain Foreign creditors of the company filed testimonies of their claim before the official liquidator. The appellant opposed to their claims being entertained on the ground that these liquidation proceedings were only for the advantage of the Indian creditors, and that the foreign creditors were not authorized to prove their debts in these proceedings.

The official liquidator forbidden these objections and permitted the foreign creditors to prove their claims in the winding up of an unregistered company.

There is no judicious basis for depriving the foreign creditors from contributing in the distribution of assets collected by the official liquidator in the winding up proceedings in India.

All the creditors as well as the foreign creditors will get rateably out of the assets of the company which have been composed. When that company itself is wound up, all of them would be entitled to 345 similar rateable share in the resources collected throughout the winding up proceedings of the company in the country where it is amalgamated.

The rights and liabilities of the creditors and contributories respectively when a company is wound up in the country of its domicile will be limited to their original rights and liabilities after taking into consideration how much of those rights and liabilities have been already gratified during the winding up proceedings of its offices in other countries.
The liquidation of the company in countries other than where the company is amalgamated and has its principal office, is just subsidiary to the concurrent liquidation of that company in the country of its domicile or any winding up of the company in forthcoming.

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 essential that if a company carries on a business in countries other than the country in which it is incorporated, the courts of those 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.

Date of Judgment: 06/11/1961

Question before the Court:
This was 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 India can prove their claims in the winding up proceedings of the firm as an unregistered company in India.

Act:-
Winding up – company Incorporated in England
Unregistered company- Foreign
Indian Companies Act, 1913 (sec.270 to 276)

Held that
It is clear from the observation 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 fictitious company composed of the branch of that company in England. The main question before us, however, was deliberately left open for consideration later.

Learned counsel for the appellant has supported the contention that foreign creditors can’t prove their debts in a winding up of the company in India, on the 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 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;

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.

Section 270 of the Companies Act,1930 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 the provisions of this sub-section that the company is being wound up as an unregistered company.

Sub-section (1) of s. 271 of the Companies Act, 1930 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 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.

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.

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