TMI Blog1938 (12) TMI 12X X X X Extracts X X X X X X X X Extracts X X X X ..... reditors by this Court. Before dealing with them it is necessary to state a few facts. The Travancore National and Quilon Bank Ltd. was constituted by the amalgamation in 1937 of two separate Banks, The Travancore National Bank Ltd., and The Quilon Bank Ltd. The Travancore National Bank was incorporated in the State of Travancore in 1912 and the Quilon Bank was also incorporated in the same State in the year 1919. The name of the Travancore National Bank after its amalgamation with the Quilon Bank was changed into the Travancore National and Quilon Bank. The registered office of the Bank after the amalgamation was situate in Quilon within the jurisdiction of the Travancore State and is still situate there, but the central office of the Bank was established in Madras and the Bank also complied with the requirements of section 277 of the Indian Companies Act by filing with the Registrar, Joint Stock Companies, Madras, the necessary documents required by the said section. In the return the principal office of the company was stated to be at Christian College Buildings, Esplanade, Madras. The Company did extensive banking business and its assets are reputed to be over 3 crores of rupee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uidators on the 2nd July, 1938 and the said provisional liquidators have been functioning from the said date. There was an appeal against the said order but the order has since been confirmed. On 29-7-1938 I gave directions for the advertisement of the petition for winding up and posted it for hearing on the 19th of August arid the said directions have been complied with. This application was moved ex parte before me on the 12th of August and I directed it to be posted on the 18th of August. Meanwhile, proceedings for the winding up of the bank in Travancore went on and an order for winding up was made by the district court of Quilon which has since been confirmed by the High Court of Travancore and the said order has become final so far as the State of Travancore is concerned. It also appears from the affidavit filed in support of the application that the creditors have also moved the courts in Secunderabad and in Ceylon and the proceedings for winding up are going on in the said places. This application has been made evidently with the object of averting the winding up and a scheme has been put forward. It is stated in the affidavit that it has got the support of a large body o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... herefore must be rejected. In any event it was urged that the scheme proposed is impracticable, illusory and detrimental to the interests of the creditors and the court in the exercise of its discretion ought not to direct a notice of the meeting at all and the application should be summarily rejected. In support of the contention that section 153 is not applicable to a foreign company, the argument advanced is that the expression 'company' in sub-section 1 and 2 means a company formed and registered under the Act or an existing Company and a foreign company is neither, and the expression 'Court' in section 153, clauses 1 and 2 must be a court having jurisdiction under the Act, which according to section 3 shall be the High Court having jurisdiction in the place at which the registered office is situate which in the case of the bank in question was at Quilon and therefore this High Court would not be the court to which such an application could be presented by a foreign company. Section 153 of the Indian Companies Act (VII of 1913) was, before it was amended by Act XXII of 1936, word for word the same as section 120 of the English Companies Act, of 1908. section 120 of the Englis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in clause, 1 would mean a company liable to be wound up. There can be no doubt that The Travancore National Bank though incorporated outside British India and therefore a foreign company, would be an unregistered company within the meaning of sections 270 and 271 of the Act. An unregistered company is a company liable to be wound up under the Act. When the legislature itself has defined the expression 'company' and has given it a wide signification there is no reason for excluding a foreign company from its purview. Of course, emphasis was not laid so much upon the expression 'company' as upon the expression 'court'. Under the English Act, no difficulty arises because the definition of the expression 'court' in section 380 of the Act is "the court having jurisdiction to wind up a Company under the Act." But if the expression 'court' in section 153 of the Indian Companies Act is interpreted in the light of sub-section 2 and 3 of the Act, this High Court will have no jurisdiction to entertain the application. But when the legislature has intended that section 153 can be availed of even by a foreign company, we must so construe the expression 'court' as to make the right conferred on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rt has been invoked, there tan be no doubt that the expression 'court' must mean the court in which the company is being sought to be wound up. 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 petition 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 would 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 are the persons vitally interested in the life of a company and are the best judges of their i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ourt's sanction, this court can adopt it. I shall now proceed to examine the soundness of this contention. The learned Advocate-General has not been able to cite any authority in support of the proposition that once an order for winding up has been passed by the Travancore court, an order for winding up must automatically follow in other courts. On the other hand, section 271 of the Indian Companies Act would seem to negative any such proposition. The section provides the conditions under which an unregistered company can be wound up, there by indicating that it is left to the discretion of the court whether it would wind up the company in spite of a similar order having been passed in some other court. It may be in the interests of the British Indian creditors that this court may on practical considerations find it just and equitable to pass an order for winding up, but there is nothing to oblige the court to pass the order. In the case of a company incorporated in one country and having branches in different countries the principle on which the winding up of such a company should be conducted is thus formulated by Vaughan Williams, J., in In re English, Scottish Australian C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... one principal domicile, at the place where the centre of its affairs is to be found, and that the other places in which it may have subordinate offices correspond, as far as the analogy can be carried out at all, to the residences of an individual. Thus an unregistered company in the United Kingdom must have more than one principal place of business from the point of view of jurisdiction in winding up, but its domicile in the strict sense of the terra might well be held to be its head office in the foreign country of its incorporation". The view of Dicey seems to be that the place where the centre of the affairs of a company is to be found should be fixed as the pricipal domicile of the company with reference to the winding up of a company. Palmer in his book on Company Law, 15th Edn. at' page 254 observes: "The situation of the registered office fixes the domicile of the company". But he does not state that it is necessarily the principal domicile. Cheshire in his book on Private International Law [1938, 2nd Edn.] puts the question thus: "What is the test?" and answers it thus at page 198: "The only solution therefore is to find some act which is so vital in the life of thi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rincipal domicile of a corporation, Madras will be the principal domicile of the Bank and must be the place where the principal winding up should go on. It seems to me however that it is not necessary to decide this question for the present as this application can be disposed of without doing so. I will assume that Travancore State is the place where the principal winding up should go on. The question then arises as to the scope and power and jurisdiction of this court in the matter of winding up. As already stated in such cases the jurisdiction is said to be ancillary. But what is the scope of it ? In what way the jurisdiction is to be exercised is still unsettled. In In re Vocation ( Foreign ) Ltd., at page 207 Maugham J. observed thus : "The effect of one winding up being ancillary to the principal winding up has not, I think, been much considered in our courts. This court no doubt holds that in the winding up here all creditors, whether British or foreign, who can prove their debts have equal rights ; but it would seem that foreign courts do not always take the same view". Lord North in Re The Queensland Mercantile Agency Co. observed thus: "The liquidation of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eign. The underlying principle seems to be one of co-operation based on the essential principles of justice and equity. The reason is plain. An order for winding up passed by the court of the place of incorporation in which the principal liquidation is going on does not bind a foreign creditor the special forum of whose debt was not the place of incorporation. In In re Vocation ( Foreign ) Ltd., at pages 209 and 210 Lord Maugham observed thus: "I can find however no reason to doubt that a person domiciled abroad can sue in his own courts a company which, in carrying on business there, has incurred a debt or liability to him, whether or not that company is being wound up in this country, to which he owes no allegiance and with the laws of which he is not acquainted, though, as pointed out in Dicey, page 377, if he desires to benefit under the English winding up he must generally speaking give up for the benefit of other creditors any advantage which he may have obtained for himself by the proceedings abroad". In New Zealand Loan Mercantile Agency Co. Ltd., v. Christina Morrison Lord Davey at page 359 observed thus: "If, as their Lordships hold, the Arrangement Act o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt of convenience it seems to me very desirable that the scheme should first be initiated in this court. The centre of administration is in Madras; all the necessary and available information will be in Madras ; the bulk of the creditors and shareholders are in British India and if a scheme is approved by a majority of such shareholders and creditors it is very likely that the Travancore creditors might adopt it and it is very likely also that the Travancore court would sanction it and there is no reason to suggest that the Travancore court would be unreasonable in declining the sanction of a scheme sanctioned by this court. The spirit of co-operation extended by the learned Advocate-General on behalf of the Travancore Official Liquidator would certainly be always available. Therefore there is nothing to preclude me from considering this application under section 153. In any event a scheme has to be approved by all the courts in which simultaneous liquidations are going on. In the case of an Australian Joint Stock Company reported in In re Australian Joint Stock Co. a scheme was sanctioned by the New South Wales court where the head office was situate and the branch office was in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to preclude this court from directing a meeting of the creditors, in all parts of British India or outside it and eliciting expression of their views. In New Zealand Loan Mercantile Agency Co. Ltd. v. Christina Morrison in construing section 2 of the Joint Stock Companies Arrangement Act of 1870, Lord Davey remarked thus: "It is quite true that the provisions of the Arrangement Act are expressed to extend to all creditors, and so they do, to foreign as well as colonial creditors, but only when their rights are in question in the courts of the United Kingdom." It will be useful to note that Lord Davey was dealing with a case of principal liquidation and yet he was careful to point out that all creditors wherever they are found may be summoned but only creditors within the jurisdiction of the English court will be bound by the result. The language of section 2 of the Arrangement Act, 1870 is 'creditors of such company and any class of such creditors.' There can be no doubt therefore that the similar expression in section 153 'meeting of creditors or class of creditors' should be interpreted as comprising all creditors whether in British India or outside the British India. T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... responding section of the English Act has always been employed to give effect to a scheme of compromise already arranged in a simultaneous winding up abroad. I shall now proceed to the argument in regard to the exercise of my discretion under section 153 for directing a meeting of the creditors as required by the said section. I may at once state, as already observed by me, that if an application of this nature is made the usual practice is to direct a notice and the application is always made ex parte but this application comes to be made in peculiar circumstances, one of which being that a final order for winding up has. been passed in the Travancore court and applications for winding up are pending in other foreign courts. Mr. Bhashyam contended that the word 'may' in section 153 meant 'shall', whereas some of the opposing creditors contended that the word 'may' meant 'may'. It seems to me that the use of the word 'may' involves that the court has to exercise its discretion in making the order under section 153. There is a distinction between making an order under section 153(1) and an order under section 153(2) when the scheme comes before the court for sanction after the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at p. 406 were referred to me, i.e., "The creditors ought to be paid 20 shillings in the pound. If it is there for them to have they ought to have it at the expense of the shareholders: there is no question at all about that." This was relied on for the purpose of showing that the shareholders should not be allowed to get any benefit to the detriment of creditors and reservation of liability to pay the uncalled capital is detrimental to the large body of creditors. Mr. Bhashyam says that if this is objectionable, it is open to the general body of creditors to modify it when the scheme goes before them and he is even willing to alter it or to delete it or to modify it in any way even before submission to the general body of creditors. Therefore the objection raised does not seem to be such as to go against the general tenor of the Scheme and such an intrinsic defect as to enable the court to withhold the scheme from being placed before the general meeting of the shareholders and creditors. The third objection raised is that the directors should not come into the management at all and though they ostensibly say that they would surrender their management they have indirectly provi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... has not had the intelligent support of the body of creditors who are supposed to have given assent to the scheme and there is no guarantee that 12 annas in the rupee will be realised. It is admitted in paragraph 16 of the affidavit that the scheme is based upon not quite accurate data. Paragraph 16 runs thus: "As regards the present position of the Bank it is difficult to state with any degree of certainty its correct position with regard to its liabilities as the Bank suspended its business on the 21st June 1938, all the branches of the Bank were on that date closed and sealed and provisional liquidators have been appointed since that date by various courts including this Honourable Court to take charge of the assets of the Bank. The books of account of the Bank are not therefore available to these deponents or to any other creditor to ascertain with any degree of certainty the amount of liabilities and assets of the Bank at the date of this affidavit. These deponents have therefore to rely on the directors' reports, the balance sheet and the profit and loss account of the Bank for the year 1938." No doubt the creditors who put forward these proposals did what they could in t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... interests. It is no doubt true as observed by Vaughan Williams J., in In re English, Scottish Australian Chartered Bank at p. 396 that "schemes are presented to the creditors in bankruptcy and in the liquidation of companies more often than not for the purpose of veiling some wrong that has been done for the purpose of serving some interest which is wholly antagonistic to the interest of the creditors." But there is not sufficient evidence before me to say that the proposals have been wholly engineered by the directors. It may be that many of the creditors were led into their approval by the false hopes raised by the directors, but among the creditors to the value of 87 lakhs there are many creditors of status and holding or having held responsible positions in life and businessmen whose intelligence and understanding and capacity to judge what is to their benefit, as appears from the names mentioned in para 10 of the affidavit and from a small list out of a large number of creditors who have supported the scheme handed to me by Mr. Bhashyam, cannot be doubted. It cannot be said that in giving support to this scheme they were actuated by any other motive than that of securing c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... roceedings. If there had been an enactment like the Joint Stock Companies Arrangement Act of 1870 or section 153 of the (English and the Indian) Companies Act, the same learned judge would not have disregarded the opinion of the mojority of the creditors on any scheme that may be suggested by them. The considerations pointed out by him are all considerations which the court can always take in sanctioning or refusing a scheme but they are not in my opinion considerations which are to be taken in throwing out a scheme at the stage of proposal. In this case anyhow I am making an order for winding up. Therefore before the court gives effect to any scheme the result of which will be to cancel the winding up, it will have to be fully satisfied that the winding up should not go on. It is again urged by the opposing creditors that the main ground on which the proposed scheme is sought to be supported is that the costs of the liquidation would amount to an enormous Sum as much as two annas in the rupee and it is not a tenable one. But this is a point which cannot be lightly ignored especially with regard to this concern. The branches are situate in different jurisdictions and liquidation ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ive under clause 1 of section 153 a certain discretion is vested in court. But the scope of that discretion is limited. A court ought not to decline to order a meeting unless the proposals are illegal as being in contravention of the provisions of the Companies Act or incapable of modification in view of ascertained facts so that it would be a waste of time and expenditure to circulate them. I am not prepared to say that of this scheme because the scheme is open to modification. But the court has always got a duty to see that before the scheme is approved such correct information as is available should be placed before the creditors before they come to a decision. In this case it is possible to get correct information because the provisional liquidators, at any rate, so far as the Madras Presidency is concerned, are functioning from the 5th of July and provisional liquidators have been appointed in other places so that information can now be easily had as regards the correct state of affairs of the Bank and if a report as to the correct state of affairs can be had, and if it does not destroy the basis on which the proposals have been put forward, there would be no objection to circ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... put through it must be a scheme based on a correct data being put before the general body of creditors instead of a scheme based on incorrect information. It is very likely that if a proper scheme based on correct information is put before the creditors, every creditor, whether in British India or outside British India, may approve of it, and it would be possible for different courts to sanction it because it would then have received the approval of the majority of the creditors both within and outside British India. After all, if the report can be had early and if a meeting is to be called for it can be called for within a very short time and the matter can be put through as expeditiously as possible. I therefore direct the said liquidators, on such information as is available to them, to submit a correct report of the affairs of the bank, its assets and liabilities, the nature of good and bad debts and other information which they can possibly give with reference to the scheme proposed within three weeks from this date and adjourn the further hearing of this application to 29th September, 1938. [On the application for winding-up his Lordship made the following order:] WINDIN ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t delivered by me, Mr. Bhashyam is not against my passing an order for winding up, if I consider it advisable to do so. Mr. V. G. Row on behalf of the Bank has also stated that the Bank has no objection to the order for winding up being passed. No creditor has opposed it. I therefore do hereby order that the Travancore National and Quilon Bank, Ltd. be wound up by this Court under the provisions of the Indian Companies Act, 1913. It was suggested by Mr. Parthasarathy that the Official Liquidators of Travancore may be appointed Official Liquidators here also. This was opposed on behalf of some of the creditors. In my opinion it is desirable that a liquidator appointed by this court should not be amenable to any dual or foreign control and he should be completely under the control of this court. I therefore appoint the provisional liquidators Mr. James Voce Pirrie and Mr. Cyril Gill as Official Liquidators. I think it unnecessary to give any special directions as they will be under the control of the court in the conduct of the proceedings. Orders as to their remuneration are reserved. ORDER (2-12-1938). In my Order dated 5-9-1938 I observed as follows: "A Court ought not to decl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... parties thought it desirable that I should adjourn the consideration of this matter for some time, so that correct information may be available for further action. Accordingly I adjourned this matter to the 7th of November when a further adjournment was asked for and I adjourned the matter to the 18th November. The Official Liquidators of Madras have now presented a complete report of all the 81 branches of the Bank on such accurate information as was possible to obtain. From the said report it will be seen that the book liabilities are shown as Rs. 2,42,57,824 together with a contingent liability for uncalled capital on shares held by the Bank to the value of Rs. 4,29,685. The net assets after excluding assets of the extent of Rs. 58,89,173-14-8, which the official Liquidators consider as not realisable or the realisable value of which cannot now be estimated, are Rs. 2,02,95,800-12-2. Therefore the estimated deficiency according to the report subject to the realisability of doubtful debts and of fixed capital expenditure, to the contingent liability and to the costs of realisation was put at Rs. 39,62,023-7-10. I directed them to prepare a consolidated statement of liabilities an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he directors to claim any costs, in respect of the winding up proceedings. The question therefore is whether I should not direct a meeting of the creditors under section 153. Mr. Bhashyam Ayyangar submitted that in view of my prior order as the correct data is now available, a fair case is now made out for the scheme being put before the general body of creditors and their wishes ascertained. The opposing creditors have now raised certain contentions with which I shall presently deal. The first contention is that it is not possible to put the scheme through without the co-operation of other courts, particularly the Travancore and Cochin Courts and if the Travancore and Cochin assets and liabilities are kept out of consideration, the net percentage of assets to liabilities will not be more than 60 per cent and the basis of the scheme therefore fails. This contention was in a way dealt with by me in my order of the 5th September. I pointed out therein that "where there are several liquidations of one concern going on in different countries, no scheme initiated in one court will necessarily become effective and operative in regard to the concern as a whole. Unless it was sanctioned ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion urged by Mr. Vepa and also by Mr. Parthasarathy is that the object of a reconstruction scheme is to see that the Bank goes on and it cannot be disputed that for some time the Bank cannot go on because nobody would put any money in the Bank, the public confidence in it having been so rudely shaken. I have dealt with this aspect of the matter also and pointed out that it is a matter for the creditors to consider whether it is possible for the Bank to go on or not, if a fresh personnel for the guidance of the affairs of the Bank is constituted. Mr. Bhashyam Ayyangar has argued that whether the Bank should go on or not is not the only consideration, that the object of the scheme is also to provide a mode of liquidation otherwise than through court and it is a matter for the creditors to come to a decision on the point. I would like in this connection to refer to the following observations of Page, C. J. in 10 Rang. 150: "prima facie the creditors are in the best position to decide whether their interests in the company will be better served by the compulsory winding up of the Bank or by voluntary liquidation for the purpose of reconstruction. I go further and say that it would be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... epa has suggested that out of the money now available in the hands of the Official Liquidators, the scheme may provide that a certain percentage in the rupee may be paid immediately to the creditors. It is open to the creditors to suggest that modification in the scheme if they think it necessary. I may state that after the receipt of the reports from the Official Liquidators there has really been so serious opposition to the scheme going before the general body of creditors and their wishes being ascertained in the first instance. All the arguments that have been advanced were not such as to prevent the court from putting the scheme before the general body of creditors. I have therefore decided to order a meeting of a general body of creditors and shareholders and I consider the following material to be absolutely necessary in order that each creditor and shareholder may arrive at an independent opinion as to the feasibility or practicability of the scheme and I therefore direct that they should be printed and circulated to them. 1.The proposed scheme. 2.The report of the Official Liquidators dated 17-11-1938 and the further comparative statement filed by them. 3.Extracts ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mp and authenticated before the Presiding officer of a court, a Magistrate, honorary or stipendiary, a Sub-Registrar, a Nazir of any court, any of the officers of the High Court, any of the Sub-Assistant Registrars or Managers of the Appellate Side, High Court, who shall subscribe in his own hand the fact of his being satisfied as to the identity of the person signing the proxy form. I direct the Official Liquidators to advertise the said notice in the following newspaper and in such other newspapers as they may consider advisable three or four weeks before the dates of the said meetings: 1. The Hindu. 2. The Madras Mail. 3. The Indian Express. 4. The Swadesa Mitran. 5. The Andhra Patrika. 6. The Malayala Rajyam. 7. The Mathurbhumi. 8. The Daily Post of Bangalore. 9. The Statesman of Calcutta. 10. The Bombay Chronicle. 11. The Bulletin of Hyderabad. 12. The Ceylon Observer. 13. The Hindustan Times. The advertisements shall also make known that the print of the said scheme and the necessary papers can be seen and the proxy forms obtained at the following places : (1)The Office of the Official Liquidators, Madras, (2)do do Secunderabad, ..... X X X X Extracts X X X X X X X X Extracts X X X X
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