TMI Blog1951 (3) TMI 16X X X X Extracts X X X X X X X X Extracts X X X X ..... pany there being no depositors. If the persons entitled to share in the assets which the liquidator was called upon to distribute were the shareholders alone, there would have been no complication. But there is provision in the memorandum and articles of association of the company for conferring special benefits on the promoters after the shareholders' claims are satisfied to a certain extent. The promoters who are fourteen in number claimed that special benefit from the liquidator who thereupon applied to the court below for directions. The points on which the liquidator asked for directions were these: (1)Whether under article 100 of the articles of association of the company, the promoters could claim the special favours reserved under that article in the absence of declaration of a dividend by the company. The extent of the benefit is mentioned therein. It must be mentioned in this connection that the 'profits' available for division are not the profits made in carrying on the business of the company but by an out right sale for a very high price of the whole estate to manage which the company was formed. On this question the court below held that the promoters are entitled ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ourt below. In fact he supports the contentions of the liquidator and therefore there is no conflict between his case and the case that is put forward on behalf of the liquidator. The liquidator is supporting the contentions of the ordinary shareholders as against the promoters of the company who are contend-ding that they are entitled not only to distribution of the assets according to shares owned by them but also to the special benefits reserved in their favour by article 100 of the articles of association. In view of the fact that there is no conflict between the case put forward by the ordinary shareholder who has brought A. S. No 238 of 1123 and the case of the liquidator in A. S. No. 237 of 1123 we grant his prayer contained in C. M. P. No. 789 of 1124 and permit him to prosecute his appeal which is fully supported by the liquidator and which is consistent with the contentions of the liquidator in his own special appeal No. 237 of 1123. Interesting arguments have been addressed on the questions involved by Mr. Kuruvila on behalf of the ordinary shareholders, which are the same as the arguments addressed on behalf of the liquidator, and by Mr. K.P. Abraham in support of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f business-men in the conduct of business affairs and expressly dissociated itself from the reasons given by the Lords Justices for their decision in the court below ( In National Bank of Wales ) which the House affirmed on the facts." The learned author points out that the warning given by the House of Lords has to be borne in mind when dealing with particular cases on the special facts thereon. In the present case, however, this difficulty does not arise because the directors have not declared any dividend after the sale of the assets of the company. It has, therefore, become incumbent upon this court to decide whether the price realised by sale of the estate belonging to the company can be regarded as profits within the meaning of the articles of association or whether they come under the category of capital. In considering this question, one has naturally to advert to the memorandum and articles of association of the company. One significant feature that is noticeable is that there is no provision made in the latter for distribution of the assets after the company has gone into liquidation. The rules that are to be found incorporated in the articles deal only with the leg ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... November, 1943, that the company be wound up voluntarily and that the deponent of the affidavit be appointed liquidator. After the sale of the estate there was no declaration of any dividend. He also swears in the last paragraph of his affidavit that the amount of the sale consideration was treated by the Income-tax authorities as capital assets and was not assessed to income-tax. The income-tax assessed for the year 1943 was only on Rs. 2,688-2-6 being the income earned till the date of sale. There was no income-tax levied on the price realised by the sale of the estate belonging to the company. This clearly shows that even the income-tax authorities did not regard that amount as profits, but as part of the capital of the company. The appellant's learned counsel relies upon the following decisions. The first case cited on behalf of the appellant is the one reported in Frames v. Bultfontein Mining Co. In the headnote, the facts of the case are briefly referred to. What happened was there was a provision in the articles of association of the company that the directors should be paid each year as remuneration for their services, a sum equal to three per cent, on the net profits ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s by the directors, for the winding up has displaced their powers." Lord Macnaghten in Birch v. Cropper referred to such a surplus as forming part and parcel of the property of the company which at the date of the winding up represented the capital of the company. In In re Bridge-water Navigation Go. which went on appeal to the House of Lords under the name of Birch v. Cropper, Cotton L.J. said: "When a winding up has taken place all questions of preference is now at an end, the shareholders are to be dealt with as having equal rights, because the provision in the articles creating the preference shares as regards dividend to arise on the working of the capital is at an end." Lord Herschell in the course of his speech said about preference shareholders: "They are members of the company, and as such shareholders in it as the ordinary shareholders are; and it is in respect of their thus holding shares that they receive a part of the profits. When the whole of the capital has been returned, both classes of shareholders are on the same footing, equally members and holding equal shares in the company, and it appears to me that they ought to be treated as equally enti ..... X X X X Extracts X X X X X X X X Extracts X X X X
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