TMI Blog1968 (3) TMI 37X X X X Extracts X X X X X X X X Extracts X X X X ..... as per the account books of the company in liquidation (the Vegetols Ltd.) it was found that sums aggregating Rs. 62,231.25 were paid to the Society from the company's assets during the period from June 10, 1957, to March 31, 1960. The sums were set out in a schedule appended to the application. As these payments were made after April 11, 1957, the date of commencement of the winding up of the company, he claimed a refund of these amounts under section 536 of the Companies Act. He stated in the application that the receipt of the said amounts was also admitted by the society in the proof affidavit filed before him, and that he had also required the society to pay the amounts by notice which was not complied with. He also claimed to summon and examine a representative of the society under section 477 of the Companies Act. It is said that no counter has been filed for this application. The respondent in this petition is the society. C. A. No. 122 of 1965 is a petition under section 536(2) of the Companies Act in which the petitioner is the society and the respondents are the company in liquidation (R-1), C. P. Sarathy Mudaliar, partner of the managing agency of the company, Khal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that a reference in section 61 of the Madras Co-operative Societies Act, 1932, to the Indian Companies Act, VII of 1913, must be understood as a reference to the Companies Act, 1956. The learned counsel urged that by reason of these provisions, the applications made by the Society for the reliefs mentioned and the application made by the official liquidator do not lie. The learned official liquidator has contended that the provisions relied on have to be understood in a limited sense in that the provisions of the Companies Act shall not apply to Societies to the extent to which express provisions are made under the Co-operative Societies Act with regard to registration, management, winding up of societies, etc., and secondly he contended that if a wider meaning is canvassed, viz ., that the provisions of the Companies Act are entirely excluded, the sections are invalid as trenching on the law enacted by the Central Legislature or the Parliament. The learned official liquidator also submitted that if the provisions of the Companies Act are entirely excluded, the material provisions of the Companies Act about the collection and distribution of assets would be contravened. As an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... federal fields is invaded a material matter ? The Judicial Committee held that the pith and substance of the Act being money-lending it was within the competence of the provincial legislature and it was not rendered invalid because it incidentally trenches upon matters reserved to the federal legislature. The Supreme Court has also adopted the reasoning of the Privy Council in A.S. Krishna v. State of Madras AIR 1957 SC 297, where the validity of sections 4(2) and 28 to 32 of the Madras Prohibition Act No. X of 1937 arose for decision. It was contended that those provisions were repugnant to the provisions of the existing Indian laws respecting the same matters, viz ., Indian Evidence Act (I of 1872) and Criminal Procedure Code (No. V of 1898). In paragraph 12 of the judgment (at page 303) the Supreme Court in the light of the decisions expressed itself thus : "The position, then, might thus be summed up: When a law is impugned on the ground that it is ultra vires the powers of the legislature which enacted it, what has to be ascertained is the true character of the legislation. To do that, one must have regard to the enactment as a whole to its objects and to the scop ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... VII of 1964) and 2. Whether those provisions conflicting with the express provisions of the Indian Companies Act, 1913 formerly, and the Companies Act, 1956, as now enacted, are invalid ? " These questions arose out of the following facts, namely, that the Chittoor District Co-operative Marketing Society Ltd., Chittoor, hereinafter referred to as the Society, had advanced certain amounts to the Vegetols Ltd., Chittoor, hereinafter referred to as the company. The managing director of the company appears to have executed a personal bond undertaking to pay the sums so advanced in the event of failure of the company to repay the amounts. It may be stated that the company was also a member of the Society. The Society demanded repayment of the monies advanced by it to the company, and on a dispute being raised, the matter was heard under section 51 of the Madras Co-operative Societies Act, 1932 (Madras Act VI of 1932), hereinafter called the Societies Act, by the Registrar who ultimately passed an award. A compromise was effected before the Registrar, who passed a decree on August 10, 1 955, for payment of Rs. 97,000 with interest at the rate of five per cent, per annum till the ful ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ficial liquidator allowed the Society's claim as an ordinary creditor and not as a secured creditor. It may be stated that immediately after the official liquidator took out proceedings to recover the amounts, the society took out C.A. No. 122/65 which was under section 536(2) of the Companies Act for the validation of the amounts received subsequent to the filing of the application for liquidation. It appears that when the matter came up before our learned brother Narasimham J., an objection was taken by the Society that having regard to the provisions of section 61 of the Societies Act which made the Companies Act inapplicable to societies registered under the Societies Act, the company court, has no jurisdiction to adjudicate upon these applications filed by the official liquidator. It was then contended by the official liquidator that, if the provisions of the Companies Act were inapplicable in a manner as to deprive the company court of its jurisdiction over the assets and liabilities of the company registered under the Companies Act, such a provision would be ultra vires the State Legislature which has no legislative competence in respect of matters exclusively within lis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nterest of consumers... In Madras, as in the rest of India, co-operation was introduced as a remedy for rural indebtedness. Rural indebtedness is a common feature of all countries depending largely on agriculture... The earliest attempt in this direction was made by the Government of Madras in 1892.... After making a detailed study of the systems of ' popular ' and mortgage credit prevalent in Europe, Sir Frederick Nicholson submitted a valuable and comprehensive report, the main recommendation in which was the starting of rural co-operative societies more or less on the lines of the Reiffesen Societies of Germany for the provision of credit on reasonable terms and for the development of thrift among the rural population. While this report was under the consideration of the Government of India a volume entitled Peoples Banks for Northern India was published by Mr. H. Dupernex, I.C.S., an Officer of the United Provinces. In the meantime, a few small experimental societies were also instituted by Mr. Dupernex and other officers in different parts of India. They were registered under the Indian Companies Act. But as long as they were governed by the complicated provisions of this Ac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lication to societies registered under the Co-operative Societies Act was by way of abundant caution and to ensure that the provisions of the Companies Act will not apply to the Co-operative Societies Act either with respect to formation, regulation or winding up of society. Even under section 2(7) of the Companies Act, 1956, the definition of "body corporate" specifically excludes a co-operative society registered under the Co-operative Societies Act and it reads; thus : " 'Body corporate' or 'corporation' includes a company incorporated outside India but does not include ( a )a corporation sole ; ( b )a co-operative society registered under any law relating to co-operative societies; and ( c )any other body corporate (not being a company as denned in this Act) which the Central Government may, by notification in the official gazette, specify in this behalf". The definition, it may be noted, was amended in order to exclude the co-operative societies from its application. The original definition of the terms "body corporate" under the previous Companies Act was, it may be noted, amended to exclude co-operative societies from its purview. Broadly speaking, the terms, wh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... clusion of the application of the provisions of the Companies Act to the co-operative societies registered under the Co-operative Societies Act is not inconsistent with the exercise of the legislative power vested in the State. Nor does the question whether the provisions of the Companies Act pertaining to liquidation being made applicable to the society arise in this case since the society has not gone into liquidation. Also there is no application even to liquidate the society so that any objection can be taken that the provisions of the Act cannot be made applicable to a society registered under the said Act. This is our answer to the first question. Having regard to the answer of ours to the first question it is not necessary to consider the second question. With the above answer the case is remitted to the learned company judge. [ In pursuance of the above orders of the Division Bench the case was again heard by Narasimham J. who made the following order on March 28, 1968.] Narasimham, J. These two applications are connected and are therefore heard together. C.A. No. 83 of 1965 is taken out by the official liquidator seeking a direction for the refund of a sum of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... der section 51 of the Madras Co-operative Societies Act on May 16, 1953, for the recovery of a sum of Rs. 99,450-15-8, being the balance of the amount due to the society from the 1st respondent-company. Eventually, the Deputy Registrar, exercising powers under section 51 of the Madras Co-operative Societies Act, passed the decree in terms of the compromise for an amount of Rs. 97,000 with interest at 5% per annum till the amount is fully discharged. In pursuance of the said compromise decree dated August 10, 1955, the Society received Rs. 62,231.25. The Society was never intimated of the filing of the winding-up application. Nor was it made a party to the said proceedings. The Society cannot be treated as having been fraudulently preferred to the other creditors under any circumstances. On the said allegations validation of payments was prayed for. The application was opposed by the official liquidator pleading, inter alia , that there was no valid ground disclosed for the validation of the payments, and that the transactions such as could be validated could only be those entered into for the benefit of the company and for preserving the business of the company in order to enabl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or, Gorakpur Electric Supply Co. Ltd. v. Siemens ( India ) Ltd., [1941] 11 Comp. Cas. 17, Tulsidas Jasraj Parekh v. Industrial Bank of Western India AIR 1931 Bom. 2, R. K. Sundaram Asari v. T. R. Abdul Haleem Saheb AIR 1956 Mad. 692 and Syed Haidar Sahib v. M. Jayaram Pilla [1956] 26 Comp. Cas. 164 ; [1957] 1 MLJ 141. I also referred to the passage in Buckley on the Companies Act, 13th edition, page 494 commentary under section 227, English Companies Act, 1948, which may be extracted here for convenient reference : "But payment by the company after petition presented, and after the creditor must be taken to have notice of the petition, of even a perfectly bona fide debt of the company, is not a transaction to which the court will give validity : Re Civil Service and General Stores [1887] 57 LJ. (Ch.) 119 . To do so would be against a cardinal principle of the Act, viz ., pari passu distribution". I do not consider the payments in discharge of debts incurred prior to the winding-up could be validated. In the said decision given by me, I also held that the application of the official liquidator was not barred by time and that the official liquidato ..... X X X X Extracts X X X X X X X X Extracts X X X X
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