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TMI Blog1971 (11) TMI 96X X X X Extracts X X X X X X X X Extracts X X X X ..... e liquidator took actual possession of the assets of the company. In the meanwhile, a scheme of compromise and/or arrangement between the company on the one hand and its different classes of creditors and members on the other hand was proposed, and the court sanctioned the scheme of compromise and/or arrangement as per the order made on October 15, 1969, and simultaneously cancelled the order made on September 11, 1967, winding up the company. The sponsors of the scheme filed Company Application No. 87 of 1970 disclosing their inability to further implement the scheme, whereupon the court appointed the official liquidator as the provisional liquidator, who, pursuant to the order of the court, took possession of the assets of the company on October 5, 1970. Thereafter, the court, in exercise of its powers conferred upon it by section 392, made an order for winding up the company and appointed the official liquidator as the liquidator of the company. The liquidator, after obtaining directions under section 457 read with rule 139, proceeded to sell the textile unit of the company and land belonging to the company and in Company Application No. 112 of 1970 the sale made in favour of re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nbsp; 5 7-12-1966 Collector of Electricity Duty 44,115.76 6 7-12-1966 Regional Provident Fund Commissioner, Ahmedabad. 42,188.00 (contributions for the months of May and September, 1966) 42,188.00 7 Regional Provident Fund Commissioner, Ahmedabad. 4,27,000.00 The orders by which attachments have been levied, except the one in respect of item No. 7, have been annexed at annexure "A" collectively at pages 10 to 20. Pursuant to the attachments levied, entries have been made in the record of rights in respect of the various pieces of land belonging to the company and a copy of the record of rights in respect of Survey No. 314, showing the entries in respect of different attachments, has been produced at page 23, annexure "C". The aforesaid attachments have been levied by respondents Nos. 1 and 2, who are officers of the revenue department having power to levy attachments under the Land Revenue Code. The validity of the attachments or the amounts for which attachments are levied or the process by which they are levied are not at all in dispute. The question raised by the liquidator is that, once a winding up order is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the obstacle removed by taking appropriate proceedings in the court which is winding up the company. The object of the winding-up provisions of the Companies Act is to put all unsecured creditors upon an equality and to pay them pari passu. All the unsecured creditors form one class. The winding-up order made on the petition of a creditor or a contributory enures for the benefit of all creditors and contributories and that is why it is always styled as a representative action. When a company is in insolvent circumstances or in financial doldrums, it is quite likely that different creditors might try to secure a march over those similarly situated. Provisions for the winding-up of companies are meant for just and equitable distribution of the assets of the company amongst various persons interested in it. Consequently, once a company is ordered to be wound up, a scramble for taking away its assets must be avoided. All the assets of the company must be available for just and equitable distribution amongst the various interests having claims against the company. If by some action of creditor this basic concept of just and equitable distribution of the assets of the company is sought t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... estrained from dealing with the property. Attachment thus only prevents alienation. It does not confer title, as observed in Motilal v. Karrabuldin [1897] ILR 25 Cal. 179 (PC). Thus, attachment of an immovable property creates no interest in favour of the attaching-creditor in the property attached. Attachment in course of execution of a decree, levied against the property of a judgment-debtor, at the instance of a decree-holder, creates no interest in favour of the judgment-creditor in the property attached. Attachment is undoubtedly a step in the process of execution but a mere attachment of property, even at the instance of the court, would not create any equity in favour of the attaching-creditor. Other judgment-creditors of the same judgment-debtor would equally be entitled to a pro-rata distribution in the sale proceeds of the property attached at the instance of one judgment-creditor. A judgment creditor thus gets no priority, merely because he is an attaching creditor, save this that, in the normal civil proceedings, he might secure a march over those creditors, who have not obtained decrees. But as between judgment-creditors of the same judgment-debtor, all will have the r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t, that was way back in 1933. Since then, the view was crystallised that attachment in this country merely prohibits private alienations by the persons whose property is attached but creates no interest in the property in favour of the attaching-creditor. In view of the doubt expressed by the Privy Council, it is not necessary for me to refer to Kristnasawtny Mudaliar's case (supra) in greater detail. But, I have no doubt in my mind that an attachment of property in process of execution of a decree or as part of execution of an order, executable as a decree by the authorities under the Land Revenue Code, merely prohibits further alienation of the property but creates no interest in the property in favour of the attaching-creditor. If such be the effect of attachment, the further question is what if the effect of an attachment levied prior to the commencement of the winding-up proceedings and no further action having been taken till the liquidator stepped in, on winding-up order being made, collected the assets and sold away the property. The larger question is could the attachment continue on the property even in the hands of the purchaser, who purchased the property, through the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aching creditor be entitled to steal a march over other unsecured creditors when, after attaching the property, nothing further appears to have been done. It may be that before the commencement of the winding-up proceeding, if a creditor has attached the property, brought it to court auction, got it sold and realised his debt, nothing further could be done, unless, by some facts of convincing nature, it can be shown to be a payment which would be fraudulent preference made within six months from the date of the commencement of the winding-up or within one year from the commencement of the date of the winding-up, if the case falls within the four corners of section 531A. But when a judgment-creditor has attached the property of the company and thereafter a winding-up order is made without any further step being taken by such judgment-creditor, he would unquestionably be an unsecured creditor, like any other unsecured creditor, who had neither filed a suit nor obtained a decree nor attached the property. Both would be on par and it is this treatment which would avoid scramble for the assets of an insolvent company or dishonest distribution by those in charge of the company by giving ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aluation of annuities and future and contingent liabilities ; and (c)the respective rights of secured and unsecured creditors ; as are in force for the time being under the law of insolvency with respect to the estates of persons adjudged insolvent. (2) All persons who in any such case would be entitled to prove for and receive dividends out of the assets of the company, may come in under the winding up, and make such claims against the company as they respectively are entitled to make by virtue of this section : Provided that if a secured creditor instead of relinquishing his security and proving for his debt proceeds to realise his security, he shall be liable to pay the expenses incurred by the liquidator (including a provisional liquidator, if any) for the preservation of the security before its realisation by the secured creditor." Section 529 of the Companies Act will have the effect of incorporating sections 51 and 52 of the Provincial Insolvency Act, 1920, in the Companies Act. Section 51 provides that: "Where execution of a decree has issued against the property of a debtor, no person shall be entitled to the benefit of the execution against the receiver except in re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... has observed as under : "Where a judgment-debtor has been adjudicated an insolvent, the whole of his property vests in the Official Assignee. What is the effect of an order of adjudication on an attachment levied prior to the date of the adjudication order ? Has the attaching creditor, by reason of his prior attachment, priority over the Official Assignee in respect of the property attached by him prior to the date of adjudication order, or is the Official Assignee entitled to claim the attached property by virtue of the adjudication order as part of the property of the insolvent ? The courts in India had held that whether the attachment is before judgment or, in execution of a decree, the attaching creditor had no priority over the Official Assignee. These decisions were based on the ground that an attachment in India does not create any charge or lien upon the attached property such as attaches in England upon seizure under a writ of fi. fa. ; and that once the order of adjudication is made, the attaching creditor is relegated to the same position as other creditors." I think no useful purpose would be served by any further discussion. In order to give full effect to the princ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... property of the company. The attaching creditor would treat the attachment as an incident of the claim which was being realised. Such a claim could and must be investigated by the court winding-up the company. Therefore, this court must find out now whether there is any cloud legally subsisting on the property of the company. The attachment, if permitted to subsist, may raise some cloud over the clean title of the assets of the company. If that cloud can be legally sustained, the court must give effect to it. If it cannot be sustained, this court has jurisdiction to remove that cloud and to clear the title. That is the jurisdiction being exercised by this court. Alternatively, Mr. Shah urged that this court could call for all proceedings wherever pending by or against the company, which is being wound up, in exercise of the powers conferred by section 446, and deal with the proceedings in an appropriate manner. That question might necessitate examination of the true import of the expression "court" in section 446(2) and I do not consider it necessary to deal with it in this case. It was lastly urged that respondents Nos. 1 and 2 must have incurred costs in levying the attachments ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . It was, however, urged that, before raising the attachment in this case, we must bear in mind sub-section (2) of section 537 which provides that "nothing in this section applies to any proceedings for the recovery of any tax imposed or any dues payable to the Government". The full import of sub-section (2) cannot be examined in this case because it is not made clear as to whether the recovery was of any tax imposed or dues payable to the Government. Creditors are such as the Employees' State Insurance Corporation, Regional Provident Fund Commissioner, Ahmedabad Electricity Co. Ltd. and the authority under the Payment of Wages Act at whose instance the attachments have been levied. Even in respect of all dues payable to the Government including tax or impost, section 537 will have to be read subject to the priorities indicated in section 530 and the preferential treatment will have to be given to the tax or cess which has become due and payable within the twelve months next before the date of the winding-up. In the absence of relevant facts, the effect of sub-section (2) of section 537 cannot be examined in this case and I do not propose to examine the same. In view of the above ..... X X X X Extracts X X X X X X X X Extracts X X X X
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