TMI Blog1989 (3) TMI 331X X X X Extracts X X X X X X X X Extracts X X X X ..... support of such summons, the affidavit of Shri D.R. Sharda, erstwhile director of the company has been filed. The company has been wound up under the orders of the court dated August 1,1988. The reference has been made to this Bench for the reason that two views have been expressed by this court, in regard to the maintainability of the application/summons filed by the company, creditor or member, in case the company is being wound up under section 391 of the Act. At this stage, it will be relevant to point out that the summons in this case have been moved by the company, but, for the purpose of maintainability of the application/summons in the case of the company being wound up, the company/creditor/member have been placed in the same and equal footing in section 391 of the Act. There is no dispute, however, that before the winding up process begins the company/creditor/member has every right to commence proceedings under section 391 of the Act. Mahinder Narain J. in the present reference and in C.P. No. 42 of 1985 decided on October 26, 1987 ( Dr. Prithpal Singh Chhabra v. Eastern Linkers Pvt. Ltd. ) , has held that in case the company is being wound up, it is only the liq ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... view that a member of a company does not cease to be a member merely because a winding up order has been passed and, as such, he has every right to maintain such an application. The relevant discussion is reproduced below (at p. 169) : "In order to decide the aforesaid question, it is necessary to refer to two other provisions of the Act. Section 41 of the Act defines a member as being a person who is entered in the register of members. A contributory is defined by section 428 of the Companies Act. The said section reads as under: '428. Definition of " contributory " The term "contributory" means every person liable to contribute to the assets of a company in the event of its being wound up, and includes the holder of any shares which are fully paid-up ; and for the purposes of all proceedings for determining, and all proceedings prior to the final determination of, the persons who are to be deemed contributories, includes any person alleged to be a contributory.'... To my mind, the terms 'contributory' and 'member' are not interchangeable. By virtue of section 428 of the Act every member would become a contributory. The converse, however, is not true. Though a member o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... te the submissions and the law on the subject, it would be appropriate to reproduce the relevant portion of section 391 of the Act: "391. (1) Where a compromise or arrangement is proposed ( a )between a company and its creditors or any class of them ; or ( b )between a company and its members or any class of them ; the court may, on the application of the company or of any creditor or member of the company, or, in the case of a company which is being wound up, of the liquidator, order a meeting of the creditors or class of creditors, or of the members or class of members, as the case may be, to be called, held and conducted in such manner as the court directs. (2) If a majority in number representing three-fourths in value of the creditors, or class of creditors, or members, or class of members, as the case may be, present and voting either in person or, where proxies are allowed under the rules made under section 643, by proxy, at the meeting, agree to any compromise or arrangement, the compromise or arrangement shall, if sanctioned by the court, be binding on all the creditors, all the creditors of the class, all the members, or all the members of the class, as the ca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t be adopted in the interpretation of the Indian Act and I have, therefore, no hesitation in holding that even after an order for winding up, a creditor or member can move the court under section 153 of the Act". In A.M. Muhammed Abdulla Tharaganar v. Official Liquidator, Cape Comorin General Traffic Co. Ltd. [1953] 23 Comp. Cas. 161 (Trav-Coch), this question again was considered by the Travancore-Cochin High Court where the aforesaid judgment of the Madras High Court in Travan-core National and Quilon Bank Ltd. [1939] 9 Comp. Cas. 14 ; AIR 1939 Mad 318 was followed and it was held (headnote) : "In the case of a company being wound up, the liquidator is an additional and not an exclusive person who could make an application under section 153 of the Indian Companies Act for the proposal of a scheme. The interest that entitled the company, member or creditor to make the application in the case of a going concern subsists even after an order for winding up is made to sustain a similar application even at that stage". While considering the scope of section 391 of the Act, the Calcutta High Court in Rajendra Prosad Agarwalla v. Official Liquidator [1978] 48 Comp. Cas. 4 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... transfer of shares in the company or alteration in the status of its members, made after the commencement of the winding-up, requires the sanction of the court. This section goes to show that members do not cease to be members on a company being wound up nor do they cease to be members on receiving a return of capital. In the present case, the applicants were the shareholders of the company, now in liquidation, and they are in the list of contributories. They are members of the company as denned under section 41 of the Companies Act and they have not ceased to be such members by virtue of any surrender of shares, because handing over the share certificate to the official liquidator does not amount to a surrender of shares to the company. In fact, even after the share certificates are handed over to the liquidator, transfers have taken place with the permission of the court. This could never have happened if the contributory had ceased to be a member of the company in liquidation". In Sonajuli Tea and Industries Ltd. ( In Liquidation ) [1981] Tax LR (NOC) 108 (Cal) it has also been held by the Calcutta High Court while interpreting section 391 of the Act: "It is now well-set ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hstanding anything contained in any other law for the time being in force has been given jurisdiction to entertain and dispose of any application made under section 391 of the Act by or in respect of the company. In case of liquidation of the company, if the liquidator is interpreted exclusively to mean to have a right to move under section 391 of the Act, and that the company is not to have such a right, there would be direct conflict between section 391(1) and section 446(2)( c ) of the Act which would not be in consonance with the principle of harmonious interpretation of statutes. Therefore, the only rational interpretation which can be put is that in case the company is wound up, the liquidator is an additional person who can move the application under section 391 of the Act apart from members, creditors and the company. On the question whether a member ceases to be a member and becomes a contributory only after the liquidation of the company, we again adopt the reasoning and the view of Justice B.N. Kirpal in Rajdhani Grains and Jaggery Exchange Ltd. [1983] 54 Comp. Cas. 166 (Delhi) and the view of the Bombay High Court in Vasant Investment Corporation Ltd. [ 1982] 52 C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... conditions, namely, that there is an agreement to become a member and that his name is entered in the register of members of the company are cumulative. Both the conditions have to be satisfied to enable him to exercise the rights of a member". It was emphasised that so long as the name of the member continues to be on the register of members and until he ceases to be a member in accordance with the provisions of the Act, he continues to be a member. Even a bankrupt is held to be a member of the company so long as his name is on the register. No provision has been shown to us in the Act under which after the company is wound up, the name of the member stands erased from the register of members and he ceases to be a member. On this ground also, a member can make the application under section 391 of the Act even if the company is being wound up. Counsel for the liquidator vehemently argued that a literal construction of section 391 clearly shows that in case a company is being wound up, it is the liquidator alone who can file an application for compromise or arrangement with the creditors or the members. It also finds support from section 457(1)( a ) of the Act according to wh ..... 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