PETITIONER:
M. K. RANGANATHAN AND ANOTHER
Vs.
RESPONDENT:
GOVERNMENT OF MADRAS AND OTHERS.
DATE OF JUDGMENT:
20/04/1955
BENCH:
BHAGWATI, NATWARLAL H.
DAS, SUDHI RANJAN
SINHA, BHUVNESHWAR P.
CITATION:
1955 AIR 604 1955 SCR (2) 374
ACT
Indian Companies Act, (Act VII of 1913), s. 232(1) as
amended by Act XXII of 1936-The words "or any sale held
without leave of the Court of any of the properties of the
Company" added in the section-Whether legislature intended
to make alteration in the low as respects sales effected by
secured creditor-Secured creditor-Whether outside the
winding up-Construction-Presumption against implied
alteration of law.
HEADNOTE
The secured creditor is outside the winding up and can
realism his security without the leave of the winding up
Court, though if he files a suit or takes other legal
proceedings for the realisation of his security he is bound
under s. 171 of the Indian Companies Act to obtain the leave
of the winding up Court before he can do so although such
leave would almost automatically be granted.
375
It is a legitimate rule of construction to construe words in
an Act of Parliament with reference to words found in
immediate connection with them. It is also a well-
recognized rule of construction that the legislature does
not intend to make a substantial alteration in the law
beyond what it explicitly declares either in express words
or by clear implication and that the general words of the
Act are not to be so construed as to alter the previous
policy of the law, unless no sense or meaning can be applied
to those words consistently with the intention of preserving
the existing policy untouched.
Held therefore that having regard to the context in which
the words "any sale held without leave of the Court of any
of the properties" added in s. 232(1) by the amending Act
XXII of 1936 have been used in juxtaposition with "any
attachment, distress or execution put into force without
leave of the Court against the estate or effects" it would
be a legitimate construction to be put upon them that they
refer only to sales held through the intervention of the
Court and not to sales effected by the secured creditor
outside the winding up and without the intervention of the
Court, and that the amendment was not intended to bring
within the sweep of the general words sales effected by the
secured creditor outside the winding up.
Held accordingly that in the present case the sale effected
by respondent No. 2 as the receiver of the trustees of the
debenture holders in July 1954 was valid and binding on all
parties concerned and could not be challenged as it was
sought to be done by the Official Receiver.
Food Controller v. Cork(1923 A.C. 647), Kayastha Trading and
Banking Corporation Ltd. v. Sat Narain Singh ([1921] I.L.R.
43 All. 433), Baldeo Narain Singh v. The United India Bank
Ltd. ([1915] 38 I.C. 91), State of West Bengal v. Subodh
Gopal Bose and others (1954 S.C.R. 587), Angus Robertson and
others v. George Day (L.R. [1879] 5 A. C. 63), Murugian, P.
v. Jainudeen, C. L. ([1954] 3 W.L.R. 682), National
Assistance Board v. Wilkinson ([1952] 2 Q.B. 648), Vasudeva
Mudaliar and others v. Srinivasa Pillai and another ([1907]
I.L.R. 30 Mad. 426) and The Governor-General in Council v.
Shiromoni Sugar Mills Ltd. (In Liquidation) (1946 F.C.R.
40), referred to.
JUDGMENT
CIVIL APPELLATE JURISDICTION: Civil Appeal No. 20 of 1955.
Appeal from the Judgment and Order dated the’ 29th day of
September 1954 of the High Court of Judicature at Madras in
Original Side Appeal No. 113 of 1954 arising out of the
order dated the 9th day of August 1954 of the said High
Court in its Ordinary Original Civil Jurisdiction in
Application No. 3542 of 1954.
376
C. K. Daphtary, Solicitor-General for India (H. J.
Umrigar, Mohan Kumaramangalam and Rajinder Narain, with him)
for the appellants.
B. H. Dhebar and P. G. Gokhale for respondent No. 1.
Samarendra Nath Mukherjee and B. N. Ghose for respondent No.
2.
N. P. Engineer, (B. Moropant and V.J. Taraporewala, with
him) for respondent No. 3.
1955. April 20. The Judgment of the Court was delivered by
BHAGWATI J.-This appeal with a certificate under article 133
(1) (c) of the Constitution is directed against the judgment
of the High Court of Judicature at Madras dismissing the
appeal of the Appellants and refusing to set aside a sale
effected by Respondent 2 of certain properties belonging to
the Madras Electric Tramways (1904) Ltd. hereinafter called
the Company, above the ground at Vepery, Madras and
Mylapore, including the machinery cars, etc. and buildings
as scrap to Respondent 3 in his capacity as the Receiver of
the trustees of the debenture holders of the Company.
The Appellants are the Secretary and President respectively
of the Madras Tramways Workers Association (Registered No.
1253) a Trade Union registered under the Trade Unions Act.
The workmen employed by the Company are entitled under the
award of the Special Industrial Tribunal, Madras in I. D.
No. 9 of 1953 published in the Fort St. George Gazette,
dated the 8th July, 1953 being G. 0. Ms. No. 3024/53 to a
payment of nearly Rs. 7,00,000 out of which the workers
belonging to the Madras Tramways Workers Association alone
would be entitled nearly to a sum of Rs. 4,35,000 and are
thus the major creditors of the Company. The Company was
incorporated in England with its principal office situated
at No. 1, Rundalls Road, Vepery, Madras-7 and was running
the Tramway Service in Madras with licence issued to it by
the Government under the Tramways Act. It had issued
377
1300 First Debentures of CIOO each and the debenture-holders
had appointed the Beawer Trust Ltd., England as trustees.
By an Indenture made in England on the 13th October 1924 the
Company charged by way of first charge in favour of the
trustees all its undertaking properties and assets for the
time being both present and future including its uncalled
capital with the payment of all moneys for the time being
owing on the security of the debentures and such charge was
to rank as a floating charge. By two subsequent deeds made
at Madras dated the 26th March, 1925 and 6th July, 1950
certain immovable properties belonging to the company were
mortgaged in favour of the said trustees. The said Trustees
appointed Respondent 2, the Managing Director of the Company
and day to day management of the Tramway Service and of the
business of the Compay, as their Receiver. He took
possession as such Receiver,, from the midnight of 11th
April, 1953 of all the assets of the Company including
moneys in the bank to the credit of the Company and after
that date the Tramways Service was suspended and still
remains suspended.
One J. B. Beardsell, one of the Directors of the Company
filed O. P. No. 419 of 1953 as the duly constituted Attorney
of the Company for winding up the Company on the ground that
it was unable to pay its debts and that it bad ceased to
carry on its business. An order for the winding up of the
Company was made by the Court on the 20th January, 1954 and
the Official Receiver, High Court, Madras, was appointed the
Official Liquidator. Since all the assets including the
moneys of the Company were in possession of Respondent 2,
the Official Receiver was unable to take charge of anything
except the records of the Company.
Soon after the order for winding up the Respondent 2
advertised in the newspapers on the 23rd January, 1954 for
the sale of the properties and assets of the Company. At
the end of the conditions of sale he stated in paragraph 7
that "the sales are for the time being subject to the
approval of the High Court
378
at Madras and it will be for the undersigned to obtain such
approval for accepted offers free of all costs to the
purchaser".
At the time of the order of winding up, two suits were
pending in the High Court, C.S. No. 191 of 1952 filed by the
Company against the State of Madras for Rs. 1,33,204-9-0 and
interest thereon being electric charges alleged to have been
collected by the State of Madras in excess of those payable
by the Company and paid by the company under protest and
C.S. No. 368 of 1953 filed by the State of Madras against
the Company for the recovery of Rs. 9,26,123-2-3 with
interest thereon, being the difference alleged to be due in
respect of the electric charges under the old rates and the
revised rates applicable to the Company. During the
pendency of the said suits Respondent 2 gave an undertaking
in Application No. 4533 of 1953 in Civil Suit No. 368 of
1953 that he would not without the orders of the High Court
dispose of any of the assets of the Company which were in
his possession till the disposal of the suit C.S. No. 368 of
1953. The two suits aforesaid were tried together and were
disposed of by a common judgment on the 16th March 1954.
On the 16th July 1954 Respondent 2 agreed to sell and
Respondent 3 agreed to buy the movable properties of the
Company the particulars of which were set out in the
agreement entered into on that date, for a price of Rs.
4,01,658 of which half was paid on the signing of the
agreement and the other half was agreed to be paid out of
the proceeds of sale to be made by the purchasers of the
assets as scrap.
On the 23rd July 1954 the Official Receiver, High Court,
Madras (Respondent 5 herein) filed an application No. 3542
of 1954 for setting aside the said sale of the assets of the
Company on the grounds, inter alia, that it was prejudicial
to the interests of the General body of unsecured creditors,
that the same had been concluded with undue haste and
without adequate publicity and in violation of Respondent
2’s said undertaking to the Court. It also asked for an
injunction restraining the Respondent 2 from
379
handing over and the Respondent 3 from either taking over or
breaking up the assets purchased by him pending, the
disposal of the said application.
This application was based on a report of the Official
Receiver in which after setting out the relevant facts he
submitted that even though under section 229 of the Indian
Companies Act the Company which was admittedly insolvent was
governed by rules prevailing with regard to the respective
rights of the secured and unsecured creditors and to debts
provable and valuation of annuities governing the
administration in insolvency and secured creditors generally
stood outside the liquidation and were entitled to have the
remedy of realising the security and proving before him for
the deficiency, if the properties of the Company could be
sold for a price higher than the amount due to the Trustees
of the debenture holders there was a possibility of a
surplus coming into his bands for the benefit of the
unsecured creditors. If the Respondent 2 proved before him
for any deficiency due to the secured creditors, it would
certainly affect the rights of unsecured creditors, and
moreover though the secured creditors might realise the
security, it will be in the interests of the unsecured
creditors to see that a fair and proper price was obtained.
He therefore submitted that in the interests of the
unsecured creditors it was just and necessary to have a fair
valuation ascertained and an enquiry held to ascertain
whether the sale by the Respondent 2 in favour of Respondent
3 was bona fide and for a proper price. Respondent 2 filed
an affidavit in reply in August 1954 contending inter alia,
(1) that the offer by the Respondent 3 was the highest, that
he had received and that this had been accepted bona fide,
(2) that in the advertisement the condition as to the
previous sanction of the Court was inserted because of the
undertaking that be had given to the Court in C.S. No. 368
of 1953 and that this undertaking lapsed with the dismissal
of the said suit on the 16th March 1954, (3) that he had
been advised by the Solicitors in England for the debenture
trustees that it was unnecessary for him to obtain
380
the sanction of the Court and that he had been instructed
not to apply for such sanction and (4) that the sale was
bona fide and he had secured as good a price as could be
obtained.
By its judgment and order dated the 9th August 1954 Mr.
Justice Balakrishna Ayyar (in Chambers) dismissed the said
application with costs. The learned Judge held that the
question whether Respondent 2 had violated the undertaking
given by him was not germane to the application before him,
that undoubtedly the Respondent 2 did give wide publicity of
his intention to sell the assets of the Company, that it
could not be said that the sale was sub rosa on the ground
of want of wide publicity to the intended sale of the
Company’s assets and that the Respondent 3’s offer was the
best offer received by the Respondent 2 looking both to the
abstract of offers appended to the affidavit of the
Respondent 2 in the said application, and looking to the
other offers pointed out to him by Respondent 5. The learned
Judge further referred to the offer of the Corporation of
Madras and said that the said Corporation had not made any
firm offer at all and that the offer of one A. Chettiar of
Rs. 4,25,000 made on 5th August 1954 during the hearing of
the application was an offer made by a person who did not
appear to him to be of a man of sound financial status. The
learned Judge in his judgment also recorded the fact that
during the hearing of the application the Respondent 3
offered to sell to the Madras Municipal Corporation the
entire assets he had purchased at the same price which he
paid for it but the Corporation were not prepared to accept
the offer.
The Respondent 5 accepted the said judgment and decision and
did not prefer any appeal against the same. But the
Appellants who were not parties to the proceedings applied
for and obtained from the High Court leave to appeal from
the said decision. This appeal also was dismissed by the
High Court with costs on the 24th September 1954. The High
Court differed from the finding of the Trial Court and held
that due publicity had not been given to the
381
intended sale and observed that if the matter rested merely
on a decision of that point they would have allowed the
appeal and set aside the sale. They how-’ ever held that in
the absence of fraud or want of bona fides on the part of
the seller along with that of the buyer the sale in favour
of the Respondent 3 could not be set aside. The High Court
further considered the question whether the said sale was
void as being without the leave of the Court in view of
section 232 of the Indian Companies Act and answered that
question in the negative. The High Court further held that
a secured creditor had a right to realise his security
without seeking the assistance of the court and remaining
outside the winding up.
Being aggrieved by the said judgment and decree of the High
Court the Appellants applied for leave to appeal to this
Court and such leave was granted by the High Court on the
24th September 1954.
The bona fides of the Respondent 2 in the matter of the sale
were not challenged either in the Courts below or before us
and there were concurrent findings of fact that the price
obtained by Respondent 2 was the best price available under
the circumstances. It was however urged by the learned
Solicitor-General for the Appellants:-(I) that the High
Court, having found that due publicity had not been given to
the intended sale, ought not to have allowed the Respondent
3 at that stage to raise the question as to whether the
Court had any power or jurisdiction to set aside the sale
except on the ground that it was vitiated by fraud or for
want of bona fides and (2) that the saleby Respondent 2
being a sale held without leave of the winding up Court was
void under section 232(1) of the Indian Companies Act. The
High Court bad allowed the Respondent 3 to raise the
question even at that late stage inasmuch as it was a pure
question of law and the learned Solicitor-General therefore
rightly did not press the first contention before us. The
main argument centered round the second contention, viz.,
whether the sale effected by the Respondent 2 without leave
of - the winding up Court was void and hence liable to be
set aside.
382
The decision of this question turns upon the true
construction of section 232 of the Indian Companies ’Act,
which runs as under:-
"(I) Where any company is being wound up by or subject to
the supervision of the Court, any attachment, distress or
execution put in force without leave of the Court against
the estate or effects or any sale held without leave of the
Court of any of the properties of the company after the
commencement of the winding up shall be void.
(2) Nothing in this section applies to proceedings by the
Government".
It may be noted that the words "or any sale held without
leave of the Court of any of the properties" underlined
above were inserted by Act XXII of 1936. Before this
amendment section 232(1) was almost in identical terms with
section 228(1) of the English Companies Act of 1948.
Two other sections of the Indian Companies Act may be noted
in this context, viz. section 171:"When a winding up order
has been made or a provisional liquidator has been appointed
no suit or other legal proceeding shall be proceeded with or
commenced against the company except by leave of the Court,
and subject to such terms as the Court may impose."
and Section 229:-
"In the winding up of an insolvent company the same rules
shall prevail and be observed with regard to the respective
rights of secured and unsecured creditors and to debts
provable and to the valuation of annuities and future and
contingent liabilities as are in force for the time being
under the law of insolvency with respect to the estates of
persons adjudged insolvent; and 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 by virtue of this section;"
which correspond respectively to sections 231 and 317 of the
English Companies Act of 1948.
383
The position of a secured creditor in the winding up of a
company has been thus stated by Lord Wrenbury in Food
Controller v. Cork(1):
"The phrase ’outside the winding up’ is an intelligible
phrase if used, as it often is, with reference to a secured
creditor, say a mortgagee. The mortgagee of a company in
liquidation is in a position to say "the mortgaged property
is to the extent of the mortgage my property. It is
immaterial to me whether my mortgage is in winding up or
not. I remain outside the winding up’ and shall enforce my
rights as mortgagee". This is to be contrasted with the
case in which such a creditor prefers to assert his right,
not as a mortgagee, but as a creditor. He may say ’I will
prove in respect of my debt’. If so, he comes into the
winding up".
It is also summarised in Palmer’s Company Precedents Vol.
II, page 415:
"Sometimes the mortgagee sells, with or without the
concurrence of the liquidator, in exercise of a power of
sale vested in him by the mortgage. It is not necessary to
obtain liberty to exercise the power of sale, although
orders giving such liberty have sometimes been made".
The secured creditor is thus outside the winding up and can
realise his security without the leave of the winding up
Court, though if he files a suit or takes other legal
proceedings for the realisation of his security he is bound
under section 231 (corresponding with section 171 of the
Indian Companies Act) to obtain the leave of, the winding up
Court before he can do so although such leave would almost
automatically be granted. Section 231 has been read
together with section 228(1) and the attachment,
sequestration, distress or execution referred to in the
latter have reference to proceedings taken through the Court
and if the creditor has resort to those proceedings he
cannot put them in force against the estate or effects of
the Company after the commencement of the winding up without
the leave of the winding up Court. The
(1) 1923 Appeal Cases 647.
49
384
provisions in section 317 are also supplementary to the
provisions of section 231 and emphasise the position of the
secured creditor as one outside the winding up, the secured
creditor being, in regard to the exercise of those rights
and privileges, in the same position as he would be under
the Bankruptcy Act.
The corresponding provisions of the Indian Companies Act
have been almost bodily incorporated from those of the
English Companies Act and if there was nothing more, the
position of the secured creditor here also would be the same
as that obtaining in England and he would also be outside
the winding up and a sale by him without the intervention of
the Court would be valid and could not be challenged as void
under section 232(1) of the Indian Companies Act.
It was however urged that the addition of the words "or any
sale held without leave of the Court of any of the
properties" had changed the position of the secured creditor
and even though the secured creditor realised the security
without the intervention of the Court such sale, if effected
by him without the leave of the winding up Court, was void.
It was pointed out that these words did not find their place
in the corresponding section 228(1) of the English Companies
Act and therefore even though any attachment, distress or
execution put in force without leave of the Court against
the estate or effects of the company after the commencement
of the winding up was void under the terms of the section
232(1) as it originally stood, the words "or any sale held
without leave of the Court of any of the properties" of the
company were wide enough to include not only a sale held
through the intervention of the Court but also a sale
effected by the secured creditor without the intervention of
the Court whether the sale was by private treaty or by
public auction. It was contended on the other hand on
behalf of the contesting Respondent, Respondent 3, that the
amendment was made in order to get over the decision of the
Allahabad High Court in Kayastha Trading and Banking
Corporation Ltd. v.
385
Sat Narain Singh(1) and that in any event on a true
construction of section 232(1) as amended the words "any
sale held" had reference in the context only to sales held
by or effected through the intervention of the Court and not
sales effected by the secured creditor without the
intervention of the Court.
The decision of the Allahabad High Court above referred to
had held on a construction of section 232(1) as it then
stood, that an execution was not put in force merely when
the property of the judgment debtor was sold in pursuance
thereof, but it was put in force when the property was
attached and hence where the property of an insolvent
company was attached prior to the date of the commencement
of the winding up but was actually sold subsequent to such
date, the sale was not void and could be upheld. There was
an earlier decision of the Patna High Court in Baldeo Narain
Singh v. The, United India Bank Ltd.(1) in which a contrary
decision had been reached exactly under similar
circumstances. It is well-known that this conflict was
resolved and the decision of the Allahabad High Court was
got over by inserting this amendment by Act XXII of 1936.
The statement of objects and reasons is certainly not
admissible as an aid to the construction of a statute. But
it can be referred to for the limited purpose of
ascertaining the conditions prevailing at the time which
actuated the sponsor of the Bill to introduce the same and
the extent and urgency of the evil which he sought to
remedy. State of West Bengal v. Subodh Gopal Bose and
Others(3). The amendment of section 232(1) inserted by Act
XXII of 1936 was designed to prevent such sales as were
upheld by the decision of the Allahabad High Court in
Kayastha Trading and Banking Corporation Ltd. v. Sat Narain
Singh(1) and it would be permissible to refer to that
portion of the statement of objects and reasons for the
purpose of ascertaining the extent and urgency of the evil
which was sought to be remedied by introducing the
amendment. It follows therefore that the
(1) [1921] I.L.R. 43 Allahabad 433 (2) [1915] 38 Indian
Cases 91.
(3) [1954] S.C.R. 587, 628.
386
amendment could not have been intended to bring within the
sweep of the general words "or any sale held without the
leave of the Court of any of the properties" sales effected
by the secured creditor outside the winding up.
Even apart from this intendment there are certain canons of
construction which also tend to support the same conclusion.
Prior to the amendment the law was well-settled both in
England and in India that the secured creditor was outside
the winding up and he could realise his security without the
intervention of the Court by effecting a sale of the
mortgaged premises by private treaty or by public auction.
It was only when the intervention of the Court was sought
either by putting in force any attachment, distress or
execution within the meaning of section 232(1) as it stood
before the amendment or proceeding with or commencing a suit
or other legal proceedings against the company within the
meaning of section 171 that leave of the Court was necessary
and if no such leave was obtained the remedy could not be
availed of by the secured creditor. The sale of the
mortgaged premises was also brought by the amendment on a
par with the attachment, distress or execution put in force
at the instance of the secured creditor and having regard to
the context such sale could only be construed to be a sale
held through the intervention of the Court and not one
effected by the secured creditor outside the winding up and
without the intervention of the Court.
It is a well-recognised rule of construction that "when two
or more words which are susceptible of analogous meaning are
coupled together noscunter a sociis, they are understood to
be used in their cognate sense. They take, as it were,
their colour from each other., that is., the more general is
restricted to a sense analogous to the less general.
(Maxwell on Interpretation of Statutes, Tenth Edition, p.
332). The Judicial Committee of the Privy - Council also
expressed itself in similar terms in Angus Robertson &
Others v. George Day(1):-
(1) [1879] L.R. 5 A.C. 63, 69.
387
"It is a legitimate rule of construction to construe words
in an Act of Parliament with reference to words found in
immediate connection with them".
Having regard therefore to the context in which these words
"any sale held without leave of the Court of any of the
properties" have been used in juxtaposition with "any
attachment, distress or execution put into force without
leave of the Court against the estate or effects" it would
be a legitimate construction to be put upon them that they
refer only to sales held through the intervention of the
Court and not to sales effected by the secured creditor
outside the winding up and without the intervention of the
Court.
There is also a presumption against implicit alteration of
law and that is enunciated by Maxwell on Interpretation of
Statutes, 10th Edition, at page 81 in the following terms:-
"One of these presumptions is that the legislature does not
intend to make any substantial alteration in the law beyond
what it explicitly declares, either in express terms or by
clear implication, or, in other words, beyond the immediate
scope and object of the statute. In all general matters
outside those limits the law remains undisturbed. It is in
the last degree improbable that the legislature would
overthrow fundamental principles, infringe rights, or depart
from the general system of law, without expressing its
intention with irresistible
clearness.......................... This passage from
Maxwell was approved of by Their Lordships of the Privy
Council in Murugian, P. v. Jainudeen, C. L.(1) and Their
Lordships agreed that the law was correctly stated in the
passage just cited. To the same effect are also the
observations of the Court of Appeal in National Assistance
Board v. Wilkinson(1) where it was held that the Statute is
not to be taken as affecting a fundamental alteration in the
general law unless it uses words pointing unmistakably to
that conclusion. In that case at page 658 Lord Goddard,
C.J. observed:-
(1) [1954] 3 Weekly Law Reports 682, 687,
(2) [1952] 2 Q.B. 648
388
"But it may be presumed that the legislature does not intend
to make a substantial alteration in the law beyond what it
expressly declares. In Minet v. Leman(1), Sir John Romilly,
M. R. stated as a principle of construction which could not
be disputed that ’the general words of the Act are not to be
so construed as to alter the previous policy of the law,
unless no sense or meaning can be applied to those words
consistently with the intention of preserving the existing
policy untouched’ ".
If the construction sought to be put upon the words "or any
sale held without leave of the Court of any of the
properties" by the Appellants were accepted it would effect
a fundamental alteration in the law as it stood before the
amendment was inserted in section 232(1) by Act XXII of
1936. Whereas before the amendment the secured creditor
stood outside the winding up and could if the mortgage deed
so provided, realise his security without the intervention
of the Court by effecting a sale either by private treaty or
by public auction, no such sale could be effected by him
after the amendment and that was certainly a fundamental
alteration in the law which could not be effected unless one
found words used which pointed unmistakably to that
conclusion or unless such intention was expressed with
irresistible clearness. Having regard to the circumstances
under which the amendment was inserted in section 232(1) by
Act XXII of 1936 and also having regard to the context we
are not prepared to hold that the Legislature in inserting
that amendment intended to effect a fundamental alteration
in law with irresistible clearness. Such a great and sudden
change of policy could not be attributed to the Legislature
and it would be legitimate therefore to adopt the narrower
interpretation of those words of the amendment rather than
an interpretation which would have the contrary effect.
(Vide the observations of the Privy Council in Vasudeva
Mudaliar & Others v. Srinivasa Pillai & another(1).
(1) [1855] 20 Beav. 269.
(2) (19O7) I.L.R. 30 Madras 426, 433,
389
It may be observed in this connection that section 171
enacts a general provision with regard to suits or other
legal proceedings to be proceeded with or commenced against
the company after a winding up order has been made and lays
down that no suit or other legal proceedings shall be
proceeded with or commenced against the company except by
leave of the Court and subject to such terms as the Court
may impose. This general provision is supplemented by the
supplemental provisions to be found respectively in sections
229 and 232(1) of the Act. Section 229 speaks of the
application of insolvency rules in winding up of insolvent
companies and section 232(1) speaks of the avoidance of
certain attachments, executions, etc., put into force
without the leave of the Court against the estate and
effects of the company and also of any sale held without the
leave of the Court of any of the properties of the company
after the commencement of the winding up. Section 229
recognises the position of the secured creditor generally as
outside the winding up but enables him in the event of his
desiring to take the benefit of the winding up proceedings
to prove his debt, to value the same and share in the
distribution pro rata of the assets of the company just in
the same way as he would be able to do in the case of
insolvency under the Presidency Towns Insolvency Act or the
Provincial Insolvency Act. Section 232(1) also has
reference to legal proceedings in much the same way as legal
proceedings envisaged by section 171 of the Act and the
attachment, distress or execution put in force or the sale
held are all of them legal proceedings which can only be
resorted to through the intervention of the Court. The word
"held" in connection with the sales contemplated within the
terms of the amended section also lends support to this
conclusion and this conclusion is further fortified by the
terms of section 232(2) which says that nothing in this
section applies to proceedings by the Government, thus in
effect indicating that what are referred to in section
232(1) are proceedings within the meaning of that term as
used in section 171 of the Act.
390
The Federal Court also put a similar construction on the
provisions of section 171 read with section 232(1) of the
Act in The Governor-General in Council v. Shiromani Sugar
Mills Ltd. (In Liquidation)(1)
"Section 171 must, in our judgment, be construed with
reference to other sections of the Act and the general
scheme of administration of the assets of a company in
liquidation laid down by the Act. In particular, we would
refer to section 232. Section 232 appears to us to be
supplementary to section 171 by providing that any creditor
(other than Government) who goes ahead, notwithstanding a
winding-up order or in ignorance of it, with any attachment,
distress, execution or sale, without the previous leave of
the Court, will find that such steps are void. The ref-
erence to "distress" indicates that leave of the Court is
required for more than the initiation of original
proceedings in the nature of a suit in an ordinary Court of
law. Moreover, the scheme of the application of the
company’s property in the pari passu satisfaction of its
liabilities, envisaged in section 211 and other sections of
the Act, cannot be made to work in co-ordination, unless all
creditors (except such secured creditors as are "outside the
winding-up" in the sense indicated by Lord Wrenbury in his
speech in Food Controller V. Cork(1) at page 671) are
subjected as to their actions against the property of the
company to the control of the Court. Accordingly, in our
judgment, no narrow construction should be placed upon the
words "or other legal proceeding" in section 171. ’In our
judgment, the words can and should be held to cover distress
and execution proceedings in the ordinary Courts. In our
view, such proceedings are other legal proceedings against
the company, as contrasted with ordinary suits against the
company". We are therefore of the opinion that the sale
effected by Respondent 2 as the Receiver of the Trustees of
the debenture-holders on the 16th July 1954 was valid and
binding on all parties concerned and could not be challenged
as it was sought to be done by the
(1) [1946] F.C.R. 40, 55.
(2) 1923 A.C. 647.
391
Official Receiver. The position was rightly summed up by
the High Court as under:-
"We thus reach the position that no leave of Court was
needed before the Receiver appointed by the mortgagee
debenture-holders exercised the power of sale and that as
there is no allegation of want of bona fides or recklessness
or fraud against the Receiver in exercising such a power, it
would follow that the sale held by the Receiver is valid and
effectual to convey title to the purchaser and that such a
sale cannot be avoided on the ground either of want of due
notice given by the Receiver before effecting the sale or on
the ground of undervalue".
The result therefore is that the appeal fails and must be
dismissed with costs of the contesting Respondent
3. The other Respondents who have appeared before us will
bear and pay their own costs of the appeal.