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Judgment
Capoor, J.—This is a petition under sections 518, 522 and 524 of the Companies Act, (No. 1 of 1956) (hereinafter to be referred to as the Act). The petitioners are three : Gurdayal, Ram Dayal and Smt. Vidya Vati, and together they hold eight shares of Rs. 4,000/- each, fully paid-up, in the Kulu valley Transport Private Limited (in liquidation) (hereinafter to be referred to as the Company), The total paid up capital of the Company is Rupees five lacs (Rs. 5,00,000/-) divided into 125 shares of Rs. 4,000/- each. The Northern Railway holds 35 shares, the Himachal Pradesh Administration holds 77 shares and the balance of the 5 shares are held by four other shareholders.
The facts giving rise to this petition are not in dispute. In 1959 the assets and business of the Company were taken over by the Mandi Kulu Road Transport Corporation, Mandi, of which the shareholders are Himachal Pradesh Administration to the extent of 40 per cent., Punjab Government to the extent of 40 per cent and Northern Railway to the extent of 20 per cent. Certain disputes arose between the Company and the Corporation with regard to the payment of compensation for the route permits of the Company taken over by the Corporation in respect of which the company has claimed Rs. 2,07,000/-, which claim, however, is disputed by the Corporation. A considerable amount is also said to be due to the Company on account of mail subsidy from the Postal Department and there are some disputes between the Company and the Northern Railway. On the 14th of May i963 an extraordinary general meeting of the Company was held in which a resolution to wind up the Company vouluntarily was passed. Shri D.B. Lall (respondent No. 2), who is Judicial Secretary to the Himachal Pradesh Administration, was appointed Voluntary Liquidator on a remuneration of Rs. 450/- per mensem subject to a ceiling of Rs. 16,000/-. At this meeting resolutions were also passed approving of the action of the Board of Directors in agreeing to refer to arbitration that disputes of the Company with the Mandi Kulu Road Transport Corporation as regards (a) compensation for the route permits transferred to the Corporation, (b) the dues on account of mail subsidy from the Postal Department, and (c) the claims and counter-claims with the Northern Railway. The petitioners while attending the meeting voted against these resolutions, while the nominees of the Northern Railway and of the Himachal Pradesh Administration voted in favour of the resolutions.
In the petition the grievances of the petitioners are as follows:
(1) The power to refer the disputes to arbitration is not available to the Liquidator in a winding-up, whether voluntary or official, nor can the shareholders give any such power to him
(2) the remuneration fixed for the Voluntary Liquidator is exorbitant.
(3) The resolutions which are passed by the Board of Directors of the Company in the meetings held on the 6th and 7th of September 1961 to the effect that the liabilities incurred before the Himachal Pradesh Administration joined as a shareholder and paid off by the reconstituted Company be debited to the account of the old shareholders holding 48 shares in the Company prior to September 1953 is invalid. It is also calculated to favour the Himachal Pradesh Administration, of which respondent No. 2 is the Judicial Secretary, and hence he cannot be expected to act impartially in the matter.
The prayers are:
(1) That a supervision order be passed, with liberty for creditors, contributories and others to apply to the Court in any matter arising out of and in the course of the winding up of the Company;
(2) That respondent No. 2 may be removed from the office of the Voluntary Liquidator and in his place the Official Liquidator attached to this Court may be appointed as Liquidator;
(3) If for any reason the removal of respondent No. 2 is not ordered his remuneration may be substantially reduced; and
(4) That the resolution passed on the 14th of May 1963 authorising the reference of disputes to arbitration may be cancelled and respondent No. 2 may be directed not to act upon that resolution.
The vital question is whether a supervision order u/s 522 of the Act is required to be made in the circumstances of this case. In the return submitted on behalf of the respondents it is maintained that though there has been a certain amount of delay, which was unavoidable, in proceeding with the proposals for arbitration, the Voluntary Liquidator is discharging his duties properly, that the majority of the shareholders are satisfied with the liquidation proceedings and only the petitioners, who own only 8 out of 125 shares, are dissatisfied. I have no reason to hold that respondent No. 2 is not discharging the duties of Voluntary Liquidator properly. All the same, it is evident that in the Mandi Kulu Road Transport Corporation, which has to pay compensation for the route permits, the petitioners have no share, while, so far as the Himachal Pradesh Administration and the Northern Railway are concerned, they have shares in that Corporation as well as in the Company and, so far as they are concerned, they will not be affected whatever the amount of compensation. The petitioners'' apprehension is that their interests may be jeopardised by the award of too little compensation. I do not say that this apprehension is justified, but all the same it is but natural and it would be allayed if the Court steps in to make a supervision order.
Mr. S.M. Sikri on behalf of the respondents pointed out that supervision orders are rarely made and referred to page 756 of Palmer''s Company Law (Twentieth Edition), on which it is stated that the Court will not make a supervision order on a shareholder''s petition against the wishes of a majority, of the other shareholders, unless in very special circumstances, such as if a resolution for voluntary winding up is passed by the preponderating influence of a shareholder whose conduct is impeached, or where investigation is required and the assets are large, or if the petition is supported by creditors. Similar observations have been made in Parmarli Venkataswamy v. Kodanarama Bus Transport Ltd. AIR 1958 A.P. 666 . 668. He contended that none of the circumstances indicated exists in the present case. But the power of the Court to order winding up subject to its supervision, as provided in Section 522 of the Act, is extremely wide and the Court may make such an order whenever it thinks fit and on such terms and conditions as it think just. In this connection it is significant that Section 521 of the Act, as it originally existed and which laid down-
* * * * but in the case of an application by a contributory the Court must be satisfied that the rights of the contributor''s will be prejudiced by a voluntary winding up,
has been omitted by section 181 of the Companies (Amendment) Act, 65 of 1960; and this is an indication that the Court''s power in the matter are unfettered.
u/s 526 of the Act "any order made by the Court for a winding up subject to the supervision of the Court, shall for all purposes, including the staying of suits and other proceedings, be deemed to be an order of the Court for winding up the company by the Court."
Thus all the advantages available u/s 446 of the Act to a company which is being wound up by the Court be available in case supervision order is made in this case and it would not be necessary for the Liquidator to have resort to the civil Courts, so that all the matters can be settled in this Court. This should ordinarily make for expedition as well as economy.
In view of all these considerations I direct u/s 522 of the Act that the voluntary winding up shall continue, but subject to the supervision of the Court, with liberty to the creditors, contributor''s and others to apply to the Court in any matter arising out of and in the course of the winding up of the Company.
No ground has been made out for removal of respondent No. 2 from the office of Voluntary Liquidator or for reduction of his remuneration and these prayers are, therefore, disallowed.
The only remaining question is whether the directions as to reference to arbitration contained in the resolution of the 14th of May 1963 are valid. It has been conceded on behalf of the respondents that the Liquidator, independently of the Company, has no power to refer to arbitration of any dispute between the Company and any other party. It was so held by the Full Bench in Duni Chand & Company v. Narain Dass & Company AIR 1947 Lah. 355 : (1947) 9 P.L.R. 257. It was, however, observed at page 360 of the report that a company can, if so desired, refer matters for arbitration on the ground of expediency in spite of its having gone into liquidation. This was presumably in view of the proviso to section 205 of the Company Act, 1913 (Act No. 7 of 1913), according to which "the corporate state and corporate powers of the company (which is being wound up) shall, notwithstanding anything to the contrary in its articles, continue until it is dissolved." A similar provision appears in section 487 of the Companies Act, 1953. As at present advised, I do not consider that there is any illegality in the Company''s resolution of the 14th of May 1963. But even in the case of voluntary winding-up, the exercise by the Liquidator of the powers to make compromise or arrangement with creditors, contributor''s, etc., is subject to the control of the Court and once the supervision order is made, these powers can be exercised only with the sanction of the Court. In view of the supervision order made by me, it will be necessary for the Voluntary Liquidator to obtain the sanction of the Court before implementing the resolution, dated the 14th of May 1963.
The petition is accepted to the extent indicated above, but in the circumstances I make no order as to costs.