The State of Madras vs The Madras Electric Tramways Limited

P.V. Rajamannar, C.J.—This is an appeal against the order of Balakrishna Ayyar, C.J., winding up the Madras Electric Tramways (1904),

Limited, on an application made on behalf of the company by one J.B. Beardsell, purporting to be its duly constituted attorney. The petition was

filed u/s 271of the Indian Companies Act. The Petitioner is a limited liability company incorporated under the English Companies Act with its

registered office in England. The principal place of business of the company, however, is situated in Madras. The company purchased in 1904

from the Electric Construction Company, Limited, which was then carrying on the business of running tramways in the City of Madras, its

undertaking at Madras including the tramways and thereafter the company ceased to carry on its business of running tramways in the City of

Madras, under the powers granted to them by the Government of Madras by various orders under the provisions of the Indian Tramways Act,

1886. On 11th April 1953, the receiver appointed by the trustees for the mortgagee-debenture holders of the company, took possession of its

undertaking and all its assets and thereafter the company ceased to carry on its business. The Government, thereupon, by notification, dated the

29th September 1953, declared the powers of the company, conferred on it by the Indian Tramways Act, and by orders and rules made under the

Act as to the construction, maintenance and use of the tramways to be at an end. The two grounds alleged to justify a winding up were (i) the

company had ceased to carry on business and (ii) the company was unable to pay its debts. The Petitioner prayed that the company may be

wound up by the Court as an unregistered company under the provisions of the Indian Companies Act. The attorney who filed the petition on

behalf of the company filed an affidavit stating that he was the duly constituted attorney of the company authorised to file the petition for winding

up. Two of the creditors of the company supported the application by affidavits. Notice of the petition was given to persons desirous of supporting

or opposing the application. The State of Madras appeared and opposed the petition. In the counter-statement filed on their behalf, none of the

facts alleged in the petition was denied. The only plea that was taken was that the petition purporting to be by the company was not maintainable.

The objection to the maintainability of the petition was thus set out:

The provisions relating to the winding up of a foreign company pertain to its Indian branch which is statutorily allowed to be wound up for the

protection of Indian nationals. The Indian Courts cannot deal with and an Indian Order will not operate on the company in England. The company

itself cannot treat itself as two companies. Accordingly a foreign company cannot itself petition for winding up as an unregistered company. While

under Sections 162 and 166 of the Indian Companies Act, 1913, in so far as they relate to winding up by the Court are inapplicable, even under

those sections a company can petition under Sub-section 1 of Section 162 on the basis of a special resolution. This or the company provisions in

the English Act would apply only to a company in England and not in India.

Besides this legal plea, it was also stated that as the Petitioner''s company supported the debenture-holders in their claim to keep the entire

assets in India outside the winding up, the petition was meaningless from its point of view and was an abuse of the process of the Court and was

intended only to prejudice the claim of the State of Madras and Indian creditors. Balakrishna Ayyar, J., overruled the objections of the State and

directed by his order, dated 20th January 1954, that the company be wound up and appointed the Official Receiver of Madras as the Official

Liquidator of the company for the purpose of winding up of the company. The State of Madras has filed this appeal against the order.

The learned Advocate-General for the State of Madras developed his argument with far more precision than was attempted in the counter-

statement. His first contention was that a foreign company doing business in India cannot, under any circumstance, itself file an application for being

wound up. He admitted, and it is common ground, that a foreign company doing business in India can be wound up as an unregistered company.

His point was that it could be done only at the instance of a creditor or contributory, but not at the instance of the company itself. Part IX of the

Indian Companies Act deals with the winding up of unregistered companies. It is not disputed that the Petitioner will fall within the meaning of an

unregistered company"". Section 271(1) in so far as it is material for this appeal runs as follows:

Section 271(1): Subject to the provisions of this part, any unregistered company may be wound up under this Act, and all the provisions of this Act

with respect to winding up shall apply to an unregistered company, with the following exceptions and additions:

(i) an unregistered company shall, for the purpose of determining the Court having jurisdiction in the matter of the winding up, be deemed to be

registered in the province where its principal place of business is situate or, if it has a principal place of business situate in more than one province,

then in each province, where it has a principal place of business; and the principal place of business situate in that province in which proceedings

are being instituted shall, for all the purpose of the winding up, be deemed to be the registered office of the company;

(ii) no unregistered company shall be wound up under this Act voluntarily or subject to supervision;

(iii) the circumstances in which an unregistered company may be wound up are as follows (that is to say):

(a) if the company is dissolved, or has ceased to carry on business or is carrying on business only for the purpose of winding up its affairs;

(b) if the company is unable to pay its debts;

(c) if the Court is of opinion that it is just and equitable that the company should be wound up;

Section 271(3) provides for special cases. This sub-section was added in 1936 by an Amending Act. It provides that, where a company

incorporated outside India which has been carrying on business in India ceases to carry on business in India, it may be wound up as an

unregistered company under Part IX, notwithstanding that it has been dissolved or otherwise ceased to exist as a company under or by virtue of

the laws of the company under which it was incorporated. Section 276 enacts that the provisions of that Part IX with respect to unregistered

companies shall be in addition to, and not in restriction of, any provisions in the Act contained with respect to winding up a company by the Court.

But an unregistered company shall not, except in the event of its being wound up, be deemed to be a company under the Act, and then only to the

extent provided by that part.

The learned Advocate-General confessed that there was nothing in Part IX of the Act which expressly prohibited a foreign company from

presenting a petition for winding it up. According to him, this prohibition must be implied because of the disabilities under which a winding up Court

would suffer in the case of foreign companies because of the possibility of large assets being situate outside the jurisdiction of Indian Courts and

because the order of winding up passed by an Indian Court would not per se bind the company in the country of incorporation. The idea behind

this contention was that a foreign company with large assets outside India and very little assets in India may incur large debts in India and then

apply to be wound up as an unregistered company under the Indian Companies Act, with the result that Indian creditors would be deprived of the

foreign assets of the company. The provisions of the Indian Companies Act, which enable a foreign company to be wound up as an unregistered

company in this country, according to the learned Advocate-General, were intended for the benefit of the creditors in India, principally Indian

nationals, and not to enable a foreign company to escape from liability in case the assets within India were unable to meet its liabilities. Whether the

assumption of the learned Advocate-General is correct or not, we do not wish to say in this appeal. We will only say that such a situation might

well arise even when a company incorporated under the Indian Companies Act has large assets outside India.

It was not denied by the learned Advocate-General that Section 166 will apply to the winding up of unregistered companies as well. Under that

section an application to the Court for the winding up of a company can be presented either by the company or by any creditor or contributory.

There is nothing in Section 271 or any other provision of Part IX which excepts this provision of Section 166 in the case of an unregistered

company. The learned Advocate-General cited to us the decisions in Russian and English Bank and Florance Montefiore Guedalla v. Baring

Brothers & Co. (1936) A.C. 405, Re Banque Des Marchands De Moscou (1954) 2 All. E.R. 746 and Rudow v. Great Britain Mutual Life

Assurance Society (1881) 17 Ch. D. 600, 611 and cited a passage in Dicey''s Conflict of Laws, sixth edition, page 294; but we have been unable

to derive any assistance from any of them on this point. We are unable, therefore, to accept this contention of the learned Advocate-General.

The next contention was that even assuming that a foreign company as an unregistered company can file a petition for. winding it up, it can do so

only when the company at a meeting of its shareholders has resolved to file such a petition. In the present case, there has been no such decision or

resolution. Though the Directors may have large powers in the conduct of the affairs of the company; they cannot themselves decide to put an end

to the corporate existence of company. He sought support for this contention in the provisions of Section 162 of the Indian Companies Act as

interpreted by him. That section runs as follows:

A company may be wound up by the Court--

(i) if the company has by special resolution resolved that the company be wound up by the Court;

(ii) if default is made in filing the statutory report or in holding the statutory meeting;

(iii) if the company does not commence its business within a year from its incorporation, or suspends its business for a whole year;

(iv) if the number of members is reduced, in the case of a private company, below two or, in the case of any other company, below seven;

(v) if the company is unable to pay its debts;

(vi) if the Court is of opinion that it is just and equitable that the company should be wound up.

According to the learned Advocate-General, it follows from the provisions of this section that a company can be wound up by the Court on an

application by the company only if the requirement of Clause (i) is complied with, that is to say, only if the company has by special resolution

resolved that the company be wound up by the Court. In the absence of such a resolution, even if one or other of the other conditions in Clauses

(ii) to (vi) is satisfied, the directors on behalf of the company cannot file a petition for winding up the company. There is nothing in Section 162 or

Section 166 of the Indian Companies Act which compels one to come to this conclusion. The only direct authority which the learned Advocate-

General was able to cite in support of his contention is a decision in In Re Galway and Salthill Tramways Co. (1918) 1 Ir. R. 62. There the

directors of a company presented a winding up petition in the name of the company. An objection was taken by some of the shareholders who

opposed the petition that the petition not having been authorised by a meeting of the shareholders was incompetent. O''connor M.R., held that the

directors as such had no power to present the petition. This was because the powers of the directors were only powers of managing, and the

object of management is the working of the company''s undertaking, while the object of a windup is its stoppage. Therefore, the power of the

directors would not include a power to bring about the stoppage of the company''s affairs without the authority of the shareholders. The learned

Master of the Rolls, however, did not think it fit to dismiss the petition on this ground. In his opinion the proper course to adopt was to adjourn the

hearing so as to enable the directors duly to summon a meeting of the shareholders with the object of getting authority from them to proceed on the

petition, because it was open to the company to ratify the unauthorised proceeding of the directors. Though this case was decided in 1917, the

learned Advocate-General could not give any instance where the decision was followed in the English Courts. On the other hand in Palmer''s

Company Law, nineteenth edition (1949), this decision is dealt with thus:

Petitions by the company are not very common; for if a company desires to wind up, it has only to pass a special resolution, or an extraordinary

resolution for voluntary winding up. But if the directors find the company to be insolvent owing to matters which ought to be investigated by the

Court, it may well be that their proper course is to apply at once to the Court by petition for a compulsory order. It has been held in Ireland that

the directors cannot present a petition in the name of the company without the sanction of a general meeting; but there seems to be no justification

for this ruling in the words of the Act and it has not been followed in English cases. In any case a general meeting can ratify the action of the

directors.

In Palmer''s Company Precedents, sixteenth edition (1952), Part II, we have a more definite statement as to the practice in England:

Where the company gets into great difficulties, the directors, acting on the company''s behalf occasionally present a petition for winding up, but

such petitions are rare.

It has been held in an Irish Case that the directors cannot present the petition without authority of a general meeting. This decision is, however, not

followed in England, and many orders have been made on petition presented by the directors without the sanction of a general meeting.

The petition in City Equitable Fire Insurance Co. In re. (1925) 1 Ch. 407 appears to be one such instance.

We are inclined to follow the practice in England to which reference is made in Palmer''s text-books.

Even assuming that the Irish precedent should be followed by us, the petition cannot be dismissed, but it should be adjourned to enable the

directors to summon a meeting of the shareholders and obtain their authority. We are not sure if this is what the learned Advocate-General wants,

because it is obvious that the shareholders are not against this petition; as by this time they should have been aware of the proceeding and no one

has come up to protest against the action of the directors. The shareholders must, in the circumstances, be deemed to have impliedly ratified the

action of the directors.

Our attention was also drawn to the decision of a single learned Judge of the Pepsu High Court in In re Patiala Banaspati, etc. Co. AIR 1953

Pepsu 195, which certainly supports his contention but, with respect, we are not inclined to follow it.

The argument of the learned Advocate-General that the directors only cannot put an end to the company''s existence by filing a winding up

petition does not appeal to us because the Court is not bound to direct a winding up merely because the directors have presented a petition. The

Court will make a winding up order only if it is satisfied that the requirements of the law are satisfied and the facts justify the course. Moreover, it

will be open to the shareholders to oppose the petition and to appraise the Court of the fact that the majority of the shareholders are opposed to

the petition. It will be then open to the Court before passing final orders to have a meeting of the shareholders convened to ascertain the wish of

the majority.

Article 99 of the Articles of Association of the Petitioner company provides inter alia that the Directors,

may exercise all such powers and do all such acts and things as may he exercised or done by the Company, and are not hereby or by statute

expressly directed or required to be exercised or done by the Company in or with the consent of a General Meeting.

It is not suggested that there is any statutory provision expressly requiring the consent of a general meeting for the presentation of a winding up

petition. It follows, therefore, that the directors have the power to do what the company could have done, namely, to present the petition. We

agree with Balakrishna Ayyar, J., that the petition was validly presented.

The appeal fails and is dismissed with costs.