P L D 1949 Lahore 242 (PLP)

Bashir Ahmad for Petitioner. Khawaja Nazir Ahmad'for Sh. Rahmat Ullah. Jagan Nath Talwar for Dr. Hira Lal for Objector‑Respondents. Cornelius, J.‑On the 19th January 1948, Sheikh Rahmat Ullah Khan filed a petition for the winding‑up of the Traders' Bank Limited, on the footing that the said Bank was unable to pay its debts. The petition was admitted and notice was issued but immediately after, on the 21st January 1948, the Bank made an application under sections 153 and 153‑A, Indian Companies Act, praying that a meeting of the depositors and members of the Bank should be called with a view to agreeing upon a composition scheme which it was contended would be in the interest of the general body of the depositors. It is pertinent to note that this Bank was established at Lahore, and was registered at this place but sometime in July 1947, in anticipation of the partition of British India, the registered office was transferred to Delhi, and since that time, for the purposes of the Indian Companies Act, the Bank is an "unregistered company" in West Punjab. In their petition the Bank stated that its business was in a flourishing condition until the partition took place when a very large majority of their clients being non‑Muslims transferred their deposits from branches at Pakistan to branches in the Indian Dominion. A good deal of property belonging to the Bank was, however, situated in Pakistan, and this was at present difficult to realize. At the same time, a great number of the Bank's debtors who had migrated to the Indian Dominion had lost most of their property in the process and recovery of the debts from them was at present not possible. The Bank had been taking advantage of the moratorium granted in the Indian Dominion as well as in Pakistan, but the relevant Ordinances had expired and it was therefore, necessary that an arrange ment should be arrived at between the Bank and its creditors for the purpose of reserving the interests of both parties. A draft scheme was attached to the petition, into the detail of which it is not necessary at this stage to enter. The Bank's petition was allowed by Mr. Justice Muhammad Munir, and a meeting was ordered to be held on the 7th March 1948 under the Chairmanship of Sardar Zafar Ullah. This meeting was duly held, and the report of the Chairman, as well as the full record of the proceedings has been placed on the record. It is reported that all the creditors present agreed to a scheme of which a copy was submitted by the Chairman. The details of this scheme will be considered below. When this case came up before me on the 19th March, an objection was presented by Dr. Hira Lai a creditor. Under the order of Mr. Justice Muhammad Munir, dated the 23rd January 1948, such objections were required to be filed on or before the 14th March 1948. I, however, allowed the objection to be filed, as besides stating that there was no justification for scaling down of the debts due to depositors since the assets of the Bank in West Punjab were more than sufficient to pay the depositors in full, the petition also stated that the petitioner as a creditor of the Bank was entitled to demand that it be wound‑up as a matter of right and at the close of this petition the petitioner prayed that the winding‑up of the Bank be ordered unless his own debts were paid‑up in full. Thus the petition might have been regarded as a fresh petition for winding‑up, or in the alternative, it would assist: the Court in determining Whether it was just and equitable that the Bank should be wound up. I have heard arguments in this case on the 2nd April and again on the 5th April at length on the question whether the provisions of section 153‑A, Indian Companies Act are available in relation to unregistered companies. It will be seen that section 153 which provides for schemes of compromise or arrangement with creditors or members or classes of creditors or members on the one side and a company on the other, contains in subsection (6) a special definition applicable to the section, viz., that the expression "company" means any company liable to be wound‑up under the Companies Act. By clause (2) of section 2, the word "company" is defined as a company formed and registered under the Act or an "existing company" which in clause (7) of the same section is defined as a company formed and registered under certain earlier Acts ‑relating to companies which are specified in the definition. Thus, wherever the word "company" occurs in the Act it must necessarily be confined in its meaning to registered companies. Again, the expression "liable to be wound‑up" appears to me to have a restricting effect, inasmuch as it confines the application of section 153 to companies whose condition is such that they are exposed to winding up. The conditions which must be satisfied in order that a company may be wound‑up by the Court are specified in section 162 of the Act. The conditions which must be satisfied before a company may be voluntarily Wound‑up are specified in section

203. In order to extend section 153 to unregistered companies it was sought to widen the meaning of the expression "liable to be wound‑up" so as to embrace every company whatever its nature, for the winding‑up of which, provision is contained in the Companies Act. I was quite unable to accept this interpretation. The expression "liable" in a legal context importing sanctions, can only be understood to mean a state of being exposed or contingently subject to such sections. To take a simple example from the Criminal Law the mere fact that a punishment is prescribed for a particular offence does not render every person subject to the jurisdiction of the Criminal Court liable to such punishment ; it is also necessary that in relation to such person the elements of the offence for which such punishment has been prescribed should be duly satisfied. It was brought to my notice that a learned Single Judge of the Madras High Court in the case of the Travancore National and Qudlon Bank Ltd. published as A I R 1939 Mad. 318 has expressed a different view; and has held that because an unregistered company can be wound‑up under section 271 of the Companies Act, therefore, it is included within the meaning of the expression "company" as used in section

153. With great respect I am entirely unable to accept this view ; and where the matter not covered by other authority which in my opinion is of binding effect. I would be inclined to hold that by virtue of the special definition contained in section 276 of the Companies Act, section 153 would have no application to an unregistered company unless an order for winding‑up of such unregistered company had first been made. Section 276 is the last section in Part IX which relates to winding‑up of unregistered companies and sets out that the provisions of Part IX shall be in addition to and not in restriction of the provisions contained elsewhere in the Act with respect to winding‑up of companies ; it also empowers the Court or the official liquidator to exercise any powers or do any act with respect to unregistered com panies such as the Court or liquidator may exercise or do in relation to registered companies, but there is restricting provision at the end namely that "an unregistered company shall not, except in the event of its being wound‑up, be deemed to be a company under this Act, and then only to the extent provided by this Part." Taking the words as they stand, in their ordinary sense, I would have been inclined to hold that the effect of section 276 is to confine the mischief of section 153 to unregistered companies such as satisfy the condition of "being wound‑up". This is irrespective of authority but Mr. Nazir Ahmad, appearing on behalf of the petitioning creditor Sheikh Rahmat Ullah invited my attention to a decision of the English Court of Appeal cited as Rudow v. Great Britain Mutual Life Assurance Society, XLIV Law Times Reports page 688, in which the provision in the English Companies Act corresponding to that contained in section 276 of the Companies Act was interpreted. In that case, the question at issue was whether, at a stage when no winding‑up order was in existence in respect of an unregistered company it was within the powers of the Court upon application by the company to stay a proceeding instituted or threatened to be instituted against it by a creditor. The English Companies Act of that date contained in section 201 a provision similar to that contained in section 273 of the. Indian Companies Act, applicable to the restraint of legal proceedings against an unregistered company ; the provision in each of these sections was that before the making of a winding‑up order upon application by a creditor a suit against any contributory of the company could be stayed. On the other hand, in relation to registered companies by section 85 of the English Companies Act then in force as by section 169, Indian Companies Act such stay could be ordered upon application by the company itself. The first Court had held that, the company being unregistered and there being no winding‑up order, only the provi sions of section 201 could be availed of and not the provisions of section 85, and accordingly the application by the company to stay pro ceedings in a threatened suit by a creditor was dismissed. On appeal the matter was considered in detail by Jessel M. R. After citing the provisions of all the relevant sections the learned Master of the Rolls, came to the conclusion that the expression "being wound‑up" in the phrase "except in the event of its being wound‑up" means the provisions as to winding‑up "and he consequently decided that the provisions anterior to the actual order for winding‑up, relating to registered com panies, were by the operation of section 204 (corresponding to section 276 of the Indian Companies Act) made applicable to unregistered companies as well. It is well‑settled that the provisions of section 153 of the Indian Act apply equally to companies which are in process of being wound‑up as to companies in respect of which a petition for winding‑up has been instituted. Upon the view taken by the Court of appeal in the case cited above there would seem to be no escape from the conclusion that the provisions of section 153 of the Indian Act are available in respect of unregistered companies at a stage prior to the actual making of a winding‑up order. Although this decision was given in relation to the terms of the English Act, it seems to me to be of binding effect for the interpretation of section 276 of the Indian Act, for the reason that the latter section has been adopted practically verbatim from the English Act, at a stage long after the decision in Rudow's case was published. It is a well‑settled canon of interpretation that the Legislature must be deemed to be aware of the interpretation placed by the Courts upon expression used in statutes. The provision of section 204 of the English Act as they stood in 1881 have since been repeated in a number of Acts on the same subject, and their adoption in the Indian Statute is of later date than 1881. Consequently I am obliged to reach the conclusion that when the Indian Legislature' adopted the language of section 204 of the English Act of 1862 in' enacting section 276 of the Indian Companies Act 1913, it did so with the knowledge that the words "in the event of its being wound‑up", had been authoritatively interpreted not in the narrow sense which the words themselves convey but in the wider sense of extending to a time] prior to the making of a winding‑up order, although subsequent to the commencement of winding‑up proceedings by a petition. In the presents case, as has been pointed out already, the winding‑up proceedings are not at an end; the petition of Sheikh Rahmat Ullah is still before the Court and in addition there is a petition by Dr. Hira Lal in which also a prayer is made that the Bank should be wound‑up. Accordingly it would appear that the proceedings so far taken in accordance with the provisions of section 153 of the Companies Act are competent under the law. Under subsection (2) of that section, any compromise or arrangement arrived at in such a meeting requires, in order to be effective, that it should be sanctioned by the Court. The scheme which has been prepared is in eleven clauses and the last clause expressly authorises the Managing Director to make alteration in the scheme of arrangement, in compliance with any suggestion which the Court may, in its discretion, consider necessary for the scheme being sanctioned, I have discussed various aspects of the provisions contained in this scheme with Mr. Shiv Raj the Managing Director, who appeared in Court, and with learned counsel for the parties, and acting on suggestions made by me Mr. Shiv Raj has agreed to incorporate a number of amendments in the scheme which are calculated to provide satisfaction to certain creditors who appeared to have been unjustly excluded from the scheme, and in other respects to safeguard the interest of the creditors generally. Mr. Shiv Raj has accordingly made a formal statement modifying the scheme in accordance with my suggestions. A copy of the scheme as so amended will be placed on the record. I hereby sanction the scheme as so amended. A. H. Scheme sanctioned.