Sudarshan Chits (India) Ltd. v. The Official Liquidator, Kerala High Court Others

K. John Mathew:

1. These are petitions filed by Sudarsan Chits (India) Ltd. which was ordered to be wound up under the provisions of the Companies Act by order dated 13.10.1982. Subsequently the company is being revived as per the scheme dated 8.10.1982 approved by this Court in M.F.A. Nos. 518,519 & 520 of 1981. As per the Scheme and subsequent orders this Court directed the company to pay at first to its creditors who are subscribers of kuries conducted by the company having a sale of Rs. 10,000/- and below. Thereafter subscribers in kuries of sale value of Rs. 20,000/- and below are to be paid at next stage and so on. According to the affidavits filed is support of these petitions the company has so far paid an amount of Rs. 11,19,03,558.23p. as on 16.8.1990. For the proper implementation of the scheme this Court has appointed an additional Director is the Board of Directors of the company. All the payments are being made by crossed cheques signed by the Additional Director. Periodical statements are also filed about the programme of the implementation of the Scheme before this Court. As per the statement filed on 16.8.90 the company has paid 72025 creditors. This Court has also directed that in making payments to the subscribers who have joined kuries having sale of Rs. 10,000/- and below initially the payments are to be effected is respect of kuries having a sale of Rs. 5,000/- and below. Only thereafter the company can pay to the subscribers who have joined kuries having sale of above Rs. 5,000/- and below Rs. 10,000/- .

2. Several subscribers have moved the District Forum constituted under the Consumer Protection Act, 1986 for their respective areas for recovery of the amounts due to them from the company. It is not necessary to state the details of the amounts claimed by them, since the company is challenging the jurisdiction of the District Forum to grant relief to those subscribers. These petitions are filed by the Company under Section 446(3) read with Section 396(6) of the Companies Act and Rule 9 of the Companies (Court) Rules to transfer the cases pending before the respective District Forum constituted under the Consumer Protection Act to this Court and to dispose of the same in accordance with law.

3. However, it may be mentioned that in one case covered by C.M.P. 4063 of 1990 the subscriber has forwarded a photostat copy of the order of the District Forum constituted under the Consumer Protection Act, Srikakulam dated 7.9.1990 dismissing his petition observing that the subscriber will have to wait for some more time to receive the payment as directed by this Court. The order also mentions that if the amount is not paid within six months, the subscriber can again approach the forum for relief. Since no petition is pending before the District Forum as this stage, C.M.P. 4063 of 1990 is dismissed.

4. The common question involved in these petitions is whether the authorities constituted under the Consumer Protection Act, 1986 for the redressal of grievances of consumers have jurisdiction over companies which are being wound up under the provisions of the Companies Act, 1956. It is not necessary to examine whether the subscribers to the kuries conducted by the company in liquidation will come within the definition of ‘consumer’ under the Consumer Protection Act. For the purposes of this discussion it is assumed that they come within the definition of that word and that the dispute is a consumer dispute as defined in the said Act.

5. Section 3 of the Consumer Protection Act is as follows:—

"3. Act not in derogation of any law. The provisions of this Act shall be in addition to and not is derogation of the provisions of any other law for the time being in force."

6. The word ‘derogation’ means partial abrogation. The word ‘abrogate’ is used when a law is abolished in its entirety. In view of the specific provision under Section 3 of the Consumer Protection Act that the Act shall not be in derogation of the provisions of any other law, it is clear that the provisions contained in Section 446of the Companies Act is not in any way abrogate even partially.

7. The provisions of the Companies Act relating to winding up are intended to give relief to the company which is insolvent, from the harassment of its creditors on the one hand and to provide a machinery by which all creditors are equally satisfied, on the other hand. It is established principle that insolvency law are devised for the protection of destressed debtors and protections of the insolvent. The policy and object underlying it is to secure the distribution of a debtor’s estate among his creditors and to prevent the more active creditors from getting as undue advantage over those who may be less active. If some of the creditors move the authorities under the Consumer Protection Act and receive their dues the other creditors who do not move that authority may not get any amount due to them. It cannot be taken that the legislature intended that such a result should happen by implementing the Consumer Protection Act intended to benefit the consumers in general and not to benefit one or a small group of consumer against the interests of the larger sections of the consumers.

8. Section 10 of the Companies Act, 1956 provides that the Court having jurisdiction under the said Act shall be the High Court having jurisdiction in relation to the place at which the registered office of the company concerned is situate hereinafter referred to as the company Court, except when jurisdiction is conferred on any District Court subordinate to the High Court. Section 439 of the Companies Act provides for filing of a petition for winding up of a company. Section 443 provides for the passing of an order of winding up among other matters. Section 446 of the Companies Act is as follows:—

“446. Suits stayed on winding up order:—

(1) When a winding up order has been made or the official liquidator has been appointed as provisional liquidator no suit or other legal proceeding shall be commenced, or if pending at the date of the winding up order, shall be proceeded with, against the company, except by leave of the Court and subject to such terms as the Court may impose.

(2) The Court which is winding up the company shall, notwithstanding anything contained in any other law for the time being in force, have jurisdiction to entertain or dispose of:—

(a) any suit or proceeding by or against the company;

(b) any claim made by or against the company (including claims by or against any of its branches in India);

(c) any application made under Section 391 by or in respect of the company;

"(d) any question of priorities or any other question whatsoever, whether of law or fact, which may relate to arise in course of the winding-up of the company;"

whether such suit or proceeding has been instituted or is instituted or such application has been made or is made before or after the winding up of the company, or before or after the commencement of the Companies (Amendment) Act, 1960 (65 of 1960).

3. Any suit or proceeding by or against the company which is pending in any Court other than that in which the winding up of the company is proceeding may, notwithstanding anything contained in any other law for the time being in force, he transferred to and disposed of by that Court.

"4. Nothing in sub-Section (1) or sub-Section (3) shall apply to any proceeding pending in appeal before the Supreme Court or a High Court."

9. Under Section 456(2) of the Companies Act all the properties and effects of a company shall be deemed to be in the custody of the Court from the date of the order for the winding up of that company. The official Liquidator is only an officer of Court appointed under Section 448 of the Companies Act and he is the Liquidator of the Company by virtue of Section 449 of the Companies Act. Appointment and powers of provisional liquidator are governed by Section 450 of the Companies Act. Generally he shall have the same powers as a Liquidator unless it is limited or restricted by the Order of the Court. The Liquidator can make payments only as provided in the Companies Act after getting orders from the Company Court. Under Section 528 of the Companies Act all debts payable by the company are to be admitted to proof and the provisions in insolvency proceedings are applicable to proof of debts under Section 529 of the Companies Act. Under Section 530 the company is entitled to make certain payments as preferential payments. Under Rules 147 to 169 and 174 of the Companies (Court) Rules, the Liquidator is to initially settle a list of creditors and the Court will adjudicate on any further claims and finally settle the list of creditors. Only after such settlement of list of creditors the Liquidator can proceed to declare any dividend with the sanction of the Court [Rule 275 of the Companies (Court) Rules].

10. The historical evolution of Section 446, if I may say so with great respect, was succinctly traced in Sudarshan Chits (I) Ltd. v. G. Sukumaran Pillai [A.I.R. 1984 S.C. 1579 = 1984 (4) SCC 657]. The Supreme Court held as follows:—

"7...To save the company which is ordered to be wound up from this prolix and expensive litigation and to accelerate the disposal of winding up proceedings, the Parliament devised a cheap and summary remedy by conferring jurisdiction on the Court winding up the Company to entertain petitions in respect of claims for and against the company. This was the object behind enacting Section 446(2) and therefore, it must receive such construction at the hands of the Court as would advance the object and at any rate not thwart it"

"The Supreme Court has further explained the object and purpose sought to be achieved by introducing Sub-section (2) in Section 446, in paragraph 12 of the above said judgment as follows:—"

"To accelerate the process of winding up so as to bring them to an end, this sub-section was amended in its present form in 1960 conferring jurisdiction on the Court winding up the company to entertain among others any suit or proceeding by or against the company. If, therefore, a winding up petition is pending meaning thereby that an Official Liquidator is appointed as provisional Liquidator which is a stage in the processes of winding up, the Court before which such proceedings is pending can be styled as a Court winding up the company and ipso facto it would have jurisdiction to entertain the proceeding enumerated in Clauses (a) to (d) of sub-Section (2) of Section 445."

11. Thus the object of Section 446 of the Companies Act is to save the company which is being wound up from unnecessary litigation and to protect its assets for equitable distribution among its creditors and its shareholders. This being the object of Section 446 of the Companies Act, it is apparent that all those matters where the claim of such a nature can be investigated by the winding up Court, would be within the purview of Section 446. See L.I.C. of India v. Asian Udyog (P) Ltd., (1984) 55 Comp. Case 187 F.B. In that judgment the Delhi High Court held that proceedings under the Public Premises (Eviction of Unauthorised Occupants) Act, 1971 may be commenced before the authorities under that Act without obtaining leave under Section 446 of the Companies Act and that no execution or recovery can be made except after obtaining leave under Section 446(1) of the Companies Act. In I.T.O. v. Official Liquidator, Swaraj Motors (P) Ltd., (1982) 52 Comp. Case 152 a Division Bench of this Court held that the provisions of the Companies Act are special and it will prevail over the provisions of the Income Tax Act which was a general provision. It was also observed that Section 446 besides being special contain a non-obstante clause also. This Court held that sanction of the Company Court was necessary before enforcing claim for interest for delay in payment of income-tax by a company which is being wound-up.

12. In Income Tax Officer v. Official Liquidator (1985 KLT 416 F.B.):—a Full Bench of this Court held that

"the question as to whether interest for delayed payment of tax should be paid out of the funds of the company in liquidation and if so to what extent such payments can be made are all matters for the winding up Court to decide when a claim is made by the Income Tax Department under Sections 528 and 529 of the Companies Act and that the proceedings for recovery will however be hit by the provisions of Sec. 448(1) of the Companies Act, unless leave of the winding up Court is sought for and obtained prior to the commencement of the recovery proceedings"

13. As explained by the Supreme Court, Section 446(2) was enacted with a special purpose. That purpose will be thwarted if it is held that only some of the proceedings against the company in liquidation are taken in by Sec. 446 Companies Act. After the amendment of that Section by adding sub-Section (2) conferring comprehensive powers on the winding up Court, the earlier decisions restricting the powers of the winding up Court, have no force.

14. In case any creditor of the company files a claim before the authority under the Consumer Protection Act and secures an order in his favour and the company is forced to pay that amount, that will really amount to preferring that creditor to other similarly placed creditors. It is in order to avoid such a situation that the Companies Act provides for settlement of list of creditors after due notice to all creditors. The circumstance that the company after winding up is being reviewed under Sections 391 to 394 of the Companies Act will not alter the above position.

15. There is yet aspect to be borne in mind. A company may be having branches throughout India. If its creditors file petitions before the authorities under the Consumer Protection Act or other similar enactments in different places, the liquidator will have to enter appearance before different authorities throughout India. The expenditure for the same will have to come out of the funds of the company and that will considerably affect the amounts payable to the general body of creditors. The exclusive powers under Section 446 of the Companies Act conferred on the winding up Court will prevent such huge and unnecessary loss to the creditors.

Under the circumstances, I hold that the authorities constituted under the Consumer Protection Act have no jurisdiction to consider the claims of the creditors of Companies which are being wound up under the provisions of the Companies Act, 1956. Accordingly, the petitions are allowed. The following applications are withdrawn to this Court under Section 446(2) of the Companies Act:—