MATTER OF PRABHAKAR GLASS WORKS LIMITED Vs. STATE

JUDGEMENT

(1.) TO answer the questions raised by the official liquidator in this application it is necessary to state the facts in some detail. The company in question, the Prabhakar Glass Works Ltd. , was initially voluntarily wound up and then the winding up is being continued under order of court. When the voluntary liquidation commenced, a sum of Rs. 22, 8000 remained due as unpaid share capital. The voluntary liquidator settled a list of contributories of the persons from whom the money was thus due. He realised Rs. 4, 6000 and later another sum of Rs. 1, 000 and there remained a balance of Rs. 17, 200. The shares in respect of which the calls were thus unpaid had been forfeited by the company by a resolution dated September 6, 1955, of the board of directors. But since the forfeiture was within a period of one year prior to the commencement of the winding-up, namely, March 12, 1956, the members whose shares had been forfeited were included in the list of contributories as past members of the company liable under section 426 of the Companies Act, 1956. The then official liquidator, Sri Arunachalam, took out Application No. 1197 of 1959 for leave to make a call on these past members. Permission was given to make a call of this sum of Rs. 17, 200. A sum of Rs. 3, 405. 84 was collected by the official liquidator and the balance remained unpaid. In this application put in by the present official liquidator, Sri Vaideeswaran, it is seen that the amount realised from the sale of the assets was in excess of the amount due to the creditors, namely, Rs. 37, 713 even when the previous official liquidator took out the application for calls on the past members. The present official liquidator thinks that when the existing assets were thus sufficient to discharge the creditors the liability of the past members did not arise and he quotes some decisions which will be referred to later. If that view is right, the amount collected from the past members would have to be refunded to them. This amount would be Rs. 4, 6000 plus Rs. 1, 000 plus Rs. 3, 405. 84, namely, rs. 9, 005. 84. But the official liquidator has only about Rs. 3, 431. 93 remaining with him out of the general assets. In other words, the amount on hand is not sufficient to refund the sum of Rs. 9, 005. 84. The extra sum required for making the refund to the past members can be collected only by recovering back from the preference shareholders a portion of the share capital which was refunded to them by order of this court dated September 25, 1959, in Company application No. 1199 of 1959 taken out by the previous official liquidator. In that application 70 per cent. of the share capital was ordered to be returned to the preference shareholders. The two Applications Nos. 1197 and 1199 of 1959 were put in a t the same time but the then official liquidator did not bring it to the notice of the court in Application No. 1197 of 1959 that the amount realised by the sale of the assets was more than sufficient to pay the creditors and even to leave a surplus for return of the substantial part of the share capital to the preference shareholders. The past members also did not bring that fact to the notice of the court. The result was that on September 4, 1959, the court passed an order in Application No. 1197 of 1959 directing a call to be made from the past members to the tune of Rs. 17, 200 and on September 25, 1959, passed an order in Application No. 1199 of 1959 directing the return of 70 per cent. of the share capital to the preference shareholders. The official liquidator states in the present application that if it is held by the court that a sum of Rs. 9, 005. 84 should be refunded to the past members, a sum of rs. 7 per share may have to be recovered back from the preference shareholders taking into consideration the probability of some of the preference shareholders not paying. He draws the attention of the court to the fact that the orders of this court dated September 4, 1959, in Application No. 1197 of 1959 and September 25, 1959, in Application No. 1199 of 1959 have become final, not having been appealed against, though an appeal is provided for under section 473. On the footing that the prior orders of this court are there and will have to be enforced, the official liquidator asks for directions : (i-a)whether he could retain the proceeds of the calls already made on the past members even though it had been wrongly collected from them ; (i-b) whether be could get a balance order against the contributories who have still to contribute under the ordbrs against the contributors who have still to contribute under the orders of court dated September 4, 1959 ; (ii)alternatively, of the court holds that notwithstanding the prior order of this court it was wrong to have made any call on the past members, whether the amount of Rs. 9, 0005. 84 so collected from them should be refunded to them ; and (iii) whether steps may be taken by the official liquidator to recover Rs. 7 per share from the preference shareholders. There is the incidental prayer for the costs of this application to come out of the estate. Notice of this application was given to the past members and to the preference shareholders but only one person has appeared and that is sri P. Kuppuswami Ayyar, a preference shareholder, who holds five preference shares for Rs. 500. He states that no work was done by the company and no dividend wa paid at all and that by virtue of the order dated September 25, 1959, in Application No. 1199 of 1959 he got 70 per cent of the share capital, namely, Rs. 350 and that by virtue of sections 473 and 483 of the Companies Act, 1956, the order dated September 4, 1959, and September 25, 1959, have become final and that the court cannot ask the preference shareholders t return any portion of the amount already paid to them. He goes to the extent of saying that it will be just to direct the amounts now available with the official liquidator to be given to the preference shareholders instead of being refunded to the past members. The following are the substantive provisions of the Act dealing with the liability of the past member. Section 426 in so far as it is relevant says : "426. (1) In the event of a company being wound up every present and past member shall be liable to contribute to the assets of the company to an amount sufficient for payment of its debts and liabilities and the costs, charges and expenses of the winding up, and for the adjustment of the rights of the contributories among themselves, subject to the provisions of section 427 and subject also to the following qualifications, namely :- (a) a past member shall not be liable to contribute if he has ceased to be a member for one year or upwards before the commencement of the winding up : (b) a past member shall not be liable to contribute in respect of any debt or liability of the company contracted after he ceased to be a member : (c) no past member shall be liable to contribute unless it appears to the court that the present members are unable to satisfy the contributions required to be made by them in pursuance of this Act ; (d) in the case of a company limited by shares, no contribution shall be required from any past or present member exceeding the amount, if any, unpaid on the shares in respect of which he is liable as such member ;. . . " Section 470 :" (1) The court may, at any time after making a winding up order, and either before or after it has ascertained the sufficiency of the assets of the company - (a) make calls on all or any of the contributories for the time being on the list of the contributories, to the extent of their liability, for payment of any money which the court considers necessary to satisfy the debts and liabilities of the company, and the costs, charges and expenses of winding up, and for the adjustment of the rights of the contributories among themselves and, (b) make an order for payment of any call so made. (2) In making a call, the court may take into consideration the probability that some of the contributories may, partly, or wholly, fail to pay the call. " Section 475 :" The court shall adjust the rights of the contributories among themselves, and distribute any surplus among the persons entitled thereto. " *

(2.) ON the procedural aspect on the finality of the orders of this court section 473 says : " (1) An order made by the court on a contributory shall, subject to any right of appeal, be conclusive evidence that the money, if any, thereby appearing to be due or ordered to be paid is due. " * Section 483 provides for the right of appeal on the original side of this court.