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Judgment
A.A. Dave, J.—This appeal is directed against the order of the learned District Judge, Baroda, rejecting the application made by the
applicants for granting relief for the default u/s 244B(7) read with section 281 of the India Companies Act, 1913, hereinafter referred to as ""the old
Act"".
The facts giving rise to this appeal briefly stated are as under :
The Baroda Batteries Ltd., which was registered as a company under the Indian Companies Act, was ordered to be wound up under the
supervision of the court before the Companies Act, 1956, hereinafter referred to as ""the new Act"", came into force. M/s. S. S. Tambe and C. K.
Patel, practising as advocates, in Baroda court were appointed official liquidators. In the statement of accounts submitted for the year 1962-63 to
the Registrar of Companies it was found that Rs. 892.73 were lying in the hands of the official liquidators. According to the Registrar, this amount
being in excess of Rs. 500, the liquidators had contravened the provisions of 244A of the old Act. He, therefore, demanded penal interest at the
rate of 20% from March 31, 1963, to January 17, 1964, from the liquidators. The Registrar of Companies also alleged that a breach of the
provisions u/s 244B of the old Act was committed by the liquidators in as much as unclaimed amount of dividend amounting to Rs. 952.84 was not
deposited by them in the Reserve Bank of India. According to the Registrar, the aforesaid sum of Rs. 952.84 should have been deposited by the
liquidators immediately after the expiry of six months from February 20, 1961, that is, after August 20, 1961, according to section 244B of the old
Act and, therefore, under sub-section (7) of section 244B of the old Act, the liquidators had become liable to pay penal interest on the aforesaid
sum from August 21, 1961 to January 17, 1964, at the rate of 20% per annum. The applicants therefore, preferred an application u/s 281 of the
old Act for relieving them from the penalty imposed by the Registrar of Companies. The grounds stated in the application, inter alia, were that the
liquidators were not conversant with the correct position in law and that, on many occasions, their own money was spent for the purpose of
winding up of the company. It was pointed out by them that u/s 244A of the old Act, the liquidators were required to pay money received by them
into the scheduled bank as defined in clause (e) of section 2 of the Reserve Bank of India Act, 1993. There contention was that the amount of Rs.
892.73 was kept by them on hand because they bad to pay Rs. 700 to M/s. Vakil Shah and Company, the auditors, and Mr. P. H. Thakore, the
accountant. As they could not obtain the order of the court, the money had remained with them. However, they stated that they had also spent
money from their own pockets which would be clear that, in all, they had spent about Rs. 1,000 which they got back from the company after a
very long time without any interest. They also contended that though by an order of the court, they were entitled to a remuneration of Rs. 488,
since they company had no balance, they could receive only Rs. 280 to wards their remuneration. They stated that they had paid Rs. 15 to the
Registrar of Companies as filing fee from their own pockets. They, therefore, contended that by retaining the balance, they had not made any profit
out of aforesaid amount and they had not committed any breach of the provisions of section 244A of the old Act and if at all they had committed
the breach, it should be condoned.
So far as the second objection raised by the Registrar about the amount of unclaimed dividend not being deposited in the Reserve Bank within
six months after the expiry of six months from February 20, 1961, they stated that they were under the bona fide impression of law that the amount
of unclaimed dividend had to be deposited at the time of dissolution of the company. They had tried their best for a long time to trace and contact
the creditors or claimants under the directions of the court to make their dues available to them. They admitted that they have acted wrongly but
they contended that they had acted honestly and reasonably in both the matters complained of. Notice was issued to the Registrar of Companies
who resisted the said application. It was contended by the Registrar that the old Act was repealed and, therefore, section 281 of the old Act does
not survive and the application given by the applicants u/s 281 of the old Act was misconceived and not tenable in law. In the alternative, it was
urged that assuming that section 281 of the old Act applied, no relief under that section should be granted to the liquidators because the official
liquidator cannot be said to be an officer of the company and, therefore, no relief should be granted. The learned judge accepted the contentions of
the applicants so far as retention of the amount in their hands and condoned breach of the provisions of section 244A of the old Act. The learned
judge, however, with regard to the breach committed u/s 244B of the old Act, came to the conclusion that the official liquidator was not an officer
of the company and, therefore, section 281 of the Act under which they claimed relief would not apply. The learned judge, therefore, dismissed the
application so far as relief for default u/s 244B(7) of the old Act was concerned. Against that order rejecting the relief for default u/s 244B(7) of
the old Act, the liquidators have preferred the present appeal.
Mr. C. K. Patel, one of the official liquidators submitted that in the instant case, the learned judge below was clearly in error in holding that the
liquidator was not an officer of the company. He urged that, for all practical purposes, after the company was ordered to be wound up, the
liquidators represented the company and acted for and on behalf of the company. The liquidators, therefore, would be the officer of the company
though they had to work under the supervision of the court. Under such circumstances, Mr. Patel urged that section 281 of the old Act, 1913,
would apply and it was within the power of the court to grant adequate relief as prayed for. In support of his submission, he refereed to the case of
Alexander Thompson Montgomery v. Registrar of Joint Stock Companies, ILR [1955] Cal 439.
Mr. M. B. Shah, learned Assistant Government Pleader, who appeared on behalf of the Registrar of Companies on the other hand urged that
the official liquidator could never be said to be an office of the company. He was not appointed by the company nor was he under any control of
the company. Mr. Shah urged that the official liquidator was appointed by the court and was required to work under the supervision of the court.
He was, therefore, an officer of the court and not an officer of company. He referred to the definition of the officer of the company as given in
section 2(11) of the old Act and urged that the legislature did not intend to include a liquidator in the categories of persons described as officer of
the company. He also adopted the arguments advanced on behalf of the Registrar of Companies, that section 281 of the old Act being repealed,
no relief could be granted to the applicants under the provisions of that section.
It may be noted at the outset that once a company is taken into liquidation whether that liquidation be voluntary, compulsory or under the
supervision of the court, the liquidator appointed to carry out the purpose of liquidation represents the company during the liquidation proceedings
and acts for and on behalf of the company. It is immaterial whether the liquidation is voluntary or is carried on under the supervision of the court.
The powers of the liquidator in the ordinary winding up or in the compulsory winding up would be the same. The moment the company is ordered
to be wound up and a liquidator is appointed to carry on the liquidation proceedings, all the powers of the managing agent or directors of the
company would come to an end and it is the liquidator who would look after the affairs of the company for the purpose of winding it up. It, is
therefore, difficult to agree with the submission made by Mr. Shah, learned Assistant Government Pleader, that the liquidator is not an officer of the
company and that he is an officer of the court. No doubt, the liquidation appointed by the court would be an officer of the court. He has to carry
on liquidation proceedings under the supervision of the court. All the same, the fact remains that the liquidator while dealing with the liquidation
proceedings represents the company which does not lose its identity as a company till it is dissolved. The liquidator alone can act for and on behalf
of the company. In my opinion, therefore, the liquidator can be said to be an officer of the company though not specifically mentioned in section
2(11) of the old Act or section 2(30) of the new Act of 1956. In the Calcutta case referred to by the learned advocate for the applicant,
Alexander Thompson Montgomery, ILR 1955 Cal 439, the Calcutta High Court held that section 281(2) applied to a default u/s 244B(7) of the
Act. However, from the perusal of the judgment, it transpires that the Registrar of Companies there had contended that section 281(2) would
apply with the result that the official liquidator was considered to be an officer of the company. Mr. Shah, therefore, urged that the Calcutta
decision (Alexander Thomson Montgomery v. Registrar of Joint Stock Companies, ILR [1955] Cal 439) cannot be said to be laying down a
proposition of law. It merely held that the provisions of section 281(2) applied in view of the concession made by the Registrar. It is true that the
Calcutta High Court applied the provisions of section 281(2) of the Act because there was no dispute about it, But, in view of the fact that no
dispute was raised by the Registrar of Companies to the effect that the liquidator cannot be said to be an officer of the company and consequently
the provisions of section 281(2) did not apply, it was not necessary for the court to independently hold that section 281(2) would not apply. The
fact remains that the Calcutta high Court did apply section 281(2) and condoned the penalty for default u/s 244B of the Act. This point is very
succinctly dealt with by the Kerala High Court in the case of P. C. Pothen, Liquidator of the Commonwealth Bank Ltd., ILR [1966] 1 Ker 1,
wherein it was held :
Both from the plain meaning of the term ''officer of the company'' and from the scope and intendment of section 633, a liquidator is an officer of
the company within the meaning of that section. The definition in section 2(3) is an inclusive definition so that, if according to the ordinary meaning
of the term a liquidator can be regarded as an officer of the company, the definition cannot, have the effect of excluding him. Construing the term
''officer of a company'' in its natural sense the liquidator a company is an officer of the company even if it be that the liquidator of a official
liquidator or a court liquidator he is, at the same time, an officer of the court. A company does not cease to exist when it goes into liquidation. That
happens only when it is dissolved. Meanwhile, the person who acts for and on behalf of the company is the liquidator. That a liquidator is an officer
can scarcely be doubted and that being so, it would not be doing any violence to the language to say that he is an officer of the company.
With great respect, I am in entire agreement with the observations made by the Kerala High Court. Similarly, in the case of Official Liquidator,
Mysore Spun Silk Mill Ltd. v. Commissioner of Income Tax [1971] 41 Comp Cas 226 (Mys) it was observed :
Even after a winding up order is passed, the company continues to be a ''person'' within the meaning of section 4 of the Income Tax Act, and,
therefore, any receipt of income in the course of the winding up which would attract liability to Income Tax under its appropriate provisions would
be liable to Income Tax.
The liquidator, on an order for winding up being made, becomes the ''principal officer'' of the company within the meaning of section 2(35)(a) of
the Income Tax Act, 1961.
A company judge has power to require the liquidator to file returns before the Income Tax Officer. The legal position of the liquidator, whether he
is a liquidator appointed in a voluntary winding up or under the compulsory winding up by orders of the court, is the same. The liquidators is an
officer of the court employed for the purpose of winding up of the affairs of the company in liquidation.
The company of the making of an order of compulsory winding up does not cease to have its corporate existence. During the course of the winding
up, company is represented by the liquidator who functions as its agent for the purpose of winding up. One of the duties of the court is to see that
the liabilities of the company are properly met in accordance with the provisions of the law, and the liability to Income Tax is one of such liabilities.
It will thus be seen, as observed by the Calcutta, Kerala and Mysore High Court, that the liquidator of a company in liquidation is considered an
officer the company whether he is a liquidator appointed under an ordinary winding up or appointed by the court under the compulsory winding up
or under the supervision of the court. He represent the company for all practical purposes after the winding-up order is passed. As observed
earlier, the company does not cease to be a legal entity merely because a winding up order is passed. The company would cease only when the
final order of dissolution is passed. Therefore, so long as the liquidation proceedings are going on, the liquidator is the only person who can
represent the company in its dealings and also would act for and on behalf of the company with regard to the liquidation proceedings. It is,
therefore, too much to say that the liquidator cannot be said to be an officer of the company though he would represent the company for all legal
and practical purposes. In my opinion, the learned trial judge and taken a very narrow view of the definition of the officer of the company as given
in section 2(30) of the new Act. It is an inclusive definition and merely because in the inclusive definition, the name of the liquidator is not
mentioned, it cannot be said that he is not an officer of the company if, in normal course, the liquidator could be considered as an officer of the
company for all practical and legal purposes. He is the only person who acts for and on behalf of the company during the liquidation proceedings.
Therefore, with respect, I entirely agree with the observations made by the above High Courts that the liquidator is an officer of the company.
Thus, if the liquidator is held to be an officer of the company, section 281(2) of the old Act. would come into play and it would be open to the
court to give relief for default u/s 244B(7) of the old Act.
Mr. Shah, however, referred to the case of Nandial More Vs. Ramchandiram Mirchandani and Others, , wherein it was observed :
The definition of ''officer'' in section 2(30) is merely an inclusive definition and creates a fiction for deeming a partner an officer. But there is no
justification to carry that fiction still further, and hold, although it is not so specifically provided that every partner of a firm of meaning of agents is
himself a managing agent to the company within the meaning of section 2(25).
Further, the word ''firm'' is not used in section 2(25) unnecessarily or redundantly. The presence of the word ''firm'' indicates that when a
partnership firm is a managing agent, every partner if that firm separately is not intended to be treated as a managing agent of the company.
If the legislature intends that for the purposes of 1disqualification in section 26(1) every partner of a firm of managing agents should himself be
treated as a managing agent, the Legislature should make suitable amendments to effectuate that intention"".
I fail to understand how this ruling will support Mr. Shah in his submission that the liquidator would not be an officer of the company. On the
contrary, as observed by the Bombay High Court, the definition of an officer in section 2(30) is merely an inclusive definition and creates a fiction
for deeming a partner an officer. Therefore, even a partner of a firm would be deemed to be an officer of the company for the purpose of section
2(30) of the Act. The Bombay High Court negatived the contention that every partner of the firm of managing agents would be disqualified for the
purpose of section 261(1) because u/s 2(25), the firm cumulatively was held liable and not each partner of the firm. In the light of the definition
given in section 2(25), the court interpreted the liability of the partner of the firm for the purpose of section 261(1) of the new Act. The Bombay
High Court was not called upon to consider the question, whether a liquidator was an officer of the company or not. In my opinion, the ratio of his
case cannot help in understanding the question which has arisen in the instant case.
Lastly, if was urged by Mr. Shah that section 281(2) was repealed and, therefore, the provisions of that section cannot held the applicants. In
my opinion, the submissions made by Mr. Shah are devoid of any merit. The applicants are held liable for default of section 244B(7) of the old
Act. Under the old section 281, it was open to the court to grant suitable relief mistake and had not made any personal profit out of their error.
The Registrar of Companies wants to hold the applicants liable under the provisions of the old Act. The old Act admittedly has been repealed but
section 614 of the new Act says that for the purpose of liquidation proceedings which had started prior to the coming into force of the new Act,
the old Act will be deemed to be continued in force as if the new Act had not been passed. Thus, all the provisions of the old Act would be
applicable to the liquidation proceedings which had stated prior to the coming into force of the new Act. In my opinion, therefore, section 281 of
the old Act would be applicable and it would be open to the court to grant suitable relief as prayed for. That apart, under the new Act also, section
633 is a counter-part of the old section 281. Under the new section, the court has been given power to give suitable relief in case of bona fide
breach committed by the liquidators. In the case of P. C. Pothan, ILR [1966] Ker 1, therefore, it was observed as under while interpreting section
633 of the Act :
Now, so far as payment of interest is concerned, what that clause does is to declare the liability of the liquidator to pay interest; it makes no
special provision for the enforcement of the liability. It is not as if there is an automatic order for recovery against the liquidator by reason of the
clause, and hence, it is to be assumed that the liability is to be enforced and recovery effected in the normal course by a proceeding either in the
court or in the ordinary courts. That being so, I should think that recovery by any such proceedings would be something falling within the scope of
sub-section (2) of section 633 and in respect of which this court is competent to grant relief.
In my opinion, the court is competent to grant relief u/s 281 of the old Act and even under the provisions of section 633 of the new Act. The
evidence clearly shows that the liquidators through a bona fide error of law had not deposited the said amount in the Reserve Bank. But they has
kept the said amount in the scheduled bank. It is thus clear that the liquidators had not obtained any undue gain or advantage for themselves by not
depositing the amount in the funds of the company in liquidation period. The evidence shows that the funds of the company in liquidation were so
scanty that even the liquidators could not be paid their remuneration in full. Out of Rs. 480 which they were entitled to receive towards their
remuneration, they were paid Rs. 280 only. The liquidators had also to pay Rs. 15 out of their pockets for filing of final report with Registrar or
Companies. The evidence also shows that from time to time, the liquidators had spent Rs. 1,000 from their pockets which they, with great
difficulty, were able to recover from the funds of the company. Under such circumstances, the learned judge below was not right in not exercising
his discretion u/s 281 of the old Act or section 633 of the new Act to grant suitable relief to the applicants for the breach committed u/s 244B(7) of
the old Act.
For these reasons, in my opinion, it is not necessary to charge any penal interest or any penalty under the said section. The order passed by the
learned judge rejecting the relief for default, therefore, deserves to be set aside.
In the result, I pass the following order :
The appeal is allowed. The application given by the official liquidators for granting relief for default u/s 244B(7) of the old Act is granted and it
is ordered that no penal interest or any penalty prescribed under that section should be levied them. In view of the facts of this case, there will be
not order as to costs of this appeal.