V. Rajaraman, Liquidator, Globe United Engg & Foundry Co. Ltd. Vs Registrar of Companies (1974 44 CompCas 330 Delhi)

Facts of the Case

This case[1] was an appeal to the Delhi High Court in which a question related to the increase in the remuneration of the liquidator brought up before the Court. The court took into consideration multiple dimensions and came out with the result of dismissing the appeal due to the appeal having no merit.

Here in this case, the company named Global United Engineering & Foundry Co. Ltd passed a resolution dated 28th December, 1968 for its winding up voluntarily. The appellant named Shri V. Rajaraman was appointed the liquidator and his remuneration was fixed by the Company at Rs. 3000 only. The resolution carrying the winding up of the company was challenged by another Company named Messrs.Globe Motors Ltd. This challenge came to end when a compromise was reached  and as a result of this compromise, the company judge ordered the continuation of the winding-up subject to the supervision of the Court.

This increased the work of the liquidator and due to this increase in work, the appellant,i.e. Liquidator applied for the revision of his remuneration to bring its remuneration at par with the official liquidator. The Registrar of Companies opposed the prayer of increase in remuneration as per the Section 490 of the Companies Act,1956. The objection by the Registrar of Companies got accepted and therefore the application related to increase in remuneration got dismissed.

Issue Raised

The only question which the company raised in this appeal was:-

• Can the remuneration of a liquidator which got fixed at the time of the appointment of a liquidator in the voluntary winding-up be increased in any circumstance, after the said voluntary winding-up has been brought under the court supervision?

Contention of Parties

Contention of the appellant:-

The appellant here relied on the certain passages from the Palmer’s Company Law, but he also admitted that this is based on the interpretation of the English Companies Act, which does not carry any provision analogous with the Section 490 (2) of the Companies Act,1956. The English authorities as well as the commentary based on it talks in favor of the increase in the remuneration of the liquidator. It is permitted under this English Law.  He also contended that in case of  liquidation being brought under the supervision of the court, it is not anymore the voluntary winding-up and therefore come out of the scope of Section 490.

The appellant also contended that Section 526(2) makes the winding up, a subject to the supervision of the Court, as if it was a compulsory winding-up as per the order of the Court. Therefore, the Court can exercise all other powers which it might exercise in the compulsory order of winding-up case.

The appellant also contended that he had been working since 1969 in the company as a liquidator and the total amount which was to be realised by the company through liquidation was Rs. 27 lakhs and the liquidator had filed three suits on the original side of this Court already for the recovery of a sum consisting of more than 10 lakhs. And the liquidation proceedings is likely to continue ahead for a good number of time. Therefore, he contended for a grant of an increase in the remuneration.

Analysis

The submissions by the appellant found no basis. All the submissions which he made found no merit in the eyes of the Court. Therefor, through the interpretation of the Sections and provisions of the Company Law.1956, Court came to its conclusion.

Let’s see the provisions of the Company Law which was discussed in this case by the Court to find the depth analysis of the case:-

• Section 489[2] of the Companies Act:-Provisions applicable to a members’ voluntary winding up.

The provisions contained in sections 490 to 498, both inclusive, shall subject to the provisions of section 498, apply in relation to a members’ voluntary winding up.

• Section 490[3] of the Companies Act,1956:-Power of company to appoint and fix remuneration of liquidators.

• The company in general meeting shall-

• appoint one or more liquidators for the purpose of winding up the affairs and distributing the assets of the company; and

(b)  fix the remuneration, if any, to be paid to the liquidator or liquidators.

• Any remuneration so fixed shall not be increased in any circumstances whatever, whether with or without the sanction of the Court.

•  Before the remuneration of the liquidator or liquidators is fixed as aforesaid, the liquidator, or any of the liquidators, as the case may be, shall not take charge of his office.

Section 490(2) says it very clearly that any remuneration fixed for the liquidator shall not be (it makes it a mandatory clause) increased in any circumstance, whether it is with the sanction of the Court or without it.

• Now second aspect which was dealt at in the Court was related to the provisions related to the voluntary winding-up. Provisions related to the voluntary winding-up subject to the Court are stated in Chapter IV of Part 7 of the Companies Act,1956. This contains Section 522 to Section 527.

Now, we will see these provisions to understand the stand of the Court.

• Section 522[4] of the Companies Act,1956:-Power to order winding up subject to supervision.

 At any time after a company has passed a resolution for voluntary winding up, the Court may make an order that the voluntary winding up shall continue, but subject to such supervision of the Court, and with such liberty for creditors, contributories or others to apply to the Court, and generally on such terms and conditions, as the Court thinks just.

This Section gives the power to the Court to order winding-up subject to its supervision, it comes into play only when the company has passed a resolution for voluntary winding-up. In this provision, the Court does not terminate the voluntary winding-up, it does not even substitute any other form of winding-up in place of voluntary winding-up. This Section just requires the Court to make an order for the continuation of the voluntary winding-up, that this shall continue, but subject to such supervision of the Court and also with such liberty for creditors, contributories or others to apply to the Court on the terms and conditions which the Court thinks just.

Therefore, the voluntary winding-up is kept intact. This does not segregate itself from the Section 499 limits, which as per Section 489 is applicable to all voluntary winding-ups.

• Section 523[5]of the Companies Act,1956:-

Effect of petition for winding up subject to supervision. A petition for the continuance of a voluntary winding up subject to the supervision of the Court shall, for the purpose of giving jurisdiction to the Court over suits and legal proceedings, be deemed to be a petition for winding up by the Court.

• Section 524[6] of the Companies Act,1956:-Power of Court to appoint or remove liquidators.

•  Where an order is made for a winding up subject to supervision, the Court may, by that or any subsequent order, appoint an additional liquidator or liquidators.

•  The Court may remove any liquidator so appointed or any liquidator continued under the supervision order, and fill any vacancy occasioned by the removal, or by death or resignation.

•  The Court may appoint the Official Liquidator as a liquidator under sub- section (1) or to fill any vacancy occasioned under sub- section (2).

•  The Court may also appoint or remove a liquidator on an application made by the Registrar in this behalf.

This Section gives the power to the Court when an order is being made by it related to an order of supervision to appoint or remove any additional liquidator or liquidators, or related to the filling up of any vacancy of liquidator, which may be caused due to the removal,death or resignation of the liquidator.

• Section 525[7] of the Companies Act,1956:-Powers and obligations of liquidator appointed by Court.

A liquidator appointed by the Court under section 524 shall have the same powers, be subject to the same obligations, and in all respects stand in the same position, as if he had been duly appointed a in accordance with the provisions of this Act with respect to the appointment of liquidators in a voluntary winding up.

This Section provides that the liquidator who get appointed by the court as per Section 524 will be subject to the same obligation and in all respects stand in the same position as if he had been duly appointed as per the provisions relating to liquidator in a voluntary winding-up.

• Section 526[8] of the Companies Act,1956:-Effect of supervision order.

•  Where an order is made for a winding up subject to supervision, the liquidator may, subject to any restrictions imposed by the Court, exercise all his powers, without the sanction or intervention of the Court, in the same manner as if the company were being wound up altogether voluntarily.

(2)  Except as provided in sub- section (1), any order made by the Court for a winding up subject to the supervision of the Court, shall for all purposes, including the staying of suits and other proceedings, be deemed to be an order of the Court for winding up the company by the Court, and shall confer full authority on the Court to make calls or to enforce calls made by the liquidators, and to exercise all other powers which it might have exercised if an order had been made for winding up the company altogether by the Court.

(3)  In the construction of the provisions whereby the Court is empowered to direct any act or thing to be done to or in favour of the liquidator, the expression” liquidator” shall be deemed to mean the liquidator conducting the winding up, subject to the supervision of the Court.

• Section 527[9] of the Companies Act,1956:-Appointment in certain cases of voluntary liquidators to office of liquidators.

Where an order has been made for winding up a company subject to supervision, and an order is afterwards made for winding up by the Court, the Court may, by the last- mentioned or any subsequent order, appoint any person or persons who are then liquidators, either provisionally or permanently, to be liquidator or liquidators in the winding up by the Court in addition to, and subject to the control of, the Official Liquidator.

This Section deals with the scenario when the Court itself eventually makes an order for winding-up. In that scenario as well, the Court may appoint the person, who has already been appointed by the Company as a liquidator, to be the liquidator in the winding-up through the Court in addition and subject to the control of the official liquidator. Even this section does not give any power to the Court to increase the remuneration of the liquidator.

Therefore, in totality no section among all these found favoring the context of the appellant.

• The contention related to Section 526(2) taken by the appellant to show that it makes the winding-up subject to the supervision of the Court as if it was a compulsory winding-up order of the Court was also not in the favor of the appellant.

The compulsory winding-up is dealt with in Chapter II of the Part 7 of the Companies Act,1956, This comprised of the sections from Section 433 to Section 483.

Among these Sections, we will look into Section 499 which says that the official liquidator becomes the liquidator by virtue of his office on a winding-up order made by the Court.

• Section 499[10] of the Companies Act,1956:-Provisions applicable to a creditor’ s voluntary winding up.

The provisions contained in sections 500 to 509, both inclusive, shall apply in relation to a creditors’ voluntary winding up.

None of these sections gave any power to the Court to fix or vary the remuneration of the liquidator which was fixed by Rule 291 of the Companies(Court) Rules. Therefore, in any case or under any section dealing with the compulsory winding-up or even in case of winding-up under the supervision of the Court, the Court cannot increase the remuneration of the liquidator.

Decision

In this case, the Court after analysing and checking various provisions of the Companies Act,1956[11] and through their interpretation came to the point that winding-up even when brought up under the supervision of the Court remains voluntary winding up. The Court stated also that the only provision dealing with the remuneration of the liquidator is Section 490 and there is no provision of increasing the numeration as provided under sub-clause (2) of the Section 490, which in literal terms make it clear that the remuneration once fixed by the company cannot be increased in any circumstance whether it is with or without the sanction of the Court.

It is possible that the Court in exceptional circumstances can reduce the remuneration, but not in any case can increase it.

Even sub-section (3) of Section 490 further makes it evident that the liquidator is not to take charge of the office, until and unless the remuneration of the liquidator has been fixed. This enables the liquidator in advance to weigh the advantages and disadvantages of his proposed appointment. In case, he does not consider the remuneration decided is adequate, he is free to refuse the office. However, if he accepts it once, the deal is final and under no circumstances, there can be a scope of change in it.

There is an absolute bar against an increase in the remuneration of the liquidator even when the concern is genuine. But the court does not have any authority to add or vary the language of an enactment. Therefore, the appeal after taking all the facts and circumstances of this case into consideration gave its verdict in against of the appellant and said that the appeal does not have any merit and therefore, the appeal is dismissed, the only relaxation the court gave was that the appeal go dismissed without any order as to costs.

Conclusion

This case tried to bring out many facets of the Companies Act,1956 together which consisted of the provisions related to the liquidator as well as the provisions dealing with the voluntary winding-up of the companies. Through, all these provisions Court wanted to come to a conclusion which is neither going against of the appellant as per the law nor against the law of the Country.

The appellant in his contention tried to rely on many provisions of the Company law, but even after citing all these provisions, the appellant did not get able to prove his point before the Court in any way. All the provisions which cited by the appellant, those ultimately lead to the decision in this case against of him as all those provision were directly talking about the scenarios of the winding-up of the company as well as the appointment of the liquidator.

After seeing all the points, the Court took the right decision as per the law as Companies Act,1956 strictly states that once the remuneration of the liquidation is fixed, it cannot be changed in any circumstance, whether it is with the sanction of the Court or without it, and all the provisions ultimately gave the same results. Therefore, the decision by the Court to dismiss the petition was correct as per the law provided.

References:

[1] V. Rajaraman, Liquidator, Globe United Engg & Foundry Co. Ltd.  Vs  Registrar of Companies, 1974 44 CompCas 330 Delhi, ILR 1973 Delhi 870 b.

[2]  Companies Act, 1956, s. 489.

[3] Companies Act, 1956, s. 490

[4] Companies Act, 1956, s. 522.

[5] Companies Act, 1956, s. 523

[6] Companies Act, 1956, s. 524.

[7] Companies Act, 1956, s. 525

[8] Companies Act, 1956, s. 526.

[9] Companies Act, 1956, s. 527.

[10] Companies Act, 1956, s. 499.

[11] Companies Act, 1956 (Act No.1 of 1956).