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of <h1>Rights to Propose Compromise in Winding Up Cases Expanded by Court Judgment</h1> <h3>National Steel & General Mills Versus Official Liquidator</h3> The court clarified that in cases of winding up, both the liquidator and the company, creditors, and members have the right to propose a compromise or ... Company – Membership of, Compromise and arrangement, Winding up – Avoidance of transfer, etc., after commencement of Issues Involved:1. Whether summons or an application for a compromise or arrangement under Section 391 of the Companies Act, 1956, can be moved by the company, creditor, or member if the company is being wound up, or if it can be filed exclusively by the liquidator alone.Detailed Analysis:1. Maintainability of Application by Company, Creditor, or Member under Section 391 in Case of Winding UpJudgment Overview:The primary issue revolves around whether a company, creditor, or member can propose a compromise or arrangement under Section 391 of the Companies Act, 1956, if the company is being wound up or if such an application can only be made by the liquidator.Conflicting Views:- Mahinder Narain J.'s View: Held that only the liquidator can move for a compromise and arrangement under Section 391 once the company is ordered to be wound up. He reasoned that after winding up, members are termed as contributories and have no right to move an application under Section 391.- B.N. Kirpal J.'s View: Contrarily, held that a member does not cease to be a member merely because a winding-up order has been passed and therefore retains the right to maintain an application under Section 391.Supporting Case Law:- Travancore National and Quilon Bank Ltd. (1939): The Madras High Court interpreted Section 153 of the Indian Companies Act, 1913 (analogous to Section 391), holding that both creditors and members retain their rights to propose a scheme even after a winding-up order.- A.M. Muhammed Abdulla Tharaganar v. Official Liquidator (1953): The Travancore-Cochin High Court affirmed that the liquidator is an additional, not exclusive, person who can make an application under Section 153.- Rajendra Prosad Agarwalla v. Official Liquidator (1978): The Calcutta High Court endorsed the view that creditors and members can propose a scheme under Section 391 even after winding up.- Vasant Investment Corporation Ltd. (1982): The Bombay High Court held that the rights of creditors or members to make an application are not taken away when a company goes into liquidation.Statutory Interpretation:- Section 391 of the Companies Act: Allows the court to order a meeting of creditors or members upon the application of the company, any creditor, or member, or in the case of a company being wound up, the liquidator.- Section 446(2)(c): Confers jurisdiction on the court winding up the company to entertain and dispose of any application made under Section 391 by or in respect of the company.Rationale:- The court reasoned that interpreting Section 391 to mean that only the liquidator can move an application would lead to absurd results and conflicts with Section 446(2)(c). The liquidator is considered an additional person who can move the application, not an exclusive one.Conclusion:The court concluded that in case the company is being wound up, the liquidator is an additional person who can frame a scheme for compromise or arrangement and move the court under Section 391. The company, creditors, and members also retain the right to make the necessary application to the court under the same section.Significant Observations:- The court emphasized that a member does not cease to be a member after the winding-up order as long as the requirements under Section 41 read with Section 150 of the Act are complied with.- The Supreme Court's observations in Balkrishan Gupta v. Swadeshi Polytex Ltd. supported the notion that a member continues to be a member until their name is erased from the register of members in accordance with the Act.In summary, the judgment clarified that both the liquidator and the company, creditors, and members have the right to propose a scheme of compromise or arrangement under Section 391 of the Companies Act, even if the company is being wound up.
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