Sharma, J. - (1.) THIS is a petition u/s 522 of the Indian Companies Act, 1955 (hereinafter called the Act) by the liquidator of Sri Udaibhan Industries Limited, Dholpur (hereinafter called the company) for continuing the voluntary winding up of the company subject to the supervision of this Court. The company has its registered office at Dholpur in the district of Bharatpur According to the petition the members and creditors of the company in their respective meetings dated 2nd December, 1956 at Kotah resolved to wind up the company voluntarily and appointed Sri Hardit Singh as its liquidator for the purpose of winding up. The petition further says that the members by a special resolution passed in the extraordinary general meeting held at Kotah on 2nd December, 1956 advised the liquidator to make an application u/s 522 of the Act to the court for supervision order. It has been stated that the affairs of the company being complicated it appears very difficult to carry on the effective winding up of the company without the supervision of the court. It has therefore been prayed that a supervision order may be made to the effect that the voluntary winding up shall continue subject to the supervision of the court or any other relief may be given which may be found just and proper under the circumstances.
(2.) NOTICES were issued in accordance with Rule 556 of the Rules of this Court. None of the members or the creditors of the company excepting the State of Rajasthan (hereinafter called the State) has appeared to contest the petition. The objection of the State is that there was no valid notice of the meeting of the creditors nor was it advertised either in the official gazette or in any news paper and that from the resolution passed on 2nd December, 1956 it does not appear as to whether full statement of the company's affairs together with the estimated amount of their claims was placed before their meeting. It has been stated that from the resolution it appears that neither the notice of the resolution moved by the members nor that of the meeting of the creditors was given due publicity. It has further been pleaded that the members present in the meeting knowingly and fraudulently suppressed the fact that the company in addition to other liabilities was also liable to pay the Government dues amounting to Rs. 1,55,189/9/9 in respect of the customs dues. It has also been pleaded that the liquidator appointed was not a fit person to be appointed as such and that his appointment was not for the benefit of the creditors and for the good of all concerned. It has been submitted that even if the Court finds the resolution regarding the voluntary winding up to be valid, the present liquidator was unfit to continue as such and that he should be removed. A replication has been filed on behalf of the petitioner and it has been stated that the representative of the State was present throughout the deliberations in the meeting of 2nd December. 1956 and never objected (1) to the validity of the resolution or resolutions passed therein and (2) to the appointment of the liquidator. It has been stated that the State being a single member cannot over-rule other members present in the meeting in person and through proxies. It has further been stated that the Government never objected to the appointment of the present liquidator with whom they have been in regular correspondence and from whom they have accepted share certificates supplied to them. It has been pleaded that if the objection of the State is as creditor, they lost their right when they did not attend creditors' meeting in spite of the notice having been served upon the Chief Secretary of Rajasthan on 7th November 1956 and also on the Collector, Bharatpur on 6th November, 1956. It has further been stated that the Superintendent, Electrical and Mechanical Department, Dholpur another creditor of the company, was fully represented in the creditors' meeting dated 2nd December, 1956. Further it has been stated that notice for creditors' meeting dated 2nd January, 1957 appeared to have been sent to the following persons whose acknowledgments are on the record : (1) Chief Secretary, Government of Rajasthan, Jaipur, (2) Collector, Bharatpur, (3) Superintendent, Electrical and Mechanical Department, Dholpur, (4) R. B. Hariram and Sons, Delhi, (5) Sri Mahendra Singh, Patiala, (6) Sri J. S. Rathore, Ratlam, (7) Messrs. Chandulal & Co. , Bombay, (8) Seth Ganeshdas Hamirmal, Kotah, and (9) Seth Ganeshlal Sobhagmal, Bombay. It has been stated that out of the above only three creditors, namely, Nos. 3, 8 and 9, participated in the meeting and passed resolutions confirming proceedings by the members and also appointment of the liquidator. It has been stated that Sri K. B. Dangayach, the objector on behalf of the State, did not attend the meeting for the reasons best known to him although he attended the meeting of the members and took part in the deliberations thereof. It has been admitted that from the records it appears that no advertisement as required under sub-sec. 2 of sec. 500 of the Act was made by the erstwhile management of the company. It has however been pleaded that it would not invalidate the proceedings taken by the creditors who were present in the meeting. It has been admitted that the publicity of notice to creditors was essential under the present law and a penalty has also been provided for not complying with such requirements but it has been pleaded that this does not mean that the non-publication of the notice in the papers makes the proceedings undertaken null and void. It has been pleaded that under the Companies Act of 1913 which was replaced by the present Act, publicity was required to be after the passing of winding up resolution and under the impression that the publicity was required to be made afterwards advertisement was made in the Government Gazette and one Hindi paper after the resolution for winding up had been passed. It has been submitted that the provisions in the present Act being altogether new it had genuinely escaped the eyes of the erstwhile management of the company who appeared to have not given publicity as required by the present Act. It has been further submitted that the meeting of the creditors was held and resolutions passed which could not be termed as invalid. It has been further pleaded that under sub-section 3 clause (a) of sec. 500 of the Act a full statement of the position of 'he company's affairs together with a list of the creditors and estimated amount of their claims was required to be laid before the meeting of the creditors but this could not be done because the records of the company were looked up by Collector, Bharatpur and the officers of the company had been ousted from their office. It has been submitted that it was wrong to say that the claim of the Government was suppressed as a notice was sent to the Chief Secretary of the Government of Rajasthan and the Collector, Bharatpur of the meeting and it was duly acknowledged by them. As regards liquidator it has been said that he was a very experienced liquidator and his appointment was a quite proper. I have heard Sri B. S. Sharma on behalf of the petitioner and Sri R. A. Gupta, Deputy Government Advocate on behalf of the State. From the material placed on the record of this case and the admissions of the petitioner in his replication dated 5th Sept. , 1957 it is quite clear that no notice of the meeting of the creditors was advertised as required by sec. 500 (2) of the Act. It also appears that full statement of the position of the company's affairs together with a list of the creditors of the company and the estimated amount of their claims was not laid before the meeting of the creditors as required by sub-sec. 3 of sec. 500 of the Act. The law has enjoined that the notice of meeting of the creditors for voluntary winding up shall be advertised once at least in the official gazette and once atleast in two newspapers circulating in the district where the registered office or principal place of business of the company is situate. It is admitted on behalf of the petitioner that no such advertisement was made. It is also necessary under sub-sec. 3 of sec. 500 of the Act that a full statement of the position of the company's affairs together with a list of the creditors of the company and the estimated amount of their claims shall be laid before the meeting of the creditors to be held under sub-sec. 1 of sec. 500. It has not been shown that any such statement was laid before the meeting of the creditors; rather it has been admitted that from the record it appears that no such statement was laid. Mr. Sharma, however, on behalf of the petitioner argued that although on account of the omission to place the full statement of the position of the companys' affairs as required by sec. 500 (3) (a) of the Act the winding up cannot be taken to be a members' winding up yet it can be taken to be "a creditors winding up". It has been argued that in the care of "a members' voluntary winding up" a declaration regarding solvency is required to be made under the provisions of sec. 488 (1 ). No such declaration was made and therefore the winding up cannot be said to be "2 members' winding up". It was argued that in a winding up in the case of which such a declaration has not been made as required by sec. 488 (1) of the Act the winding up would be taken to be "a creditor' voluntary winding up," It has been argued that there is no provision in the Companies Act nullifying a creditors' winding up if the provisions of sec. 500 (2) and (3) regarding the advertisement of the notice and the placing of the full statement of the position of the company's affairs are not followed. It has further been argued that the State was represented by Mr. K. B. Dangayach at the members meeting but did not raise any objection to the validity of the resolution and no body on behalf of the State attended the meeting of the creditors in spite of the notice,and therefore the State has got no right to object to the validity of the resolution or to the application for continuing winding up proceedings subject to the supervision of court. On behalf of the State opposite party it has been argued by Shri R. A, Gupta that the provisions of secs. 488 and 500 of the Act are mandatory and if they are not followed there can be no valid "members' or creditors' voluntary winding up" and when there is no such valid winding up the provisions of sec. 522 regarding supervision by court do not apply. It was argued that it is not necessary that there should be specific provision in the Act that if a resolution for creditors' voluntary winding up has been passed it is null and void in case of omission to comply with the provisions of sub-sec. (2) and (3) of sec. 500 of the Act. I have considered the arguments of both the learned counsel. It is quite clear that there was no declaration of solvency by the Directors at the meeting of the Board as required by sec 488. (1 ). There was therefore no valid members' voluntary winding up. Learned counsel for the petitioner has himself conceded that the winding up in the present case cannot be Taken to be a valid members' voluntary winding up. It was however argued that by Virtue of sub-sec. 5 of sec. 488 of the Act the winding up should be taken to be "a creditors' voluntary winding up". Sub-sec. 5 of sec. 488 of the Act runs as follows: - 'a winding up in the case of which a declaration has been made and delivered in accordance with this section is in this Act referred to as "a members" voluntary winding up" and a winding up in the case of which a declaration has not been so made and delivered is in this Act referred to as "a creditors" voluntary winding up". In the absence of declaration of solvency, as required by sec. 488 (1), the winding up in this case could be taken up to be a creditors' winding up if a meeting of the creditors had been held after complying with the provisions of sec. 500, sub-secs. (1) and (2) and a full statement of the position of the company's affairs together with a list of the creditors of the company and the estimated amount of their claims had been caused by the Board of Director to be laid before the meeting of the creditors. It has been conceded by the learned counsel for the petitioner that no advertisement was made as required by sub-sec. (2) and no full statement of the position of the company's affairs was laid before the meeting of the creditors, as required by clause (a) of sub-sec. (3) of sec. 500. To give effect to the resolution of the company dated 2nd December 1956 for the voluntary winding Up the company, it is necessary that the provisions regarding the advertisement as provided by sub-sec. (2) and the provisions regarding the laying of full statement of the position of the company's affairs as required by clause (a) of sub-sec. (3) of sec. 500 are complied with. As in this case those provisions have not been complied with, I am not prepared to make an order at present that winding up should continue under the supervision of the Court. The question is as to what would be the proper order at this stage. Should the application of the petitioner be dismissed or the company should be given an opportunity to hold a meeting of the creditors after full compliance with the provisions of sec. 500. On a perusal of the various provisions of the Companies Act relating to the voluntary winding up, I do not think that a resolution passed by the company about the voluntary winding up of the company should be struck down simply because the meeting of the creditors has not been held in strict compliance with sec. 500 of the Act. It appears that the winding up of the company should voluntarily has been left to the shareholders of the company but in order to give a voice to the creditors in certain matters regarding winding up, provision has been made in sec. 500 that their meeting be called after certain formalities and full statement of the position of the company's affairs should be laid before the meeting. This is for the reason that the creditors may have a voice in such matters as the appointment of the liquidator and may also appoint a committee of inspection. The resolution dated 2nd of December 1956 passed by the shareholders stands but in order to give effect to it, it is necessary that the meeting of the creditors should be held in accordance with the provisions of sec. 500 Although sub-sec. (1) of sec. 500 of the Act provides that a meeting of the creditors of the company should be called for the day or 'he day next, following the day on which there is to be held the general meeting of the company at which the resolution for voluntary winding up is to be proposed, yet sub-sec. (5) provides that if the meeting of the company at which the resolution for voluntary (winding up is to be proposed is adjourned and the resolution is passed at an adjourned meeting, any resolution passed at the meeting of creditors held in pursuance of sub-sec. (1), shall have effect as if it had been passed immediately after the passing of the resolution for winding up the company. This means that although on account of the adjournment of the meeting of the company any resolution is passed at the meeting of the creditors held in pursuance of sub-sec. (1 ). even before the resolution for winding up is passed by the company,yet it would have the effect as if it had been passed immediately after the passing of the resolution for winding up the company. Thus no particular importance appears to attach to the meeting of the creditors of the company either on the same day on which the resolution for its winding up is passed or on the day next following. And if it is not held on the very day the resolution is passed for winding up by the company or the day next following, it may at the most be an irregularity which can be cured by holding a meeting of the creditors sometime after in accordance with the provisions of sec. 500. I find support for this view of mine from the decision of a Division Bench of Nagpur High Court in the case of G. R. Deo Liquidator, C. P. and Berar Government Clerks' Mutual Benefit Fund, Nagpur vs. F. Karim (1 ). In that case, the resolution for winding up of the company was passed on the 9th June, 1940, but no creditors' meeting was called for the day of the meeting as directed by sec. 209 (a) (i) of the Companies Act. 1913, as amended by the Act of 1936. An application was made under sec. 216 Companies Act, for having certain questions determined. An objection was raised that an omission to comply with the provisions of sec. 209 (a) (i) was fatal. It was observed by the learned Judges of Nagpur High Court that : - "as for as we can gather the general rule appears to be that a company cannot do that which the Act prohibits, but incases where it is empowered to do a thing and it does it irregularly, that can be cured. When we examine S's. 202a to 209h we find that the creditors have no right of representation at the company's meeting and that they have no power to influence that decision. In a case of this kind the company alone can decide whether it should be wound up or not. All that the creditors can do at the meeting contemplated by S. 209a (1) is to nominate a liquidator and appoint a committee of inspection They are also entitled to have a full statement of the position of the company's affairs together with a list of the creditors of the company and the estimated amount of their claims to be laid before them at this meeting. In the circumstances, seeing that the creditors cannot influence the right of the company to wind itself up voluntarily, we prefer the view which considers that an omission to convene the creditor's meeting as provided by S. 209a (1) is only an irregularity which can be cured and not an illegality which vitiates the resolution winding up the comparty We note in passing that S. 209a (6) states what is to happen in the event of a default in complying with the provisions of S. 209 (A ). It prescribes certain penalties but does not invalidate the resolution. That is also a matter to be taken into consideration. On the whole we agree with the learned District Judge, and cur answer to the first question is that 9th June 1940 must be regarded as the date on which the liquidation commenced". I respectfully agree with this view of the learned judges of Nagpur High Court. It may be noted that sec. 209 (a) (1) of the Companies Act 1913, as amended by the Act, 1936, was the same as sec. 501 of the present Act. Sub-sec. (2) and (3) of sec. 209 (a) of the Act of 1913 were the same as sub-secs. (2) and (3) of sec. 500 of the present Act. Sec. 502 of the present Act regarding the appointment of liquidator is substantially the same as sec. 209 (b) of the Act of 1913 and sec. 502 regarding the appointment of committee of inspection is substantial the same as sec. 209 (c) of the Act of 1913. Therefore, the observations of the learned Judges of the Nagpur High Court in the above mentioned case apply to the facts of this case. I am, therefore, of opinion that the irregularity can be cured if the company is to hold a meeting of the creditors of the Company in compliance with the provisions of sec. 500 of the Act. I, therefore, think it proper to do what Lort-William J, did in the case of In re Light of Asia Insurance Co. Ltd. (2) in similar circumstances and give the company two months time to hold a meeting of the creditors after - (1) sending notices of the meeting by post to the creditors. (2) causing notice of the meeting of the creditors to be advertised once at least in the official gazette and once at least in two newspapers circulating in the district where the registered office or principal place of business of the company is situate. The Board of Directors shall also : (a) cause a full statement of the position of the company's affairs together with a list of the creditors of the company and the estimated amount of their claims to be laid before the meeting of the creditors to be held as aforesaid; and (b) appoint one of their member to preside at the said meeting. It shall be the duty of the director appointed to preside at the meeting of creditors to attend the meeting and preside thereat. At this meeting, the creditors will also consider the question of nomination of a liquidator under the provisions of sec. 502 and it will be open to them to appoint the same liquidator Shri Har Datt Singh as liquidator if they so like. They may also consider the question of the appointment of committee of inspection at this meeting and appoint a committee of inspection consisting of not more than five persons, if they think fit. The Liquidator Shri Har Datt Singh and the directors of the company shall apply to the Collector, Bharatpur, forthwith to place them in possession of all necessary papers which they might consider necessary for preparation of a full statement of account to be placed before the meeting of the creditors, as required by clause (a) of sub-sec. (3) of sec. 500. The opposite party, Rajasthan State, is also directed to issue instructions to the Collector, Bharatpur to make available to the liquidator Shri Har Datt Singh and the directors of the company all such papers as they require for the preparation of the full statement of account required to be laid at the meeting of the creditors of the company under sec. 500 (3) (a) of the Act. The Liquidator Har Datt Singh shall not proceed with the winding up pending the decisions to be made at the creditors' meeting, except to receive whatever dues of the company are tendered to him for which he will pass due receipt and in case any claim is apprehended to be time barred during this period, he shall apply to this Court and receive orders from it as to what is to be done for the realisation of the said amount. Let the case be put up for final orders after two months. The Directors of the company or the Liquidator Shri Har Datt Singh shall file any resolution passed at the creditors' meeting ordered to be held and its proceeding in the meanwhile in this Court. . ;