G. P. h. SILVA, J,—Fenguard Insurance Co, Ltd. v,
Puhtsmt Transit Co. Ltd.
1962Praseni:X, aai G. I*. A. Bflva, X
VANGUARD INSURANCE CO. LTD., Appellant, md RUHUNUTRANSIT CO. LTD., Respondent
S. G. 42160—.D. C. Matara, 1149 (M
Company Law—Action filed against a Company for recovery of money—Subsequentproceedings taken by the Company for voluntary liquidation—Power of Court tostay proceedings pending action—Companies Ordinance, ss. 166, 216-220, 243.
Shortly after action was filed by plaintiff against the defendant Companyfor the recovery of a certain sum of money the defendant went into voluntaryliquidation, and the liquidator was added as a defendant. The defendantsthen prayed that the action be stayed and the plaintiff be directed to provehis claim in the winding-up. They also denied liability and submitted anaffidavit to show that they had sufficient assets to meet the claims of all creditors.
jBeld, that even if the case was such that the liquidator could appropriatelyrefer to Court the question of staying the action by virtue of the provisionsof section 243, read with section 166, of the Companies Ordinance, the exerciseby Court of the power to stay proceedings would not be just and beneficial tothe parties concerned.
Appeal from a judgment of the District Court, Matara.
C. Ranganathan, with S. C. Crossette-Thambiah, for Plaintiff-Appellant.
K. Shinya, with U. C. B. Ratnayake, for Defendant-Respondent and
Cur. adv. mdt.
July 9, 1962. G. P. A. Silva, J.—
The Plaintiff in this case, the Vanguard Insurance Co. Ltd., filed actionon 18th December, 1957 in the District Court of Matara against TheRuhunu Transit Co. Ltd., for the recovery of Rs. 41,294-11 being theamount due to the Plaintiff on account of insurance premia in respect ofcertain buses belonging to the Defendant company which buses had beeninsured with the Plaintiff. Very shortly after this action was filed, theDefendant went into voluntary liquidation and the liquidator, Noel deCosta of Carter de Costa & Co., was added as a Defendant to the action.Thereafter, the Defendant and the Added-Defendant filed answer on 27thJune, 1958 praying inter alia that the action be stayed. They alsopleaded that, according to the Defendant’s books of accounts, creditwas due from the Plaintiff to the Defendant on account of premia return-able to and claims settled by the Defendant and that after these amountshad been set off against moneys due to the Plaintiff the net sum owingfrom the Defendant to the Plaintiff was Rs. 23,646 05 as at 31st December,1957, The Defendant further stated that the assets of the Defendant
G. P. A. SILVA, J.— Vanguard Insurance Go. Ltd. v.
RuhQnu Transit Co. Ltd.
company were compulsorily acquired by the Ceylon Transport Boardon 1.1.1958 but that, though compensation was payable in terms of theMotor Transport Act No. 48 of 1957 such compensation had not been paidand that such assets as were in the hands of the Added-Defendant wereinsufficient to pay the Plaintiff’s claim even if such payment were per-mitted in law. The Defendants, therefore, prayed that the Plaintiff’saction be dismissed in respect of any sum in excess of Rs. 24,646 05 andalso that the action be stayed and the Plaintiff directed to prove hisclaim in the winding up.
The Added-Defendant also filed together with the answer a petitionsupported by an affidavit praying that the action be stayed and thatthe Plaintiff be directed to prove his claim in the winding up, pleading,among other things, that the action was an attempt on the part of Plain-tiff to obtain an undue preference or an advantage over the other creditorsof the Defendant, that the Plaintiff’s proper remedy was to prove itsclaim in the voluntary winding up and that, even if the Plaintiff obtainedjudgment and decree against the Defendant it cannot in fact or in lawlevy execution of such decree against the Defendant. The applicationmade by the Added-Defendant was taken up for inquiry by the learnedDistrict Judge in the first instance and he made order that the proceed-ings be stayed as prayed for and directed the Plaintiff to prove its claimin the winding up. The present appeal is from the order of the DistrictJudge.
In arriving at a decision in this matter it is important to rememberthat the amount in dispute regarding which the Defendant made only ageneral averment was as much as Rs. 17,648 06 made up of a number ofitems in which not only the quantum but even the liability was clearlyin issue. While the Plaintiff filed with the plaint the full account parti-culars which made up the claim for Rs. 42,294T1 alleged in the plaint asbeing due to the Plaintiff, the Defendants filed-no such account in support-of their averment in the answer that only Rs. 24,646-04 was due. It ismost unlikely in the circumstances that the liquidator will be able toadjudicate between the parties and to decide on the amount due withouta reference to Court.
Section 166 of the Companies Ordinance deals with the power of aCourt to stay or restrain proceedings against a company after the presen-tation of a winding up petition and before a winding up order hasbeen made. This section enables a company or any creditor to apply tothe court in whioh an action or proceeding is pending to stay proceedingstherein at any time after the presentation of a winding up petition andbefore a winding up order has been made and the Court is empowered•on such application to stay or restrain proceedings on such terms as itthinks fit.
But section 161 and subsequent sections show that the proceedings•contemplated by section 166 relate to cases where winding up is by Courtand action can be taken to stay or restrain proceedings only after the
Q. P. A. SILVA; J.— Vanguard Insurance Co, Ltd, ».
Rtihunu Transit Co. Ltd.
presentation of a -winding up petition to Court in terms of section 164-£n tire present case no petition for 'winding up by Court having been
presented and the Defendant company having only initiated action fora voluntary liquidation or winding up, the provisions of section 166 wouldnot directly apply- The provisions applicable in such a case are to befound in sections 216 to 220 of the Ordinance. While these sections donot contain any express provision empowering a Court to stay any actionor proceeding brought against the company, section 243 permits a liqui-dator or a creditor to apply to Court for determination of any questionarising in the winding up and thereupon the Court can exercise thesame powers as it might exercise in the case of a winding up by Court.
Mt. Renganathan for the Plaintiff-Appellant has argued that in regardto a voluntary winding up there is no prohibition in law for an actionto proceed. He further submitted that even if by virtue of the provisionsof section 243 the liquidator in the case of a voluntary winding up mayapply to Court to determine any question arising in the winding upof a company as in the case of a winding up by Court, the Court will notstay proceedings when creditors can be paid in full and when the liabilityitself is disputed. He relied on the affidavit of the Added-Defendant toshow that the creditors could be paid in full.
Mr. Shinya for the Defendant-Respondent has contended on the otherhand that no Court will allow an action to proceed where one creditorwill thereby obtain an advantage over another creditor and has citeda passage from Buckley on the Companies Acts (11th Edition) page393 where it is stated that the scope of the Act is to bring all claims withinthe winding up and to prevent persons from enforcing the demands byaction. He further argued that, where there was a voluntary windingup, all creditors have to be paid pari passu and the Court will interfere byinjunction to restrain one creditor from seizing an undue share of theassets of the company for its own benefit, and that, when a creditor com-menced action after a resolution to wind up voluntarily the Courtrestrained the action.
It seems to me that the passage in Buckley referred to would properlyapply firstly, where an action commenced after the resolution to windup voluntarily, secondly, where the creditors are to be paid pari passu,the assets being clearly insufficient to meet the claims of all creditors,and, thirdly where a creditor who institutes an action will gain an advantageover the other creditors. In this case the action was commenced beforethe resolution to wind up. On the affidavit of the Added-Defendant,the liquidator, the total value of the assets of the Defendant com-pany far exceeded the sum of its liabilities. The Plaintiff creditor willnot, by being allowed to pursue the action and by obtaining a judgmentas to the amount due, gain an advantage over the other creditors. Noprejudice whatsoever can be caused to any other creditors by a continua-tion of this action and by an adjudication as to the actual amountdue to the Plaintiff. For, even if the assets were insufficient to meet
Hussain v. The Tribunal of Appeal under Licensing of Traders Act
the liabilities and all the creditors were to be paid pari passu, it wouldalways be possible for the Added-Defendant to apply to Court for stayof execution of the decree until he was prepared to distribute the assetspari passu amongst the creditors at the final winding up.
On the other hand an order to stay this action must necessarily eauseprejudice to the Plaintiff. The nature and extent of the amountdispute between the parties is such that a reference to Court by theliquidator at the time of the distribution of the assets will indeed beinevitable. A reference to Court at that stage is bound to delay thepayment of his dues to the Plaintiff who will have to await the decisionof Court before receiving such payment. In this view of the matter Ifeel that even if this was a case in which the liquidator could appropriatelyhave referred to Court the question of staying the action by virtue of theprovisions of section 243 read with section 166 of the CompaniesOrdinance, the exercise by Court of the power to stay proceedings wouldnot be just and beneficial to the parties concerned.
For these reasons I allow the appeal and direct that the action filedby the Plaintiff-Appellant which was stayed be proceeded with. ThePlaintiff-Appellant will have the costs of this appeal.
Sahsoni, J.—I agree.
VANGUARD INSURANCE CO. LTD., Appellant, and RUHUNU TRANSIT CO. LTD., Respondent