T.K. FASTENER LANKA (PVT) LTD
SEYLAN RANK LTD
COURT OF APPEAL.
DE SILVA, J.
CA NO. 223/97
DC N EGOMBO 2178/SPL.
NOVEMBER 11th, 1998.
DECEMBER 11™, 1998.
MARCH 18™. 1999.
MAY 25™, 1999.
Companies Act, Ss.260. 289, 347 and 449 – Winding up proceedings -Liquidator seeking an order directing a 3"*party to deposit sum held by thesaid party to the credit of the case.
On an application made on 27. 07.' 1973 an Order to wind up thePetitioner Company was made by Court and two liquidators wereappointed. The company under liquidation had in deposit a certainsum of money with the Respondent Bank. The Respondent Bank on19. 11. 1993 informed the Company under liquidation that the Bank hadappropriated the said sum against monies it claimed to be allegedly dueto it from the said Company.
The Liquidator disputed the alleged claim and on 29. 12. 95 made anapplication under S.260 read with S.289 of the Companies Act to theDistrict Court in the winding up proceedings for inter alia, to direct theRespondent Bank, to deposit the said sum to the credit of the case.
The Respondent Bank, contended that the said application cannot bemaintained in the winding up action. Court held with the Respondent.
Any disposition of the property of the company after thecommencement of winding up shall be null and void unless the Courtotherwise orders.
Once a winding up order is made it is that Court (S.449) which hasthe power and jurisdiction to go into any matter relating to the windingup and all steps taken thereunder. The policy seems to be the protectionof the interest of the creditor and to ensure that the free assets of the
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Company at the commencement of winding up proceedings will beavailable for distribution of its creditors and also to avoid multiplicity ofactions to prevent the company funds being wasted.
APPLICATION in Revision from the Order of the District Court ofNegombo.
Case referred to :
C.A. 584/93 – D.C. Colombo 2576/Spl – CAM 25. 03. 1994.
N.R. Sivendrart with Ms. G.E.L. Direkze for Petitioner.
RomeshdeSilvaP.C. withS.R.deLiverafor 2"d Respondent – Respondent.
Cur. adu. uult.
July 27. 1999.
DE SILVA. J.This is an application in revision filed by the Liquidatorsof T.K. Fastener Lanka (Private) Limited from the order dated17. 02. 1997 where in the learned District Judge upheld thepreliminary objection of the respondent regarding themaintainability of the application under Section 260 readtogether with Section 289 of the Companies Act against therespondent.
The facts which led to the above order as set out in thepetition are as follows:
An application to wind-up the company named T.K.Fastener Lanka (Private) Limited was presented to the DistrictCourtofNegomboon 27thJuly 1993 underCaseNo. 2178/Spl.The said application was duly advertised in the news papersand also in the Government Gazette. An order to wind-up theabove company was made by the District Court of Negombo onthe 22nd of November 1993 and two liquidators were appointedby that Court.
The respondent Bank is a duly incorporated BankingCompany limited in liability. T.K. Fastener Lanka (Private)
T.K. Fastener Lanka (Pvt) Ltd. v. Seylan Bank Ltd.
(De Silva. J.)
Limited was a customer of the respondent Bank. The company(under liquidation) had in deposit a sum of U. S. Dollars42,000/= in its Foreign Currency Banking Unit Account No.895231 of the respondents Bank at free Trade Zone,Katunayake.
By letter dated 19th November 1993 the respondent Bankinformed the Company under liquidation that a sum of U. S.Dollars 42,000/= had been transferred from the ForeignCurrency Banking Unit Account to another Account of theCompany in the same Bank which was overdrawn. Therespondent Bank appropriated the said sum of U. S. Dollars42,000/= against monies it claimed to be allegedly due to itfrom the company under liquidation.
The liquidators disputed the alleged claim and by letterdated 14th March 1994 requested the Bank to re-deposit orre-transfer the said sum back to the companies account(under liquidation). The liquidators further required the Bankto prove its alleged claim in the liquidation proceedings.
In this background the liquidators by petition dated 29thDecember 1995 made an application under section 260 readwith section 289 of the Companies Act to the District Court ofNegombo in the said winding-up No. 2178/Spl. for inter alia,the following reliefs:
“(a) for an Order directing the respondent-respondent Bankto deposit the said sum of U. S. Dollars 42,000/= to thecredit of D. C. Negombo case No. 21 78/Sp 1. to be disposedof as required by the liquidation proceedings: or in thealternative,
for a declaration that the transfer and or appropriationof the sum of U. S. Dollars 42,000/= in the ForeignCurrency Banking Unit Account of the petitioner-petitioner company (under liquidation) by the respondent-respondent Bank on 19lh November 1993 is null and void:
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for an Order directing the respondent- respondent Bankto reverse the entry in its books and to re-deposit orre-transfer the sum of U. S. Dollars 42.000/= to theforeign Currency Banking Unit Account of the petitioner-petitioner Company (under liquidation);
for an Order directing the respondent-respondent Bank tohold the sum of U. S. Dollars 42,000/= at the disposal ofthe petitioner-petitioner Company (under liquidation) asper the instructions of the Liquidators;”
The respondent Bank filed objections and the DistrictJudge inquired into the matter. Written submissions of theparties too were tendered to Court, and in that the respondentBank took up a preliminary objection regarding themaintainability of this application in the winding up action.On the 17th of February 1997 the learned District Judgedisallowed the application of the liquidators with costs andheld that the said application could not be made in the sameproceedings.
The present application to this Court is to revise the saidorder of the learned District Judge.
Counsel for the petitioner contended that the said order isex Jacie wrong and there has been a miscarriage of justice asthe learned District judge has not given any reasons for theorder. He further submitted that the order is contraiy to theimperative statutory provisions contained in the CompaniesAct.
Counsel for the respondent Bank among other matterscontended that-
The debt is disputed and a regular action should be filed
against the Bank.
The Court has no power in winding-up proceedings tocompel a 3rd party to bring in and deposit a debt.
T.K. Fastener Lanka (Pvt) Ltd. v. Seylan Bank Ud
(De Silva, J.)
The company (under liquidation) is seeking to
recdver money without proper trial by way of summary
The application by the liquidators on behalf of thecompany was filed under Section 260 and 289 of theCompanies Act. Section 260 reads as follows:
“In a winding-up by the Court, any disposition of theproperty of the company, including things in action andtransfer of shares or alteration in the status of the membersof the company, made after the commencement of thewinding-up shall, unless the Court otherwise orders be void."
It is clear from the above section that any disposition of theproperty of the company after the commencement of thewinding-up shall be null and void unless the “Court"otherwise orders. Section 289 of the Companies Act reads asfollows: 'The Court may, at any time after making a winding-up order, require any contributory for the time being on the listof contributories, and any trustee, receiver, banker, agent orofficer of the company to pay, deliver, convey, surrender, ortransfer forthwith, or within such time as the court directs, tothe liquidator any money, property, or books and papers in hishand to which the company is primaJacie entitled."
The scope of section 260, the manner and the procedurethat have to be followed in an application under section 260 ofthe Companies Act was fully considered in C.A. Application584/93'11, (This is an unreported case. Counsel for thepetitioner was good enough to file a photo copy of the abovejudgment for our perusal).
In that case Hon. Justice Sarath. N. Silva the thenPresident of the Court of Appeal having analysed theprovisions relating to Section 260, observed that anapplication under Section 260 invoking the jurisdiction of the
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winding-up Court should be by way of petition and affidavitnaming the respondent who will be affected by the order.
The "court" referred to in sections 260 and 289 has beendefined in Section 449 of the Companies Act to be the DistrictCourt which takes steps to wind-up the Company, it reads asfollows ‘The Court” used in relation to a company means theDistrict Court having jurisdiction to wind-up the company."
Counsel for the petitioner relying on Section 260. and289 of the Companies Act submitted that the winding-upproceedings of T.K. Fastener Lanka (Private) Limited ispending in the District Court of Negombo and therefore theDistrict Court of Negombo has jurisdiction to hear anddetermine this application and any matter arising out of thewinding-up proceedings of the company under liquidation.
It was the contention of the respondent's Counsel that ifthis kind of application is allowed to be made in the winding-up proceedings there will be confusion and the entire winding-up process would be complicated.
This contention of the counsel for the respondent cannotbe accepted for the following reasons:
It is to be noted that once a winding-up order is made, itis that court which has the power and jurisdiction to go intoany matter relating to the winding-up and all steps taken thereunder. The policy seems to be the protection of the interest ofthe creditors and to ensure that the free assets of the companyat the commencement of winding-up proceeding will beavailable for distribution of its creditors and also to avoidmultiplicity of actions to prevent the company funds beingwasted.
In the instant case of consent of all pallies on the 22ndof November 1993 winding-up order has been made. Theliquidators are in the process of recovering the assets in order
T.K. Fastener Lanka (Put) Ltd. u. Seylan Bank Ltd.
(De Silva. J.)
to distribute the same to the creditors in terms of section 347of the Companies Act.
In these circumstances we hold that the District Court ofNegombo has jurisdiction to hear and determine the matter inissue.
We note that the respondent has filed objections andwritten submissions in respect of the main question inthe District Court. The petitioner too has filed his writtensubmissions. The District Judge has given the order only onthe preliminary question raised.
We set aside the order dated 17. 02. 1997 and directthe learned District Judge to proceed with the inquiry withregard to the “disposition” of the property and make an orderaccording to law. This case should be given priority andconcluded expeditiously. This application is allowed withcosts.
WEERASURIYA, J. I agree.Application allowed.