The term "dividends" in section 555(1)(a) of the Companies Act, 1956 includes debts payable to creditors.

GOPAL RAO EKBOTE, C. J.

( 1 ) THIS is an appeal from the judgment of our learned brother, k. V. L. Narasimham, J. (as he then was) given in Company Application No. 53 of 1969 on 21st April, 1969.

( 2 ) THE facts, in out-line, are that Motor fin. Ltd. went into members voluntary liquidation on 1st October, 1967. As is required under section 488 of the Companies act a declaration of solvency was made by the Directors. T eir opinion was that the company in liquidation will be able to pay its debts in full within the period stipulated in the declaration. The members appointed one M. K. K. Chandrasekharam as the liquidator.

( 3 ) THE liquidator, on 1st March, 1968, called upon the creditors to prove their debts and on 4th April, 1968 he admitted various claims and paid quite a few of them. Only two creditors remained unpaid. They seem to have appeared before the High C urt and asked for condonation of delay in setting up their claims. One of the two, who is the major creditor, was one Gona Venkata Mutyam rao. He died in 1965 long before the company had gone into liquidation.

( 4 ) HIS widow, amongst the several legal representatives, filed the claim before the liquidator. The liquidator found on an enquiry that a sum of Rs. 70,000 as principal was due to the deceased Venkata" mutyam Rao. He also held that by the date of liquidation, interest amounting to Rs. 10,500 on the said capital Was also due. Since respondents 2 to 9 were claiming the said amount from the liquidator, he invested the amount in a scheduled bank in a fixed deposit and directed the legal representatives- respondents 2 to 9 either to produce a succession certificate or a judgment of a civil Court declaring as to who amongst them is entitled to the said amount.

( 5 ) IN pursuance of the said order of the liquidator, respondents 2 to 9 went in for arbitration. The arbitrator appointed by them gave his award on nth july, 1968. According to the award, it is the 3rd respondent who is to receive the entire amount from the liquidator. The said award was made the rule of the court on 31st October, 1968.

( 6 ) WHILE so, the Registrar of Companies directed the liquidator under section 555 (1) of the Companies Act to deposit the amount belonging to late G. Venkata mutyam Rao in the Reserve Bank into the company s liquidation account.

( 7 ) THE liquidator was in doubt as to whether this direction is in accordance with law. He felt that section 555 (1) (a) of the Companies Act is not applicable to a debt payable to a creditor as it is not "dividend" declared within the meaning of section 555 (1) (a) of the Act. He therefore approached the Company Court for the necessary direction.

( 8 ) THIS petition was argued by all the concerned persons before the learned judge. The learned Judge by his order under appeal held that section 555 (1) (a) is not applicable to a debt payable to a creditor. In his opinion the section is applicable only to cases of dividends which are declared to be payable. He felt that the language of section 555 has to be interpreted with the assistance of the rules framed under the said section. Referring to rules 235 to 238 of the Rules made under the section, the learned judge held that section 555 contemplates dividends which were declared and which remained unpaid for six months after the date on which they were declared. Nevertheless, the learned Judge observed: "it might well be that they mean dividends payable to a creditor which had remained unpaid because they were unclaimed for six months after the declaration of the dividends as such". It is this view of the learned Judge that is now assailed by the Registrar of Companies in this appeal.

( 9 ) MR. Jaleed Ahmed, the learned counsel appearing for the Registrar argues that the word "dividend" appearing in section 555 of the Act has to be understood in the context in which it is used. If so read, he submits, it would only mean the debts which are payable to a creditor and which debts remained unpaid fo

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