The court's decision was influenced by the interpretation of the Companies Act and the principle of distributing assets pari passu among the creditors in the context of voluntary liquidation.

V. R. NEWASKAR, J.

( 1 ) THE State obtained a judgment against the Dewas Biscuit and Food Products ltd. , for costs and submitted an application for issue of certificate regarding nonpayment of the costand awarded. The Dewas Biscuit and Food Products Ltd. , (a company incorporated under the Company Act) is being voluntarily wound up and the Liquidator appointed for the purpose deposited the amount of costs and submitted an application for stay of the proceeding in execution for the recovery of the amount of the costs from the Company on the ground that the Company is being voluntarily wound up. The application purported to be one under Section 442 and Section 518 of the companies Act. This Court directed the Liquidator to deposit the amount in Court and reserved consideration on the question of payment to the decree-holder until the disposal of the application for stay submitted on behalf of the Company.

( 2 ) IT is contended on behalf of the State that although the High Court has ample jurisdiction to direct the amount to be distributed amongst the creditors of the company yet it has discretionary power to permit the paltry amount of costs in respect of the application to be paid to the decree-holder. It is urged that this discretionary power should be exercised in this case in favour of the decree-holder.

( 3 ) MR. S. R. Joshi, who appears for the Liquidator, contends that the usual rule in such matters is to make the assets of the Company available for distribution amongst the creditors of the Company unless a particular creditor, may be a judgment creditor, is entitled to a preferential claim. In this case, it is pointed out, that the State cannot be said to be a preferential claimant having regard to the term of Section 530 of the Companies Act, In support of his contention reliance was placed by the learned counsel upon the observations of Scrutton, L. J. , in Anglo Baltic and Mediterranean Bank v. Barber and Co. , (1924) 2 KB 410. It was observed at page 417:-

"the effect of that (of voluntary liquidation) was that by Section 186 of the Companies Act (English Act) the assets of the Company become divisible equally among the creditors pari passu, and the result of that statutory provision has been that the powers of the Court to stay actions against a company in compulsory liquidation have been extended in practice to companies in voluntary liquidation, and it is now the almost invariable practice when a company is in voluntary liquidation to stay proceedings in an action against it, because the result of allowing a judgment-creditor to proceed to execution might be that, instead of the assets being divided among the creditors pari passu, the judgment-creditor, by enforcing his judgment, would obtain an advantage over the other creditors. "

( 4 ) THIS case is followed in Buta Singh and Sons Ltd. v. People's Bank of Northern india Ltd. , AIR 1931 Lah 589.

( 5 ) HAVING regard to the principles enunciated in these cases and in view of the scheme underlying in Section 511 of the Companies Act I would direct withholding the payment of this amount to the State and leave it to be available for the creditors of the Company to be distributed pari passu in accordance with the scheme underlying Section 511. It is open for the State to prove their debt in accordance with law and claim the amount out of the assets of the Company rateably.

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