Judgment :- 1. These appeals arise out of the liquidation of a limited liability company which was carrying on business under the name and style of Malankara Industrial and Mercantile Co. Ltd., Triuvella. The object with which the company was started was to manage a tea estate belonging to the company and to trade in tea. The company went into voluntary liquidation after succeeding in selling its estate for an unexpected price of over three lakhs of rupees. A liquidator was appointed for distributing the assets which were far in excess of the liabilities which were practically nil. The only persons who were entitled to payment were the shareholders and the promoters of the company, there being no depositors. If the persons entitled to share in the assets which the liquidator was called upon to distribute were the shareholders alone, there would have been no complication. But there is provision in the Memorandum and Articles of Association of the Company for conferring special benefits on the promoters after the shareholders' claims are satisfied to a certain extent. The promoters who are 14 in number claimed that special benefit from the liquidator who thereupon applied to the court below for directions. The points on which the liquidator asked for directions were these: (1) Whether under Art. 100 of the Articles of Association of the Company, the promoters could claim the special favours reserved under that article in the absence of declaration of a dividend by the company. The extent of the benefit is mentioned therein. It must be mentioned in this connection that the 'profits' available for division are not the profits made in carrying on the business of the company, but by an outright sale for a very high price of the whole estate to manage which the company was formed. On this question the court below held that the promoters are entitled to the benefit contemplated by this claim although the condition that was alleged to have been fulfilled in favour of the shareholders had reference not to the distribution of dividend to the shareholders but of the price realised by sale of the assets of the company in their entirety. (2) The promoters of the company were originally under an obligation to purchase a certain number of shares. The company had been in existence for 32 years. (2) The promoters of the company were originally under an obligation to purchase a certain number of shares. The company had been in existence for 32 years. In the course of that period, some of the promoters had parted with their shares in favour of third parties. Therefore, the question arose as to whether the special benefit reserved in favour of the promoters could be claimed by a promoter who had parted with all his shares in favour of third parties and did not hold any share on the date he claims such benefit. This question was answered by the lower court in the affirmative. (3) Another question on which directions were sought referred to the case of promoters who are dead. The question was whether their legal representatives or assignees of shares owned by them are entitled to the same benefit. This question was also answered in the affirmative by the court below. (4) The remaining questions dealt with shareholders whose whereabouts are not known or who were last known to have resided in enemy occupied country and shareholders who are dead but whose legal representatives have not come forward to prove their claims. The question was asked for clarification referred to the procedure to be adopted by the liquidator in dealing with such cases. The answer given by the court below was that the amounts coming under these categories must all be deposited in the Anchal Savings Bank in the names of the original shareholders with details as to why the deposit is made, so that they or their assignees or legal representatives may claim the amount in due course. 2. In respect of these directions given by the court below the liquidator has brought A.S. No. 237/1123 objecting to the correctness of the decision of the court below. A.S. 238/1123 is brought by an ordinary shareholder who was not expressly impleaded as a party in the court below but who on the ground of his being an aggrieved party whose interests are prejudiced by the decision of the Court below has applied for leave to appeal (CMP 789/1124) and has brought an appeal from the decision of the court below. In fact he supports the contentions of the liquidator and therefore there is no conflict between his case and the case that is put forward on behalf of the liquidator. In fact he supports the contentions of the liquidator and therefore there is no conflict between his case and the case that is put forward on behalf of the liquidator. The liquidator is supporting the contentions of the ordinary shareholders as against the promoters of the company who are contending that they are entitled not only to distribution of the assets according to shares owned by them but also to the special benefits reserved in their favour by Art. 100 of the Articles of Association. 3. In view of the fact that there is no conflict between the case put forward by the ordinary shareholder who has brought A.S. 238/23 and the case of the liquidator in A.S. 237 of 1123 we grant his prayer contained in CMP 789/1124 and permit him to prosecute his appeal which is fully supported by the liquidator and which is consistent with the contentions of the liquidator in his own appeal No. 237/1123. 4. Interesting arguments have been addressed on the questions involved by Mr. Kuruvilla on behalf of the ordinary shareholders, which are the same as the arguments addressed on behalf of the liquidator, and by Mr. K.P. Abraham in support of the contention for special benefits on behalf of the promoters. These contentions centre round two questions of law. They are (1) when the entire property of the company is sold, can the price realised be called profits within the meaning of the Articles and Memorandum of Associations of the company? (2) Will the Articles of Association apply in respect of the assets of a company after it is wound up. 5. A number of English decisions have been cited and relied upon by learned counsel appearing on both sides. The matter is not free from difficulty and has to be considered in the light of the facts of this particular case in this connection it would be convenient to refer to the view expressed in Buckley's Commentary on Companies Act 12th Edn. (1949) P. 900. The learned author states that primarily the rule to be borne in mind in the case of companies is that dividend should not be paid out of capital. Under the guise of paying dividends, the company must not return to the shareholders any part of the money subscribed by them on their shares. (1949) P. 900. The learned author states that primarily the rule to be borne in mind in the case of companies is that dividend should not be paid out of capital. Under the guise of paying dividends, the company must not return to the shareholders any part of the money subscribed by them on their shares. Subject to this condition, the questions as to how the profit and loss account shall be made out, whether profits have been earned which are capable of being divided among the shareholders, are primarily business questions for the directors or shareholders to determine in accordance with the company's regulations. If they act honestly and in accordance with such regulations in arriving at a decision on those points they discharge all the obligations imposed upon them by the Companies Act in England. The learned author also stresses the fact that the application of such an abstract proposition which appears on its face to be simple to the effect that dividend must not be paid out of capital, does in practice raise questions of the utmost difficulty in their solution. "The question what are profits and what is capital may be difficult and sometimes an almost impossible problem to solve". Reference is made to the decision of the House of Lords in Devey v. Cory, (1901) Appeal Cases (477) where their Lordships "whilst expressing the view that no difficulty would arise in dealing with any particular case on its own facts and circumstances, declined to attempt to treat those questions in the abstract or to do that which the Parliament has refrained from doing, namely, to formulate precise rules for the guidance or embarassment of businessmen in the conduct of business affairs and expressly dissociated itself from the reasons given by the Lord Justice for their decision in the court below (Re National Bank of Wales, (1889) 2 Chancery 629,651)" which the House affirmed on the facts. 6. The learned author points out that the warning given by the House of Lords has to be borne in mind when dealing with particular cases on the special facts thereon. In the present case, however, this difficulty does not arise because the directors have not declared any dividend after the sale of the assets of the company. 6. The learned author points out that the warning given by the House of Lords has to be borne in mind when dealing with particular cases on the special facts thereon. In the present case, however, this difficulty does not arise because the directors have not declared any dividend after the sale of the assets of the company. It has, therefore, become incumbent upon this court to decide whether the price realised by sale of the estate belonging to the company can be regarded as profits within the meaning of the Articles of Association or whether they come under the category of capital. 7. In considering this question, one has naturally to advert to the Memorandum or Articles of Association of the company. One significant feature that is noticeable is that there is no provision made in the latter for distribution of the assets after the company has gone into liquidation. The rules that are to be found incorporated in the articles deal only with the legal rights of the directors and promoters so long as the company continues to function and not when the business of the company is completely closed as has happened in the present case after the sale of the entire estate belonging to the company. In the circumstances one has of necessity to refer to judicial decisions in which in similar circumstances the question that arise in these appeals were answered by courts of law. The learned counsel appearing on both sides have relied mainly upon the English decisions on the point. 8. Before referring to these decisions which are relevant to the dispute, it would be desirable to read Arts. 95 and 100 of the Articles of Association. It is clear from these articles that they refer only to the period when the company continues to function as such. Reference is made to the profits realised each year and directions are given as to how these profits are to be utilised. This can not include the capital assets of the company realised by sale of the property belonging to the company. No doubt, there is R. (3)(g) of the Memorandum of Association which says that in the performance of its objects, the company can sell or mortgage any part of the landed property belonging to it. This can not include the capital assets of the company realised by sale of the property belonging to the company. No doubt, there is R. (3)(g) of the Memorandum of Association which says that in the performance of its objects, the company can sell or mortgage any part of the landed property belonging to it. This does not refer to an out and out sale of the assets of the company including the only estate which the company was managing. The obvious reference is to sale and mortgage of landed properties belonging to the company while it is actually functioning. 9. One more point has to be clarified before the points of law arising in this case can be considered. This has been explained in an affidavit which has now been filed by the liquidator of the company. He states in this affidavit that a dividend of 20 per cent from the profits accrued during the year which ended on the 31st December 1942 was paid to the shareholders in accordance with the recommendation of the Board of Directors at their meeting held on the 16th of June 1943 which was approved at the general meeting of the shareholders held on 6th July 1943. He also states that the estate forming the entire undertaking of the company was sold on the 9th of July 1943 by the Managing Director of the company to one Shahool Hameed for a consideration of Rs. 3,90,500. Including cash standing to the credit of the company on that date, a total sum of Rs. 4,01,773 was handed over to the liquidator by the Managing Director of the company in pursuance of the resolution passed at the extraordinary general meeting held on 15th November 1943 that the company be wound up voluntarily and that the deponent of the affidavit be appointed liquidator. After the sale of the estate, there was no declaration of any dividend. He also swears in the last paragraph of his affidavit that the amount of the sale consideration was treated by the income-tax authorities as capital assets and was not assessed to income-tax. The income tax assessed for the year 1943 was only on Rs. 2,688-2-6 being the income earned till the date of sale. There was no income tax levied on the price realised by sale of the estate belonging to the company. The income tax assessed for the year 1943 was only on Rs. 2,688-2-6 being the income earned till the date of sale. There was no income tax levied on the price realised by sale of the estate belonging to the company. This clearly shows that even the income tax authorities did not regard that amount as profits, but as part of the capital of the company. 10. The appellant's learned counsel relies upon the following decisions. The first case cited on behalf of the appellant is the one reported in Frames v. Bultfontein Mining Company (1891) 1 Ch.D.140. In the headnote, the facts of the case are briefly referred to. What happened was there was a provision in the Articles of Association of the company that the Directors should be paid each year as remuneration for their services, a sum equal to three per cent on the net profits of the company of each year. It was decided to wind up the company voluntarily. Its undertaking and assets were sold to a new company. The sale was for a very large amount and one of the directors claimed three per cent on the profit made by the sale. It was held "net profits" mentioned in the article was intended to apply to profits made by the company as a going concern and not to profits made by a sale of the company's assets, that the directors' remuneration was intended to be a return for their services, to which the present sale was not attributable, and that the plaintiff's claim failed. In the course of the judgment Chitty, J. states that if while the company was functioning as a going concern, a part of the assets happened to be sold and a profit was made thereby, such profit might have legitimately been brought into the profit and loss account of the year. But there is no provision in the Articles of Association to make a sale like the present which was made of the entire assets of the company for the purpose of winding it up. In Inland Revenue Commissioners v. George Burrel reported in (1924) (2) KB 52, on a winding up of a limited company the undivided profits of past years and the year in which the winding up occurred were distributed among the shareholders of whom the respondent was one. In Inland Revenue Commissioners v. George Burrel reported in (1924) (2) KB 52, on a winding up of a limited company the undivided profits of past years and the year in which the winding up occurred were distributed among the shareholders of whom the respondent was one. It was held that super-tax was not payable on the undivided profits as income, because in the winding up they have ceased to be profits and they are assets only. This case would seem to apply to the sum of Rs. 11,273-0-0 which with the price realised by sale of the estate of the company was handed over in the present case to the liquidator for distribution. This was referred to in the case reported in In Re William Metcalfe and Sons Ltd. (1933) 1 Ch. 142 at page 154. Dealing with the surplus that remained in the hands of the liquidator at the time of the winding up, Lord Hanworth M.R. stated as follows: "There is a sum left over-surplus. The nature of that surplus was discussed Inland Revenue Commissioners v. George Burrel. It was there said, after a careful examination of the relevant cases, that this surplus retains no definitive characteristics - it is wrong to call it capital, but, on the other hand, it is not a source of dividends, because no dividend can be paid; it represents undistributed profits accumulated, it may be during a number of years, but it cannot be dealt with as a fund for payment of dividends by the directors, for the winding up has displaced their powers". Lord Macaghten in Birch v. Cropper (14 AC 525) referred to such a surplus as forming part and parcel of the property of the company which at the date of the winding up represented the capital of the company. In Re Bridgewater Navigation Co. Lord Macaghten in Birch v. Cropper (14 AC 525) referred to such a surplus as forming part and parcel of the property of the company which at the date of the winding up represented the capital of the company. In Re Bridgewater Navigation Co. which went on appeal to the House of Lords under the name of Birch v. Cropper, Cotton L.J. said: "When a winding up has taken place all questions of preference is now at an end, and the shareholders are to be dealt with as having equal rights, because the provision in the articles creating the preference shares as regards dividend to arise on the working of the capital is at an end." Lord Herschell in the course of his speech said about preference shareholders: "They are members of the company, and as such shareholders in it as the ordinary shareholders are; and it is in respect of their thus holding shares that they receive a part of the profits When the whole of the capital has been returned, both classes of shareholders are on the same footing, equally members and holding equal shares in the company, and it appears to me that they ought to be treated as equally entitled to its property". In Re Madame Tussand & Sons Ltd. (1927) 1 Ch.D.657, it was held that as long as a company was a going concern, preference shareholders were entitled only to the preferential dividend, but on the voluntary winding up, this preference was determined, and thenceforward the preference shares retained no preference or priority over the ordinary shares. The assets according to the view expressed in that case should be distributed among all the shareholders pro rata in proportion to the amounts paid up on their shares. A similar view was expressed in the case reported in 1937 (2) All England Reports 322. The learned counsel for the respondents has also cited certain decisions which are 1911 (1) Chancery 92;1895 (2) Chancery 576; (1916) 2 Chancery 115; (1920) 1 Chancery 193 & (1889) 41 Chancery D, page. 1. There is nothing in these decisions which goes against the view expressed in the cases relied upon by the appellants learned counsel. In the circumstances, we hold that so far as the amounts in the hands of the liquidator are concerned the promoters of the company are not entitled to any special privileges. 1. There is nothing in these decisions which goes against the view expressed in the cases relied upon by the appellants learned counsel. In the circumstances, we hold that so far as the amounts in the hands of the liquidator are concerned the promoters of the company are not entitled to any special privileges. The amount has to be distributed among the shareholders pro rata. The appeal presented on behalf of the Official Liquidator and the shareholder who has been given leave to appeal must, therefore, be allowed. In the view that we have taken, no question of depositing any amount in the Anchal Savings Bank will arise. All parties shall have their costs from out of the assets in the hands of the liquidator. 11. It is now represented on behalf of the Official Liquidator that there are shareholders who have not been traced and who may come forward later and claim payment of the moneys due to them. We take the view that the surplus amounts in the hands of the Liquidator need not be deposited in the Anchal Savings Bank as directed by the Court below. We consider that the proper direction to give is that the Liquidator shall deposit amounts in his hands which he has not succeeded in disbursing in the Court below to the credit of Company Petition No. 6 of 1120 on the file of the Mavelikara District Court. The Court below shall remit it to the treasury as Civil Court Deposit. As and when the shareholders or their legal representatives who claim payment of these moneys come forward it will be open to them to apply to the court below for payment out of their amounts.