Judgment :- RAMASWAMY GOUNDER J. This is an application filed by the Andhra Bank Ltd. for an order validating the charge created in their favour by the company, namely, the Godavari Sugars and Refineries Ltd. through its managing agents, in respect of 224 bags of sugar and 21 bales of gunnies on April 24, 1952. The petition for the winding up of the said company was filed on March 14, 1952. Application No. 1628 of 1952 was also filed for the appointment of a provisional liquidator. On that application, notice was given to the company and the learned counsel who appeared for the company stated that it could not possibly oppose the winding up. That being so, the court thought that it was a fit case for the appointment of a provisional liquidator; and accordingly a provisional liquidator was appointed on that application by an order dated April 18, 1952. It may be mentioned that the company was ordered to be wound up in O.P. No. 112 of 1952 on September 29, 1952. After the appointment of the provisional liquidator on April 18, 1952 and prior to the order of winding up, the applicant bank is said to have advanced a sum of Rs. 21, 000 to the company. This company was under the management of managing agents known as the Aidco Ltd., of which one V. Butchiah Chowdary was the managing director. At a meeting of the board of directors of the company in liquidation held on January 25, 1952, it was also resolved to borrow upto Rs. 10 lakhs from the Andhra Bank Ltd., on the pledge of sugar, jaggery and gunnies of the company. It was also resolved to authorise the managing agents to execute the necessary documents to the Andhra Bank Ltd. to give effect to the above resolution. On the same date, there was a meeting of the board of directors of the Aidco Ltd. when it was resolved to authorise the managing director, V. Butchiah Chowdary, to borrow on behalf of the Aidco Ltd., as managing agents for the Godavari Sugars and Refineries Ltd., from the Andhra Bank Ltd. (vide the resolutions, Exhibits P. 5 and P. 6). Accordingly, Butchiah Chowdary, as the managing director of the managing agents, made the loan application, Exhibit P. 7, on January 31, 1952, to the Andhra Bank (Bhimavaram branch), while its head office is at Masulipatam. Accordingly, Butchiah Chowdary, as the managing director of the managing agents, made the loan application, Exhibit P. 7, on January 31, 1952, to the Andhra Bank (Bhimavaram branch), while its head office is at Masulipatam. A loan of 3 to 4 lakhs of rupees was asked for, "for rotation of business stocks", offering as security the stocks of sugar, jaggery, gunnies, etc., and also offering the personal security of the partners of the managing agency, namely, Butchiah Chowdhary, Saraswathi Bai and Sujata Devi. On that application, the agent of the Bhimavaram branch of the Andhra Bank examined as P.W. 1, submitted his proposals by a letter of January 31, 1952, to the head office at Masulipatam. The matter was pending with the office till April 15, 1952, when the head office addressed the letter, Exhibit P. 8, to the Bhimavaram branch, advising the latter of their having tentatively sanctioned to the Godavari Sugars and Refineries Ltd., who were having their manufactory at Tanuku near Bhimavaram, a key-loan cash credit upto a limit of Rs. 50, 000 on the pledge of stocks of sugar and gunnies and on the personal guarantee of the aforesaid three persons. By a letter of April 16, 1952, the head office of the Andhra Bank further intimated the agent of the Bhimavaram branch that they had sanctioned an advance of Rs. 1, 25, 000 and that for the present, an advance up to Rs. 50, 000 was permitted. As the loan was thus sanctioned by the Andhra Bank in favour of the company, the managing director of the managing agents, namely, Butchiah Chowdary, saw the agent of the Bhimavaram branch on April 24, 1952, and executed, in conjunction with the other two persons, the security agreement, Exhibit P. 2, for a sum of Rs. 1, 23, 000 on the security of 224 bags of sugar and 21 bales of gunnies; and on the same date, they also executed a promissory note, Exhibit P. 1, in favour of the Bhimavaram branch of the Andhra Bank for Rs. 1, 25, 000. Having obtained the documents, Exhibits P. 1 and P. 2, the agent of the Bhimavaram branch of the ANDHRA Bank is said to have advanced a sum of Rs. 20, 000 on April 25, 1952, to the company. That is shown in the company's accounts, Exhibit P. 10. 1, 25, 000. Having obtained the documents, Exhibits P. 1 and P. 2, the agent of the Bhimavaram branch of the ANDHRA Bank is said to have advanced a sum of Rs. 20, 000 on April 25, 1952, to the company. That is shown in the company's accounts, Exhibit P. 10. It also shoes that on the same date, the company paid back a sum of Rs. 8, 000, so that, on that, date, the loan obtained by the company from the Andhra Bank was only Rs. 12, 000. The accounts also show that the next day, April 26, 1952, a further sum of Rs. 9, 000 was taken by the company by a self-cheque drawn by Butchiah Chowdary. Thus, the Andhra Bank is said to have advanced, as loan to the company in liquidation, a sum of Rs. 12, 000 on April 25, 1952, and a further sum of Rs. 9, 000 on 26th April, 1952, on the security of sugar and gunny bags stated above. It will be seen that those two advances were made agree the presentation of the petition for winding up, and indeed even after the appointment of the provisional liquidator, and prior to the order for winding up. This application is filed by the Andhra Bank under Section 227(2) of the Companies Act for validating the change in their favour.That section provides that in the case of a winding up by or subject to the supervision of the court, every disposition of the property (including actionable claims) of the company made after the commencement of the winding up shall, unless the court otherwise orders, be void. In this case, there was a disposition of the sugar and the gunnies in favour of the applicant bank after the commencement of the winding up. That being so, the security offered in favour of the applicant bank must be treated as void, unless the court otherwise orders. This section corresponds to Section 227 of the English Act of 1948. In this case, there was a disposition of the sugar and the gunnies in favour of the applicant bank after the commencement of the winding up. That being so, the security offered in favour of the applicant bank must be treated as void, unless the court otherwise orders. This section corresponds to Section 227 of the English Act of 1948. Under that section, the principle is well established that the directors who expend the company's money pending a winding up petition are prima facie liable, on a winding up, for all such monies not ordinary course of business and that where such payments are honestly made and in the ordinary course of business, it is usual for the court to allow them (vide Palmer's Company Law, 19th Editions, at pages 193 and 194). In In re Wiltshire Iron Co., LORD CAIRNS, referring in the course of his judgment to the corresponding section of the English Act, says : "This is a wholesome and necessary provision, to prevent, during the period which must elapse before a petition can be heard, the improper alienation and dissipation of the property of a company in extremis. But where a company actually trading, which it is the interest of everyone to preserve, and ultimately to sell, as a going concern, is made the object of a winding up petition, which may fail or may succeed, if it were to be supposed that transactions in the ordinary course of its current trade bona fide entered into and completed, would be avoided, and would not in the discretion given to the court, be maintained, the result would be that the presentation of a petition, groundless or well-founded would ipso facto paralyse the trade of the company, and great injury, without any counter balance of advantage, would be done to those interested in the assets of the company." * And so, the transactions that would be validated by the court are transactions which are bone fide entered into and completed in the ordinary course of the company's current trade. The principle so enunciated by LORD CAIRNS was applied in a very instructive case reported in In re Park Ward and Co. In that case, the company was carrying on business, employing many workmen. Their wages fell due three days after the presentation of the petition for the winding up of the company, which was on December 8, 1925. The principle so enunciated by LORD CAIRNS was applied in a very instructive case reported in In re Park Ward and Co. In that case, the company was carrying on business, employing many workmen. Their wages fell due three days after the presentation of the petition for the winding up of the company, which was on December 8, 1925. On December 16, 1925, a debenture was issued by the company to secure a sum of Pounds 1, 200 advanced by the debenture holder for the payment of the wages of the staff of the company. It was found by the learned Judge that that amount was advanced for the purpose of preserving the business as going concern, and that if he had not done so, the wages would not have been paid and the business temporarily at any rate, would have had to be closed down. In those circumstances, it was held that the transaction was just the sort of transaction which LORD CAIRNS thought it was the object of the proviso to the section to preserve and which ought to be rendered valid by an order of the court. In that case, it was also argued that the power under the section ought out to be exercised in favour of a person who, at the date of the transaction in question, had knowledge that the winding up petition had been presented. In that case, the debenture holder was aware, when he agreed to advance the money, that a petition had been presented for the winding up of the company. That contention was repelled and ROMER J. observed at page 832 : "If, therefore, I were to hold that no one who knows of presentation of a petition can safely enter into any arrangement with the company, I think I should be depriving the company of the benefit which, according to Lord Cairns, the provision of the section was intended to secure to it." * It therefore becomes immaterial whether or not in this case the Andhra Bank had knowledge of the presentation of the winding up petition. In Tulsidas Jasraj v. The Industrial Bank of Western India, the question arose whether the security given by the company in favour of three unsecured creditors, after the commencement of the winding up, should, in the circumstances of that case, be upheld by the court. In Tulsidas Jasraj v. The Industrial Bank of Western India, the question arose whether the security given by the company in favour of three unsecured creditors, after the commencement of the winding up, should, in the circumstances of that case, be upheld by the court. That is to say, there was a disposition of the property of the company made after the commencement of the winding up, and unsecured creditors, at the date of the commencement of the winding up had been converted into secured creditors. It was contended that the court should make an order under Section 227(2) on the ground that the dispositions were all bona fide and in the ordinary course of business. Having regard to the circumstances of that case, the court declined to validate the dispositions, because, as observed at page 739, the fundamental principle is that in a winding up, all unsecured creditors are to be paid pari passu, the object being to prevent the injustice and scrambles and intrigues which would arise if the company were to be at liberty to prefer one creditor to another. MARTEN C.J. enunciated the general principle as well as the exception thereto embodied in Section 227(2) of the Act in the following terms at pages 742 and 743 : "Now, here, as regards Section 227(2), the court has to steer a middle course between two extremes. On the one hand, the words of the section are wide enough to include any sale or payment that a company may make after the date of the winding up petition. On that basis, any business would practically have to be stopped if a petition was presented, because it would be usage to dispose of any of the company's assets. For instance, a mill company might not be able to buy a ton of coal for the use of its furnaces, or, on the other hand, it might not be able to sell any of its goods in the ordinary course of business. Consequently, the court has very properly laid down that speaking generally, any bona fide transaction carried out and completed in the ordinary course of current business will be sanctioned by the court under Section 227(2). Consequently, the court has very properly laid down that speaking generally, any bona fide transaction carried out and completed in the ordinary course of current business will be sanctioned by the court under Section 227(2). On the other hand, it will not allow the assets to be disposed of at the more pleasure of the company, and these cause the fundamental principle of quality amongst creditors to be violated. To do so would in effect be to add to the preferential debts enumerated in Section 230 a further category of all debts which the company might choose to pay wholly or in part." * The learned Chief Justice also propounded at page 728 the following test for the proper exercise of the court's discretion : "And as the court's sanction is now asked for ex past facto, I think it a fair test to consider whether the court would have sanctioned the giving of these securities, supposing it had been asked to do so at the time." * In Official Liquidators, Gorakhpur Electric Supply Co. v. Siemens India Ltd. the learned Judge sums up the principle as well as the exception thereto in these words at pages 733 and 734 : "There can be no doubt that the ordinary principle is that all creditors to whom money is due at the date of the petition for winding up, should be treated equally, with certain exceptions in favour of those who have priority under the express provisions of the Act. Where the company or its officers make preferential payments to some creditors, they are obviously acting in contravention of this rule. Where the company or its officers make preferential payments to some creditors, they are obviously acting in contravention of this rule. On the other hand, where the business of the company is continued in good faith either because it is hoped that it may not be necessary eventually to wind up the company, or because, in the interests of all concerned, it is better that the company should, on being wound up, be transferred as a going concern, it is necessary for the company to enter into various transactions and it would be impossible for it to do so if it was not able to make any transfers." * Having regard to these principles, it becomes necessary to decide in the circumstances of this case whether the court would be justified in the exercise of its discretion to validate the transaction evidenced by Exhibit P. 2 in favour of the applicant bank. The fundamental principle should be borne in mind, namely, that the assets of the company should be made available for distribution pari passu amongst the creditors of the company and that no creditor should obtain an advantage over his fellow creditor. In this case, there is no accusation of any fraud or collusion on the part of the applicant bank. On the evidence and having regard to the entries in the accounts of the company, Exhibit D. 1, as well as the accounts of the applicant bank, Exhibit P. 10, there can be little doubt that the said sums of Rs. 12, 000 and Rs. 9, 000 were advanced by the bank to the company in liquidation after the commencement of the winding up proceedings. It may also be taken on the evidence that the Andhra Bank had no notice of the presentation of the winding up petition. As I have stated above, even such notice would not make much difference. It is also necessary to beat in mind the test that was applied in the Bombay case referred to above. The result of judicial decisions is that a transaction bona fide entered into and completed in the ordinary course of the company's current trade should be protected; for, otherwise, the result would ipso facto paralyse the trade of the company, and great injury would be done to those interested in the assets of the company, as was pointed out by LORD CAIRNS. It is equally clear from the decisions that even if a winding up petition is well founded, if the disposition is made for the purpose of preserving the business as a going concern, then also the decoration of the court should be exercised, as neatly summarised, if I may say so with respect, in Ramlal v. Official Liquidator, Benaras Bank Ltd. : "The principle must prevail, that is, the principle of pari passu distribution among the creditors. It was not a case of salvage, or real necessity, nor of the transaction having been the only means of keeping the company going." * It may be that in this case the Andhra Bank were bona fide in having advanced the said sums to the company without any notice of the presentation of the winding up petition. Merely because they were bona fide lenders, it does not at once follow that the transaction in their favour should be validated. This is a case in which one of two innocent parties has to suffer, - the applicant bank on the one hand and the general body of creditors on the other. It is for the applicant bank to make out a case why the discretion of the preferred to the general in their favour under Section 227(2) of the Act. That leads us to the consideration of the circumstances in which the loans were advanced by the bank to the company in liquidation. In considering those circumstances, it is well to emphasise one important fact, which I have already referred to, namely, that even on April 18, 1952, when the provisional liquidator was appointed, the learned counsel who appeared for the company stated that the company could not possibly oppose the winding up petition. It is therefore clear that the winding up petition was well founded, and not groundless. There was therefore no possibility of the company thereafter continuing to carry on its current business in the ordinary course. The company was by that time completely dead and incapable of being resuscitated. There was therefore no question of Butchaiah Chowdary, as the managing director of the managing agents, bona fide borrowing those two sums in the ordinary course of the company's current trade. It is true that the loan was applied for even as early as January 1952. The company was by that time completely dead and incapable of being resuscitated. There was therefore no question of Butchaiah Chowdary, as the managing director of the managing agents, bona fide borrowing those two sums in the ordinary course of the company's current trade. It is true that the loan was applied for even as early as January 1952. But the sanction was made only in April 1952, and the loans were actually advanced only on 25th and 26th April, 1952. The question is, for what purpose was the loan of Rs. 12, 000 taken on April 25, 1952, and the further loan of Rs. 9, 000 taken on April 26, 1952 ? It is obvious that the loans could not have been taken for the ordinary purpose of the company's current trade, for, as I said, on the admission of the for the company's learned counsel on April 18, 1952, there was no alternative for the company except to face the winding up. That being so, the question is, was this a case of salvage or of any other real necessity or of keeping the company going, as was observed in Ramlal v. Official Liquidator, Banares Bank Ltd., quoted above. The only evidence we have got on that point is the interested and unsatisfactory testimony of the bank's Bhimavaram agreed, examined as P.W. 1. His evidence is that the managing director, Butchaiah Chowdary, told him that the loans were required for payment of wages and for payment to sugar-cane growers who supplied sugar-cane to the factory. In cross-examination, he stated that he went to the factory on April 24, 1952, and there came to know that the loan was required for payment of wages and price of sugarcane, and that he found that the factory workers were all there and they had come from the Uttar Pradesh and had to be sent away. He learnt from the workmen that their salaries were to be sent away, were anxious to return to their home in U.P., and so, be inferred that the money was required for payment of the staff. But it appeared in his evidence that by that time the sugar-cane crushing season was over, as ordinarily it would be over by the end of March. The season is between October and March. But it appeared in his evidence that by that time the sugar-cane crushing season was over, as ordinarily it would be over by the end of March. The season is between October and March. It is therefore clear that in April 1952, there would have been as necessity to keep the factory only as a going concern, because the crushing season will commence on in the following October. Moreover the money was required, even according to the evidence of P.W. 1, to pay off the wages of workmen who had finished the work and who were anxious to return home. The payments to those workmen were obviously not intended to keep them in the factory so as to keep it going. So also, the payments said to have been made to the sugar-cane growers who supplied sugar-cane cannot be for the purpose of keeping the factory as a