1992 (7) TMI 275 - HC - Companies Law

Summary

Issues Involved:
1. Is obtaining leave under section 446 of the Companies Act a condition precedent to filing a suit?
2. Can such leave be granted ex post facto?
3. Does failure to obtain leave entail dismissal of the suit?
4. Whether the suit instituted without leave is to be regarded as ineffective until leave is granted?

Issue-wise Detailed Analysis:

1. Is obtaining leave under section 446 of the Companies Act a condition precedent to filing a suit?
The court examined whether leave under section 446 is a condition precedent for filing a suit. The statutory provisions of the Companies Act, particularly sections 446 and 456, were analyzed. The court concluded that leave under section 446 is not a condition precedent and can be granted ex post facto. The judgment referenced the Supreme Court decision in Bansidhar Shankarlal v. Mohd. Ibrahim [1971] 41 Comp. Cas. 21, which stated, "failure to obtain leave before institution of the proceeding entails dismissal of the proceeding. The suit or proceeding instituted without leave of the court may, in our judgment, be regarded as ineffective until leave is obtained, but once leave is obtained the proceeding will be deemed instituted on the date of granting leave."

2. Can such leave be granted ex post facto?
The court affirmed that leave under section 446 can be granted ex post facto. The absence of express language in section 446 nullifying proceedings for non-compliance indicates legislative intent not to impose an absolute prohibition. The court highlighted that section 537 of the Act explicitly states actions without leave "shall be void," unlike section 446. The Supreme Court in Bansidhar Shankarlal supported this view, holding that leave can be granted after the initiation of proceedings and would relate back to the filing date.

3. Does failure to obtain leave entail dismissal of the suit?
The court held that failure to obtain leave does not entail the dismissal of the suit. The suit filed without leave is considered ineffective only until leave is obtained. The interpretation that leave is not a condition precedent aligns with the legislative intent and avoids nullifying suits that are otherwise within the limitation period. The court rejected the argument that non-compliance with section 446 results in an automatic dismissal, emphasizing that the bar of limitation is statutory and cannot be implied into section 446.

4. Whether the suit instituted without leave is to be regarded as ineffective until leave is granted?
The court clarified that a suit filed without leave is ineffective only concerning the official liquidator until leave is obtained. This means the suit does not affect the liquidator's ability to manage the company's assets until the court grants leave. The court rejected the interpretation that this ineffectiveness leads to dismissal due to time-bar issues, thereby ensuring that suits filed within the limitation period are not invalidated by procedural delays in obtaining leave.

Conclusion:
The appeal was allowed, and the judgment of the learned single judge was set aside. The court granted leave to continue Summary Suit No. 494 of 1985, emphasizing that obtaining leave under section 446 is not a condition precedent and can be granted ex post facto, making the suit effective from the date of filing. The court also rejected the argument that the application for leave was time-barred under article 137 of the Limitation Act, 1963.