1996 (7) TMI 460 - HC - Companies Law

Summary

Issues:
1. Interpretation of section 587 of the Companies Act, 1956 regarding legal proceedings during winding up.
2. Application of section 11(4) and section 590 of the Companies Act, 1956 in individual liability cases.
3. Consideration of special circumstances for allowing execution proceedings to continue.
4. Authority of the company court in permitting legal actions in cases of fraud or misappropriation during winding up.

Analysis:
The judgment addresses the interpretation of section 587 of the Companies Act, 1956 concerning legal proceedings during the winding up of a company. The petitioner argued that once winding up proceedings commence, no further legal actions can be pursued. However, the respondent contended that individual liabilities remain enforceable, citing section 11(4) and section 590 of the Companies Act, 1956. The court highlighted that section 587 allows the liquidator to consolidate claims but does not extinguish individual liabilities. It emphasized that in cases of fraud or criminal offenses, legal actions can proceed under the company court's sanction, as seen in the decision of Vasantrao v. Shyamrao.

The judgment delves into the consideration of special circumstances for permitting execution proceedings to continue. The court acknowledged the respondent's situation as a retired school teacher who invested life savings, emphasizing the need for recovery. It granted the respondent the liberty to apply to the company court for sanction to proceed with the execution proceedings. Additionally, the court highlighted that in cases of fraud or misappropriation, the company court has the authority to direct the continuation or commencement of legal actions in the public interest.

In conclusion, the court disposed of the civil revision petition with directions for the respondent to seek permission from the company court to proceed with the execution proceedings. It clarified that if sanctioned by the company court, the execution proceedings before the trial court could continue. The judgment emphasized the importance of considering special circumstances and the authority of the company court in permitting legal actions during winding up, particularly in cases involving fraud or misappropriation.