2001 (6) TMI 763 - HC - Companies Law

Summary

Issues:
- Application under section 446(1) of the Companies Act, 1956 seeking leave to proceed with arbitration proceedings.
- Conflict between the applicant and the Official Liquidator regarding the arbitration proceedings.

Detailed Analysis:

1. Application under section 446(1) of the Companies Act, 1956:
The applicant, a company engaged in the manufacture of woollen fabrics, sought leave to proceed with arbitration proceedings pending before an arbitrator. The applicant had ordered 32 Twister Machines from the respondent, paid advances, but received only 28 machines. A dispute arose over the demand for increased payment for the remaining machines. The applicant referred the dispute to arbitration, claiming Rs. 11,88,890 with interest. The applicant argued that allowing arbitration to proceed would serve the interest of justice, citing a decision of the Allahabad High Court. The respondent opposed, stating the applicant should file claims with the Official Liquidator as per the Act and Rules.

2. Conflict with the Official Liquidator:
The Official Liquidator resisted the applicant's request, highlighting that the applicant is an unsecured creditor and the arbitration proceedings were at an initial stage. The Official Liquidator lacked funds to participate in the arbitration. The Official Liquidator argued that the applicant had the option to make a claim before the Official Liquidator, with a right to appeal if the claim was disallowed. The Official Liquidator referenced a decision of the Punjab & Haryana High Court to support their stance.

3. Judgment and Legal Analysis:
The court examined the statutory provisions of section 446(1) of the Act, which requires court permission to proceed with legal proceedings after a winding-up order. The court emphasized the need to consider the interests of all creditors and stakeholders. The court noted that the arbitration proceedings were initiated after the winding-up order, without court permission, making them unauthorized. The court concluded that the applicant had no justification to proceed with arbitration, as the Official Liquidator had not yet invited claims from creditors. The court held that the applicant could still make a claim through the Official Liquidator, and rejected the application to continue arbitration proceedings.

4. Case Precedents:
The court distinguished the case relied upon by the applicant's counsel and the case cited by the Official Liquidator, stating they were not applicable to the present circumstances. The court clarified that the facts of those cases were different from the current case, leading to the rejection of the application to proceed with arbitration.

5. Conclusion:
The court rejected the application, emphasizing that the arbitration proceedings initiated without court permission after the winding-up order were unauthorized. The court highlighted the special procedure under the Act and Rules for proving debts against a company in liquidation, indicating that the applicant could still make a claim through the Official Liquidator. The court held that the applicant's request to continue arbitration proceedings lacked merit and was therefore rejected.