2006 (4) TMI 253 - SC - Companies Law

Decretal amount should be recovered from the guarantors first and only if there was any deficit, it should be recovered from the company in liquidation - Held that - The suit was against the company as well as its Directors being guarantors in their personal capacity. The suit could have in any case proceeded against the guarantors. It was stayed by the trial court apparently under section 446(1) even though there was no such prayer to that effect. The only prayer before the Court at the instance of first defendant in the suit for stay of suit under section 22 of SIC Act which was not granted. The object of appellants in filing an application for stay was to drag on the suit. They have succeeded in their effort to stall the suit for more than 16 years on a virtually non-existent ground. The trial court will therefore have to proceed with the suit with all expedition. Thus subject to the deletion of the condition imposed by Company Court while granting leave this appeal is dismissed upholding the grant of leave.

Issues Involved
1. Applicability of Article 137 of the Limitation Act, 1963 to a petition under Section 446(1) of the Companies Act, 1956.
2. Justification for directing that the decretal amount should be recovered from the guarantors first before the company in liquidation.

Issue-wise Detailed Analysis

1. Applicability of Article 137 of the Limitation Act, 1963 to a Petition under Section 446(1) of the Companies Act, 1956
The central issue in this case was whether Article 137 of the Limitation Act, 1963, which prescribes a three-year period of limitation for applications for which no period of limitation is provided, applies to a petition under Section 446(1) of the Companies Act, 1956. The petition in question sought leave of the Company Court to proceed with a pending suit.

Key Points:
- Section 446(1) of the Companies Act, 1956: This section mandates that no suit or legal proceeding shall be commenced or proceeded with against a company in winding up without the leave of the court.
- Article 137 of the Limitation Act, 1963: This article prescribes a three-year limitation period for applications for which no specific period is provided.

Arguments and Judgment:
- The appellants argued that the application for leave should have been filed within three years from the date of the winding-up order (24-10-1989), making the last date for filing 24-10-1992. The application filed on 11-8-1995 was therefore claimed to be barred by limitation.
- The Company Court initially condoned the delay, citing sufficient causes such as the stay of winding up and the prosecution of a revision petition.
- The Supreme Court held that Article 137 does not apply to applications under Section 446(1) for leave to proceed with a pending suit. The court noted that such applications are interlocutory in nature and do not seek any relief or remedy with reference to any claim or right. Therefore, they are not subject to any period of limitation.
- The court further clarified that even if Article 137 were to apply, the "right to apply" for leave accrues every moment the suit remains stayed. Hence, the application filed on 11-8-1995 was within time.

Conclusion:
The Supreme Court upheld the view that Article 137 does not apply to applications under Section 446(1) of the Companies Act, 1956, for leave to proceed with a pending suit. Even if it did, the application was not barred by limitation.

2. Justification for Directing Recovery of Decretal Amount from Guarantors First
The second issue was whether the Company Court was justified in directing that the decretal amount should be recovered from the guarantors first before proceeding against the company in liquidation.

Key Points:
- Liability of Principal-Debtor and Guarantors: The liability of the principal-debtor (the company) and the guarantors is joint and several.
- Condition Imposed by Company Court: The Company Court had imposed a condition that the Bank should first proceed to get the decree satisfied from the guarantors, and only if there was a deficit should it proceed against the company.

Arguments and Judgment:
- The appellants contended that there was no justification for such a condition, as it affected the legal rights of the parties.
- The Supreme Court agreed with the appellants and noted that such a condition was unnecessary and unjustified. The creditor has the option of recovering the amount in the manner deemed fit, and the terms imposed by the Company Court cannot affect the rights of third parties or impose an obligation contrary to law.

Conclusion:
The Supreme Court deleted the condition imposed by the Company Court, affirming that the Bank could proceed against the guarantors and the company in any order it deemed fit.

Conclusion
The appeal was dismissed, upholding the grant of leave to proceed with the suit, but the condition imposed by the Company Court regarding the order of recovery was deleted. The trial court was directed to proceed with the suit with all expedition.

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