2006 (7) TMI 338 - HC - Companies Law

Summary

Issues Involved:
1. Whether the official liquidator's possession of the 13 medical equipments is valid.
2. Whether the order of confiscation by the customs authority is valid.
3. Whether the applicant needs to seek leave of the court under section 446 of the Companies Act, 1956.
4. Priority of claims between the customs authority and secured creditors.

Issue-wise Detailed Analysis:

1. Validity of Official Liquidator's Possession:
The applicant-Commissioner of Customs sought a direction for the official liquidator to hand over possession of 13 medical equipments, arguing that these were vested in the Central Government from October 30, 1999, under section 126 of the Customs Act, 1962. The court noted that the official liquidator was appointed as provisional liquidator on February 16, 1999, and took charge of all assets, including the medical equipment. The court held that the official liquidator's possession was valid and legal, as all assets and properties of the company came into the custody of the provisional liquidator upon appointment. The court emphasized that the official liquidator's powers under sections 456 and 457 of the Companies Act, 1956, were extensive and included taking control of the company's assets.

2. Validity of the Order of Confiscation:
The court examined the timeline and found that the provisional liquidator was appointed before the customs authority passed the confiscation order on October 30, 1999. The court ruled that the order of confiscation was void since it was passed after the appointment of the provisional liquidator without seeking the court's permission as required under section 446 of the Companies Act, 1956. The court reiterated that once the provisional liquidator is appointed, the assets and properties of the company are in the custody of the liquidator, and any subsequent orders by other authorities without the court's leave are nullities.

3. Requirement of Leave under Section 446:
The applicant contended that leave of the court was not required since the confiscation order was passed before the winding-up order. However, the court clarified that section 446(1) applies to suits or proceedings pending at the date of the winding-up order and bars their continuation without the court's permission. The court emphasized that the provisional liquidator's appointment on February 16, 1999, meant that all proceedings against the company required the court's leave from that date. Therefore, the customs authority's failure to seek leave rendered the confiscation order invalid.

4. Priority of Claims:
The court addressed the priority of claims, citing the Supreme Court's decision in Dena Bank v. Bhikhabhai Prabhudas Parekh & Co., which established that secured creditors' claims prevail over crown debts. The court noted that the applicant's claim was a crown debt and could only be considered under section 530 of the Companies Act, 1956. The court observed that the customs authority had already lodged its claim under section 530, and the official liquidator was requested to take cognizance of this claim. The court concluded that the applicant's claim for the 13 medical equipments must yield to the claims of secured creditors.

Conclusion:
The court rejected the application, affirming the validity of the official liquidator's possession of the 13 medical equipments and ruling that the confiscation order by the customs authority was void. It held that the applicant needed to seek leave of the court under section 446 of the Companies Act, 1956, and that the claims of secured creditors took precedence over the customs authority's claim. The court directed that the applicant's claim be processed under section 530 of the Companies Act, 1956.