2010 (4) TMI 604 - HC - Companies Law

Whether any proceedings initiated by respondents Nos. 1 to 4 against the company (in liquidation) without obtaining leave of this court under section 446 of the Companies Act, 1956, do not bind the official liquidator? Held that - The object of section 446 of the Companies Act is to save the company which is being wound up from unnecessary litigation and to protect its assets for equitable distribution among its creditors and its shareholders. This being the object of section 446 of the Companies Act, it is apparent that all those matters where the claim of such a nature can be investigated by the winding up court, would be within the purview of section 446. In case any creditor of the company files a claim before the authority under the Consumer Protection Act and secures an order in his favour and the company is forced to pay that amount, that will really amount to preferring that creditor to other similarly placed creditors. It is in order to avoid such a situation that the Companies Act provides for settlement of list of creditors after due notice to all the creditors. Keeping in view the object of section 446 of the Companies Act, 1956, it is to be held that the order obtained by respondents Nos. 1 to 4 by filing E. A. No. 106 of 2007 from the District Consumer Disputes Redressal Forum-II, Hyderabad, cannot be sustained. Thus both these company applications are allowed quashing the proceedings in E. A. No. 106 of 2007 and consequently, ■ attachment order passed by the District Consumer Disputes Redressal Forum-II, Hyderabad, in E. A. No. 106 of 2007 is hereby raised

Issues Involved:
1. Quashing of execution proceedings.
2. Raising the attachment order.
3. Stay of further proceedings.
4. Jurisdiction and applicability of Companies Act provisions.
5. Rights of creditors under the Consumer Protection Act.

Issue-wise Detailed Analysis:

1. Quashing of Execution Proceedings
The official liquidator filed two company applications on behalf of M/s. Asia Pacific Investment Trust Ltd. (in liquidation) seeking to quash the execution proceedings in E. A. No. 106 of 2007 in C. D. No. 814 of 2003. The applications were filed under sections 446(1) and 537(1)(a) of the Companies Act, 1956, and rule 9 of the Companies (Court) Rules, 1959. The court noted that the winding-up order for the company was passed on August 19, 1998, and the official liquidator was appointed. The execution proceedings initiated by respondents without obtaining leave from the court under section 446 of the Companies Act were deemed not binding on the official liquidator.

2. Raising the Attachment Order
The official liquidator sought to raise the attachment order dated August 30, 2007, which directed the State Bank of India to attach and forward a sum of Rs. 19,15,736 from the fixed deposit held by the company (in liquidation). The court concluded that the attachment order obtained by respondents Nos. 1 to 4 from the District Consumer Disputes Redressal Forum-II, Hyderabad, could not be sustained, as it contravened the provisions of the Companies Act, which aim to protect the assets of the company for equitable distribution among all creditors.

3. Stay of Further Proceedings
The official liquidator also sought a stay of all further proceedings in E. A. No. 106 of 2007. An interim order of stay was granted on October 17, 2007. The respondents argued that the proceedings were initiated under section 25 of the Consumer Protection Act against the property of the judgment debtors, not just the company alone, and thus sections 446 or 537 of the Companies Act could not apply. However, the court emphasized that the provisions of the Companies Act are intended to protect the assets of the company for equitable distribution among all creditors, not just a select few.

4. Jurisdiction and Applicability of Companies Act Provisions
The court highlighted that section 446 of the Companies Act bars the initiation or continuation of legal proceedings against a company in liquidation without the court's leave. The court referenced several precedents, including Sudarsan Chits (I.) Ltd. v. G. Sukumaran Pillai, which emphasized that section 446 aims to save the company from unnecessary litigation and protect its assets for equitable distribution. The court also noted that under section 456(2), all properties of the company are deemed to be in the custody of the court from the date of the winding-up order.

5. Rights of Creditors under the Consumer Protection Act
The respondents argued that their proceedings under the Consumer Protection Act should not be barred by the Companies Act. They cited cases such as Manipal Sowbhagya Nidhi Ltd. v. A.G.M.F.G.O.C.C.A and Vinod L. Doshi v. Sohan Lal, which suggested that consumer fora remedies are additional and not barred by company winding-up proceedings. However, the court maintained that allowing individual creditors to secure their dues through consumer fora would undermine the equitable distribution principle of the Companies Act, leading to preferential treatment of some creditors over others.

Conclusion
The court allowed both company applications, quashing the proceedings in E. A. No. 106 of 2007 and raising the attachment order. The State Bank of India was directed to release the FDR amount along with interest to the official liquidator. The judgment emphasized the importance of adhering to the provisions of the Companies Act to ensure equitable treatment of all creditors in the winding-up process.

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