2013 (2) TMI 61 - HC - Companies Law

Whether the amalgamation of a company (which institutes a suit, that is pending) with another, results in its corporate death, and consequent abatement of the suit, or does the transferee company become entitled to claim itself to be the successor, and continue with the suit, in terms of provisions of Order 22 Rule 10, Civil Procedure Code ? - Held that - Although the identity of the party changes, the nature of the claim does not. It is, in legal terms, the same cause of action as it was before. There is no question of a new claim or cause of action being asserted, even though in the particular circumstances the claim is being made by a different person. Because it is the same cause of action, there is no scope for a limitation defence. The defendant cannot say that the time for bringing proceedings has expired when the new claimant replaces the old, because the essential point is that no new claim is being put forward. The limitation defences have nothing to do with a change in the identity of a party. A cause of action is not extinguished, the court has to trace, or at least make an effort to trace the rightful successor to prosecute the claim, or defend the proceeding. The argument based on Section 3(42) of the General Clauses Act, 1897 is also of no assistance, because even if a company is a person, and winding up results in its death, there is a radical difference between an amalgamation and a final winding up order, after all affairs of the company have been taken care of by the Court. It is therefore held that the conclusions of the learned single judge that the suit had abated by virtue of Order 22 Rule 3, on the death of the original plaintiff, cannot be sustained. Procedural laws are meant to regulate the object of doing substantial and real justice and not to foreclose adjudication on merits. The court is mindful of the fact that barring the application of the principle action personalis moritur cum persona, (i.e a personal right of action dies with the death of the person) other claims do not extinguish, and can be continued. A creditor s claim to his dues therefore does not die. Even where abatement occurs, in the sense that the time prescribed for the setting aside of abatement expires - under Article 120 of the Schedule to the Limitation Act expires, the creditor/claimant, through the successor, or the successor, as the case may be, can request the court to condone the delay in moving an application, under Section 5 of the Limitation Act. The Merger deed specifies that the entity as such has not ceased to exist but is continuing for limited purposes to the collection of receivables and settlement of liabilities. This Court, however desists from pronouncing on the issue, as that would be the subject matter of inquiry under Order 22 Rule 10, CPC, by the concerned court. Having regard to the conclusions reached by this Court, in the earlier portions of this judgment, it is just and appropriate that the claims of Yapi Kredi Bank, and its claimed successor, C.H. Financial Investments, should be inquired into under Order 22, Rule 10 CPC by the learned single judge. The said applications are accordingly restored to their original position on the file of the Court.

Summary

Issues Involved:
1. Whether the amalgamation of a company results in its corporate death and consequent abatement of the suit.
2. Whether the transferee company can continue the suit under Order 22 Rule 10 of the Civil Procedure Code (CPC).

Detailed Analysis:

1. Corporate Death and Abatement of Suit:
The primary issue addressed was whether the amalgamation of a company (which has instituted a pending suit) with another company results in its corporate death and consequent abatement of the suit. The court examined whether the transferee company becomes entitled to claim itself as the successor and continue the suit under Order 22 Rule 10 CPC. The court noted that the impugned judgment held that the plaintiff's failure to take steps under Order 22 Rule 3 CPC resulted in the abatement of its suit. The defendants argued that the merger resulted in the corporate demise of the original plaintiff, thus necessitating an application for substitution under Order 22 Rule 3 CPC, and the lapse of the stipulated period resulted in the abatement of claims in the suit.

The court reviewed several precedents, including Narendra Bahadur Tandon v. Shankar Lal, Saraswati Industrial Syndicate Ltd. v. CIT, and Singer India Limited v. Chander Mohan Chadha, which suggested that the original company loses its identity and ceases to exist upon amalgamation, thereby leading to the abatement of the suit unless an application is made under Order 22 Rule 3 CPC. However, the court also considered the decision in Bhagwan Dass Chopra v. United Bank of India, which held that the transferee company becomes entitled to the rights and liabilities of the transferor company, subject to the terms of the merger, and can be impleaded in place of the transferor company in any legal proceedings.

The court concluded that while the amalgamation results in the corporate death of the transferor company, this does not necessarily lead to the abatement of the suit. The transferee company can continue the suit under Order 22 Rule 10 CPC, which applies to cases of assignment, creation, or devolution of any interest during the pendency of a suit.

2. Applicability of Order 22 Rule 10 CPC:
The court analyzed whether the transferee company, Yapi Kredi Bank, could continue the suit under Order 22 Rule 10 CPC. The court noted that Order 22 Rule 10 CPC is an enabling provision meant to further the ends of justice. The court cited S. Amarjit Singh Kalra v. Pramod Gupta, which emphasized that procedural laws should be construed liberally to ensure substantial and real justice.

The court held that the conclusion of the learned Single Judge that the suit had abated under Order 22 Rule 3 CPC and that Order 22 Rule 10 CPC did not apply was based on a textual reading of the provision. The court concluded that Order 22 Rule 10 CPC applies in cases of amalgamation, and the court must conduct an inquiry to determine if the applicant is the successor entitled to continue the legal proceeding.

Conclusion:
The court set aside the impugned judgment and order of the learned Single Judge, remitting the matter for inquiry to determine the successor entitled to continue with the suit under Order 22 Rule 10 CPC. The applications of Yapi Kredi Bank and its claimed successor, C.H. Financial Investments, were restored to their original position on the file of the court for further inquiry. The appeal was allowed without any order as to costs.