1999 (4) TMI 650 - HC - Companies Law

Summary

Issues Involved:
1. Validity of the Court Receiver's appointment and possession.
2. Applicability of Section 22 of the Sick Industrial Companies (Special Provisions) Act, 1985.
3. Determination of custodia legis status.
4. Jurisdiction of the Court post-B.I.F.R. registration.

Issue-wise Detailed Analysis:

1. Validity of the Court Receiver's Appointment and Possession:
The plaintiffs contended that the Court Receiver, High Court, Bombay, had been appointed as the Receiver of all the immovable and movable properties of Defendant No. 1 by an order dated 11th December 1998. The plaintiffs argued that the property vested in the Receiver once the appointment was made. However, the defendants argued that the property would only be custodia legis once the Receiver took actual possession, which had not occurred in this case. The Court concluded that mere appointment does not immediately vest the property in the Receiver; possession must be taken to establish custodia legis.

2. Applicability of Section 22 of the Sick Industrial Companies (Special Provisions) Act, 1985:
The defendants argued that once proceedings are registered under the Sick Industrial Companies (Special Provisions) Act, 1985, all further proceedings stand suspended, and the Court would lack jurisdiction to pass any order. The Court referred to the Supreme Court's interpretation in Real Value Appliances Ltd. v. Canara Bank, which clarified that once a reference is registered, the prohibitions in Section 22 immediately come into play, staying all proceedings against the company's assets. The Court agreed that the suit by the plaintiffs for recovery of monies and other reliefs was covered by Section 22, thereby staying all proceedings unless consent was obtained from the B.I.F.R. or the Appellate Authority.

3. Determination of Custodia Legis Status:
The Court examined various judgments to determine when a property is considered custodia legis. It concluded that mere appointment of a Receiver does not vest the property in him; actual possession must be taken. The Court cited multiple cases, including Everest Coal Company Pvt. Ltd. v. State of Bihar, which emphasized that the property comes under the Court's custody only when the Receiver takes possession. The Court held that until the Receiver takes possession, third parties can proceed against the property, and the defendants are prohibited from dealing with it.

4. Jurisdiction of the Court Post-B.I.F.R. Registration:
The Court emphasized that once proceedings are registered under the Sick Industrial Companies (Special Provisions) Act, 1985, the Court's jurisdiction to continue proceedings is ousted. The Court highlighted that the plaintiffs must seek permission from the B.I.F.R. to proceed with any coercive steps, such as taking possession of the property by force. The Court clarified that even if the property is considered custodia legis, the Receiver must take possession to establish this status.

Conclusion:
The Court dismissed the plaintiffs' application, finding no merit in their arguments. The Court reiterated that the plaintiffs must seek permission from the B.I.F.R. to proceed with any further steps. The suit was dismissed accordingly.