1941 (6) TMI 7 - HC - Companies Law

Summary

Issues Involved:
1. Whether a person wishing to bring a suit under Order 21, Rule 63, against a company in liquidation must first obtain leave under section 171, Companies Act, from the Court by which the winding-up order has been made.
2. Interpretation of section 171, Companies Act, 1913, and its applicability to suits under Order 21, Rule 63, Civil Procedure Code.
3. Examination of previous case law and judicial precedents relevant to the issue.

Detailed Analysis:

1. Requirement of Leave under Section 171, Companies Act:
The primary issue in this appeal is whether a suit under Order 21, Rule 63, against a company in liquidation requires leave from the Court that passed the winding-up order as per section 171, Companies Act, 1913. The judgment discusses that section 171 mandates that no suit or other legal proceeding against a company in liquidation shall be commenced or continued without the Court's leave.

2. Interpretation of Section 171, Companies Act, 1913:
Section 171 of the Companies Act, 1913, states: "When a winding-up order has been made, or a provisional liquidator has been appointed, no suit, or other legal proceedings, shall be proceeded with, or commenced, against the company, except by leave of the Court and subject to such terms as the Court may impose." The judgment clarifies that the terms of this section are clear and imperative, creating an absolute bar against the commencement or continuance of a suit or other legal proceeding against the company without leave of the Court.

3. Examination of Previous Case Law and Judicial Precedents:
The judgment extensively reviews previous case law to determine the applicability of section 171 to suits under Order 21, Rule 63:

- Milva Ram v. Peoples' Bank of India [1916]: Held that section 171 applies to a petition for the revision of an order or decree obtained in favor of the company.
- Kishen Singh v. Industrial Bank of India [1918]: Differentiated between an appeal as a defensive proceeding and a suit against the company, suggesting that appeals do not require leave under section 171.
- Bhawanishankar v. Industrial Bank of India Ltd. [1919]: Decided that proceedings under Order 21, Rule 63, must be regarded as a separate suit requiring leave of the Court which passed the winding-up order.
- Phul Kumari v. Ghanshyam Misra [1908]: Described a suit under Order 21, Rule 63, as "a form of appeal" against a summary decision, influencing the argument that such suits are defensive proceedings.
- Humber & Co. v. John Griffiths Cycle Co. [1901]: Established that an appeal in which the company is the respondent does not require leave under section 171.

The judgment concludes that a suit under Order 21, Rule 63, is initiated with a plaint and is therefore a 'suit' within the prohibition of section 171. It rejects the argument that such a suit is a defensive proceeding, stating that it is an independent action distinct from the execution proceedings.

Conclusion:
The Full Bench reaffirms that a suit under Order 21, Rule 63, against a company in liquidation cannot be commenced without the leave of the Court which had ordered the winding up. The judgment in Bhawanishankar v. Industrial Bank of India Ltd. [1919] was correctly decided. The case is remitted to the Division Bench for further disposal of other points involved in L.P.A. No. 166 of 1940.