1956 (4) TMI 21 - HC - Companies Law

Winding up Suits stayed on winding-up order and Debts of all descriptions to be admitted to proof

Summary

Issues Involved:
1. Applicability of Section 171 of the Indian Companies Act to execution proceedings.
2. Classification of debts incurred after the date of winding up.
3. Treatment of rent as costs of winding up under Section 230(3) of the Companies Act.

Issue-wise Detailed Analysis:

1. Applicability of Section 171 of the Indian Companies Act to Execution Proceedings:
The appellant argued that the decree in execution, being a decree of the company court itself, was executable under Section 199 of the Indian Companies Act without needing permission under Section 171. The court conceded that the order awarding rent and damages to the appellant must be treated as an order to which Section 199 applies, allowing it to be "enforced in the same manner in which a decree of such court made in any suit pending therein may be enforced." However, the court clarified that Section 171 still applies to the execution of the order. Section 171 specifies that no suit or other legal proceeding shall be proceeded with or commenced against the company except by leave of the court. This includes execution proceedings, which are also considered "proceedings" under Section 171. The court emphasized that the objective of Section 171 is to ensure that all suits or legal proceedings against a company under liquidation are controlled by the court handling the winding-up proceedings. This prevents any creditor from bypassing the pro rata distribution of the company's assets. Therefore, the execution proceedings initiated by the appellant without the court's leave were void, and the attachment made under the Civil Judge's orders was declared null and void under Section 232.

2. Classification of Debts Incurred After the Date of Winding Up:
The appellant contended that the decree represented a debt incurred by the official liquidators after the date of winding up and should not be paid pro rata with debts due before the winding up. The court referred to Section 228 and Rule 98 of the Company Rules, which state that all debts and claims against the company should be estimated as of the date of the winding-up order and paid pro rata. However, Rule 97 provides an exception for rent or other payments falling due after the winding-up order, allowing landlords to claim full payment for rent during the official liquidator's occupation of the premises. The court noted that this rule is based on the principle that the official liquidator can disclaim onerous property, and if he fails to do so, the landlord should not suffer a loss. The court cited English case law to support this view, emphasizing that the landlord's right to full rent is recognized if the premises are occupied by the official liquidator for winding-up purposes.

3. Treatment of Rent as Costs of Winding Up Under Section 230(3) of the Companies Act:
The appellant argued that the rent should be treated as costs of winding up and paid before other debts under Section 230(3). The court agreed, stating that under the proviso to Rule 97, the landlord is entitled to receive rent in full if the premises remain in the official liquidator's occupation, regardless of whether the premises were used for winding-up purposes. The court concluded that the rent in dispute could be claimed in full on the same footing as costs of winding up.

Conclusion:
The court allowed the appeal in part, modifying the order of the learned single judge. The official liquidators were directed to pay the appellant in full the amount of arrears of rent due from 1st October 1949 until the tenancy was terminated. The appellant was also entitled to the costs of this appeal.