1968 (10) TMI 73 - HC - Companies Law

Winding up Power of tribunal to stay or restrain proceedings against company, Custody of company s property, Winding up - Powers of liquidator, Overriding preferential payments and Avoidance of certain attachments, executions, etc.

Issues Involved:
1. Validity of the attachment before judgment.
2. Whether the attachment before judgment confers any rights upon the first respondents.
3. Applicability of Section 537(1) of the Companies Act, 1956, to the attachment before judgment.
4. Requirement of leave of the court for executing the decree.
5. Principles governing the grant of stay under Section 442 of the Companies Act, 1956.
6. Locus standi of the applicants to take out the judge's summons.

Detailed Analysis:

1. Validity of the Attachment Before Judgment:
The applicants argued that the attachment before judgment was invalid because:
- The issue of notice to the company under Order XXXVIII, Rule 5(1), was necessary before the orders of attachment could be passed.
- The security directed to be furnished by the orders was for double the amount of the first respondent's claim in the suit.

The court held that:
- Order XXXVIII, Rule 5(3), contemplates ex parte orders of attachment before judgment being made. The court can direct conditional attachment without issuing notice to the defendant first.
- The orders were not invalid as they did not require the company to furnish security of Rs. 50,000 in total. The company could show cause why the security should not be furnished, and the attachments would be raised if sufficient security was already provided.

2. Whether the Attachment Before Judgment Confers Any Rights Upon the First Respondents:
The court clarified that:
- Attachment before judgment does not confer any right upon the first respondents. It only ensures that the property remains available for execution if the decree is passed in favor of the plaintiff.
- An attachment before judgment does not become an attachment in execution upon the passing of the decree. Execution requires a separate application by the decree-holder.

3. Applicability of Section 537(1) of the Companies Act, 1956, to the Attachment Before Judgment:
The court analyzed whether an attachment before judgment falls within the scope of "attachment, distress or execution put in force" under Section 537(1) and concluded:
- The purpose of Section 537(1) is to prevent property from being taken away by a creditor without leave of the court once a winding-up petition has been filed.
- An attachment before judgment is not the same as an attachment in execution. The attachment before judgment does not fall within the scope of Section 537(1)(a) as it is not an attachment put in force to realize the decretal claim.

4. Requirement of Leave of the Court for Executing the Decree:
The court held that:
- Even if the attachment before judgment is considered an attachment in execution, any sale of the properties or effects of the company after the commencement of the winding-up would be void under Section 537(1)(b) unless leave of the court is obtained.
- Garnishee proceedings against the Bank of America would require leave of the court under Sections 446 and 537(1)(a) as they are proceedings in execution against the property of the company.

5. Principles Governing the Grant of Stay Under Section 442 of the Companies Act, 1956:
The court considered the principles for granting a stay and found:
- The scheme of Sections 528 to 530 of the Companies Act requires that all creditors must prove their claims in the winding up of the company, and creditors of the same class must be paid pari passu.
- There were no special or exceptional circumstances to depart from the general practice of staying proceedings to ensure equal distribution of the assets among creditors.

6. Locus Standi of the Applicants to Take Out the Judge's Summons:
The court addressed the preliminary objection raised by the first respondents regarding the locus standi of the applicants:
- Section 442 of the Companies Act expressly confers upon a contributory, the company, or any creditor the right to apply for a stay of a pending suit or proceeding.
- The applicants, being creditors of the company, were entitled to take out the judge's summons.

Conclusion:
The court granted the stay of all proceedings in execution of the decree passed in favor of the first respondents against the company by the Bombay City Civil Court, pending the hearing and final disposal of the winding-up petition. The first respondents were restrained from taking any steps or proceedings in execution of the said decree. The costs of the summons were fixed at Rs. 1,000, to be paid by the first respondents to the applicants.

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