1971 (11) TMI 95 - HC - Companies Law

Issues Involved:
1. Necessity of leave under Section 171 of the Indian Companies Act, 1913, to institute a suit under Order 21, Rule 63 of the Code of Civil Procedure.
2. Nature of proceedings under Order 21, Rule 58 and Order 21, Rule 63.
3. Applicability of the doctrine of lis pendens in relation to Order 21, Rule 58 and Order 21, Rule 63.
4. Comparison between leave to sue a receiver and leave to sue a liquidator.
5. Interpretation of the term "against the company" in Section 171 of the Indian Companies Act, 1913.
6. Relevance of various case laws cited by the petitioner and respondent.

Issue-wise Detailed Analysis:

1. Necessity of Leave under Section 171:
The petitioner argued that no leave under Section 171 of the Indian Companies Act, 1913, is necessary to institute a suit under Order 21, Rule 63, contending that such a suit is merely a continuation of the proceedings under Order 21, Rule 58. However, the court held that this contention cannot be accepted. The court emphasized that Section 171 is "express, explicit and mandatory and admits of no exceptions or implications." Therefore, no suit under Order 21, Rule 63, can be proceeded with or commenced against a company in liquidation except by leave of the court having jurisdiction under the said Act.

2. Nature of Proceedings under Order 21, Rule 58 and Order 21, Rule 63:
The court noted that the execution proceedings come to an end with the passing of an order under Order 21, Rule 58, which is conclusive subject to the result of a suit under Order 21, Rule 63. The court clarified that a suit under Order 21, Rule 63, is in the nature of fresh proceedings de hors the execution and is concerned not only with possession but also with title. The scope of the suit is different and wider than that of an investigation under Order 21, Rule 58.

3. Applicability of the Doctrine of Lis Pendens:
The petitioner cited cases from the Patna and Nagpur High Courts to argue that a suit under Order 21, Rule 63, is a continuation of the proceedings under Order 21, Rule 58, and thus does not require leave under Section 171. However, the court rejected this argument, stating that the observations in those cases were made in a specific context that was not relevant to the instant case.

4. Comparison between Leave to Sue a Receiver and Leave to Sue a Liquidator:
The court distinguished between the principles governing leave to sue a receiver and leave to sue a liquidator. It stated that the position of the official liquidator cannot be equated to that of a receiver, and for the purpose of leave of court, the official liquidator and the receiver do not stand on the same footing. The court referred to its earlier decision in Official Liquidator v. Commissioner of Income-tax, which held that the express provisions in the Companies Act, 1956, including Section 446, preclude the exercise of inherent power or jurisdiction by the court.

5. Interpretation of the Term "Against the Company":
The court referred to the Allahabad High Court's interpretation of the term "against the company" in Section 171, which means a proceeding where a liability is intended to be fastened on the company or its assets. The court concluded that a suit under Order 21, Rule 63, is not merely a remedy to escape liability but is a fresh proceeding with a different scope, thus requiring leave under Section 171.

6. Relevance of Various Case Laws:
The court examined several case laws cited by the petitioner, including decisions from the Allahabad, Patna, Nagpur, Madras, and Punjab High Courts, as well as the Supreme Court. The court found that the principles laid down in these cases did not support the petitioner's argument that no leave under Section 171 is required for a suit under Order 21, Rule 63. The court particularly relied on the Supreme Court's judgment in Sawai Singhai Nirmal Chand v. Union of India, which clarified that a suit under Order 21, Rule 63, is not a continuation of the objection proceedings but a fresh proceeding requiring compliance with procedural requirements such as notice under Section 80 of the Code.

Conclusion:
The court discharged the rule, holding that leave under Section 171 of the Indian Companies Act, 1913, is necessary to institute a suit under Order 21, Rule 63, against a company in liquidation. The liquidator was allowed to retain his costs out of the company's assets.

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