1978 (1) TMI 146 - HC - Companies Law

Issues Involved:

1. Whether the leave of the court is a condition precedent for the institution of a suit after a winding-up order without obtaining such leave.
2. Whether leave can be granted after the institution of the suit to render it effective.
3. Interpretation of Section 446 of the Companies Act, 1956, in comparison with Section 171 of the Indian Companies Act, 1913, and Section 231 of the English Companies Act, 1948.

Detailed Analysis:

1. Condition Precedent for Institution of Suit:

The appellant, State Bank of India, filed a suit for recovery of dues against a company and its partners, with the official liquidator impleaded as a defendant due to the company's liquidation status. The official liquidator contended that the suit was not maintainable without obtaining prior leave of the court under Section 446 of the Companies Act, 1956. The court examined whether obtaining such leave was a condition precedent for instituting the suit.

2. Granting Leave Post-Institution of Suit:

The court analyzed whether leave could be granted after the institution of the suit to render it effective. The appellant sought to amend the cause title to reflect the official liquidator representing the company in liquidation and filed an application for leave to sue the company in liquidation. The application for leave was initially dismissed on the grounds that Section 446 required leave to be obtained before instituting the suit. The court revisited this interpretation, considering whether the suit could be rendered effective by subsequently obtaining leave.

3. Interpretation of Section 446 in Comparison with Section 171 and Section 231:

The court compared Section 446 of the Companies Act, 1956, with Section 171 of the Indian Companies Act, 1913, and Section 231 of the English Companies Act, 1948. The court noted that Section 446 was more elaborate than Section 171, distributing the expressions "shall be commenced" and "shall be proceeded with" to clarify their applicability to suits instituted after the winding-up order and those pending at the date of the winding-up order, respectively. The court examined whether this change in language indicated a substantive departure from the legal position under Section 171.

Supreme Court Precedent and Legal Interpretation:

The court referred to the Supreme Court decision in Bansidhar Shankarlal v. Mohd. Ibrahim, which held that failure to obtain leave before instituting a suit did not entail dismissal and that leave could be obtained subsequently, rendering the suit effective from the date of granting leave. The court considered whether this interpretation applied to Section 446, concluding that the change in language did not alter the legal position and that leave could still be granted post-institution.

Conclusion and Judgment:

The court concluded that the application for leave to proceed with the suit was competent and that the court had the power to grant such leave, rendering the suit effective from the date of granting leave. The court allowed the appeal, set aside the earlier dismissal, and granted leave to the appellant to proceed with the suit, ensuring that the official liquidator's defense on merits would not be prejudiced. The suit would be effective from the date of granting leave, as held by the Supreme Court in the referenced decision.

Outcome:

The appeal was allowed, the order of dismissal was set aside, and leave was granted to the appellant to proceed with the suit, effective from the date of granting leave. No order as to costs was made.

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