2024 (8) TMI 28 - HC - Companies Law

Execution of decree passed in favour - Permission to Applicant to Execute the Decree against Respondent, M/s Apollo Tubes and Steel Industries Ltd currently under charge of the Official Liquidator - whether the petitioner can be allowed to execute the decree passed in his favour by the Madras High Court? - HELD THAT - The perusal of Section 446 of the Companies Act, 1956 makes it crystal clear that in order to continue a suit against a company whose winding up proceedings are ongoing, the party seeking such continuance of suit should seek leave from the Court for the same - it is evident that the permission is required to be taken for the continuation of the suit and the provision is silent on the aspect of whether such permission is required for execution of the decree as well or not. In BANSIDHAR SHANKARLAL VERSUS MOHD. IBRAHIM 1970 (9) TMI 62 - SUPREME COURT , the Hon ble Supreme Court dealt with the objection raised with regard to obtaining of leave for execution - the judgment settles the position of law and therefore, it can be said that once the leave is granted to proceed with the suit, there is no need for the parties to file another application to seek execution of the decree awarded in their favor. It is no doubt that the execution proceedings are considered as continuation of the suit itself and the party in whose favour a decree has been granted can only reap the benefits of the same after execution of the said decree. On the aspect of whether the decree holder had obtained leave of the Court for continuance of the suit, it is evident that the Court did not comment on the same therefore, leading to the inference that the same was not obtained by the decree holder - it is also apparent that the decree was obtained from a foreign Court and therefore, the leave was sought to be taken at the time of its execution in India - Since the decree holder had filed for the leave of the Court for the first time, it is apparent that the Court had adjudicated the issue on the basis of the same. The present application is allowed and the petitioner/applicant is granted leave to execute the decree passed by the Madras High Court vide order dated 24th November, 2023.

Summary

Issues Involved:
1. Permission to Execute Decree
2. Status of Petitioner as Secured or Unsecured Creditor
3. Requirement of Leave for Execution of Decree
4. Prioritization of Creditors' Claims

Detailed Analysis:

1. Permission to Execute Decree

The petitioner filed an application seeking permission to execute a decree dated 24th November 2023, passed by the Madras High Court in COS 833/2022 against the respondent company, which is under the charge of the Official Liquidator. The petitioner argued that it had previously been granted leave to continue the suit under Section 446 of the Companies Act, 1956, and thus should be allowed to execute the decree.

2. Status of Petitioner as Secured or Unsecured Creditor

The petitioner claimed to be a secured creditor entitled to enforce the security created in its favor, specifically the machines subject to the lease agreement. However, the Official Liquidator (OL) opposed the application, arguing that the petitioner is an unsecured creditor and had failed to file claims before the OL. The OL emphasized that funds had already been disbursed pro-rata to secured creditors and workers, leaving no funds for unsecured creditors.

3. Requirement of Leave for Execution of Decree

The court examined whether the petitioner needed to seek additional permission to execute the decree. Section 446 of the Companies Act, 1956, mandates leave of the court to continue a suit against a company under winding up. The court referred to the Supreme Court's decision in Bansidhar Shankarlal v. Mohd. Ibrahim, which clarified that once leave is granted to proceed with the suit, no further leave is required for execution of the decree.

4. Prioritization of Creditors' Claims

The OL argued that allowing the petitioner's application would disrupt the prioritization mechanism established under the Companies Act, 1956, which ensures equitable distribution among creditors. The court acknowledged this concern but noted that denying execution would render the petitioner's efforts and resources over the past 20 years futile.

Conclusion:

The court held that the leave granted to the petitioner to continue the suit before the Madras High Court suffices for the execution of the decree. The court emphasized that execution proceedings are a continuation of the suit and that the petitioner should not be deprived of the benefits of the decree. The application was allowed, granting the petitioner leave to execute the decree dated 24th November 2023.

Order:

The application stands disposed of, and the order is to be uploaded on the website forthwith.