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TMI Blog1971 (12) TMI 80X X X X Extracts X X X X X X X X Extracts X X X X ..... r understanding of the questions raised in this summons may be briefly stated. Company Petition No. 21 of 1966 was presented on November 1, 1966, for an order for winding up the Rajratna Naranbhai Mills Co. Ltd. The court made an order on 26th June, 1967, winding up the company and simultaneously appointed the official liquidator as liquidator of the company. The liquidator proceeded to collect and take into his custody all the properties, effects, actionable claims to which the company was entitled. In the process the liquidator came across evidence showing that the company was the owner of 186 shares of the National Machinery Manufacturing Company Ltd. It also transpired that the respondent, Shri Manubhai Harilal Shah carrying on business in the name and style of M/s. New Quality Bobbin Works was the creditor of the company and the respondent filed the Summary Suit No. 1477 of 1966 in the City Civil Court at Ahmedabad on 29th August, 1966, for recovering the amount of Rs. 17,426 16. On the same day he applied for and obtained an ex parte order of attachment before judgment and attachment of the aforementioned 186 shares was sought and granted. On 1st November, 1966, Company Pet ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... old and the amount realised from the sale of the shares was paid to the respondent. It was further alleged that attachment of shares and their subsequent sale are not void and the summons is liable to be dismissed. It was also alleged that section 537 is not attracted and that the application was barred by limitation. In the further affidavit filed by the official liquidator it was alleged that the respondent was a near relation of the partner of the managing agent of the company in liquidation and when the suit was filed and attachment before judgment was obtained the company was already in insolvent circumstances and the partner of the managing agent desired to give an unfair advantage to his own relation and the sale and recovery of the money after commencement of the winding-up proceedings would not be binding on the official liquidator. From the pleadings the contentions of the applicant-liquidator can be summarised as under : Attachment and sale of 186 shares belonging to the company in liquidation, after commencement of the winding up proceedings, would be void under section 537 as the same was done without the leave of the court. From the pleadings of the respondent ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dered to be wound up. It is material for certain purposes and, therefore, I would set it out. It reads as under : "446. (1) When a winding-up order has been made or the official liquidator has been appointed as provisional liquidator, no suit or other legal proceeding shall be commenced, or if pending at the date of the winding-up order shall be proceeded with, against the company, except by leave of the court and subject to such terms as the court may impose. (2) The court which is winding up the company shall, notwithstanding anything contained in any other law for the time being in force, have jurisdiction to entertain, or dispose of ( a )any suit or proceeding by or against the company ; ( b )any claim made by or against the company (including claims by or against any of its branches in India) ; ( c )any application made under section 391 by or in respect of the company ; ( d )any question of priorities or any other question whatsoever, whether of law or fact, which may relate to or arise in course of the winding-up of the company ; whether such suit or proceeding has been instituted or is instituted, or such claim or question has arisen or arises or such applica ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Companies Act. Ordinarily, a liquidator after collecting all the assets, properties and claims in favour of the company would first pay up any secured creditor if he has not chosen to remain outside the winding up and then a preferential creditor and thereafter unsecured creditors and balance amongst the contributories. While collecting the assets of the company it will be the duty of the liquidator to realise all claims subsisting in favour of the company. It must be his endeavor to collect all the assets of the company which have been unauthorisedly, dishonestly, fraudulently or illegally taken away from the company. In order to prevent the scramble for the assets of the company, the liquidator has to step in and to take possession of and protect the assets of the company. As observed by Lindley L.J. in In re Oak Pits Colliery Co. [1882] 21 Ch. D. 322, 329 (C.A.), the object of the winding up provisions of the Companies Act is to put all unsecured creditors upon an equality and to pay them pari passu. To accomplish this it was provided that any action, execution, distress or other process against the assets of the company should be suspended, otherwise winding-up would resul ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , it is obligatory upon him to return it and one entitled to reclaim it would be the official liquidator of the company in liquidation. Mr. Trivedi, learned advocate for the respondent, urged that unless there is a specific provision in the Companies Act providing for obtaining leave of the court in respect of a certain thing to be done, no leave of the court, is necessary and therefore, sale of the shares without leave of the court would not be void. It was urged that the expression "without leave of the court" in section 537(1) would only mean where leave of the court is necessary and sale is effected without leave of it. There is no warrant for this construction. Section 537 itself would mean that no sale of the property of the company in liquidation can be made without leave of the court after commencement of the winding-up proceedings except on the pain of its being declared void. Where a consequence of a thing being done without leave of the court is provided for, it implies that the leave of the court is necessary and otherwise consequence would follow. No separate or independent provision making it obligatory to obtain leave of the court need be made and consequence there ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he properties or the effects of the company made after the date on which actual order of winding up is made and not the date from which winding-up proceedings are deemed to commence. It was urged that if this construction is not placed on section 537(1), it would lead to a startling result. Mr. Trivedi contended that if the construction canvassed for by him is not put on section 537, the court should be called upon to pass a number of anticipatory orders which the court would be loath or reluctant to pass and also a really solvent company may find it very difficult to carry on its normal business during the period between the presentation of the winding-up petition and making of the winding-up order. It is true that very often considerable time elapses between presentation of the winding-up petition and making of the winding-up order. Now, if the winding-up petition fails, section 537(1) would never come into play. If at a later date winding-up order is made, in view of the provisions contained in section 441 the order would relate back to the date of the presentation of the winding up petition. In the intervening period if the company except for its normal trading activity has sol ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... possibilities of a preference between creditors inter se from the date of the commencement of winding up proceedings. It is for this reason that all sales of property since the commencement of the winding up which would mean from the date on which winding-up petition is presented are declared void under section 537. As a third limb of the first ground of attack, it was urged that there is no provision for making such an application as has been made by the official liquidator and, therefore, the present application is not maintainable. The application is made by the official liquidator under section 537. The official liquidator seeks a declaration that sale of the shares is void in view of the provisions contained in section 537 and consequently for au order for refund of the amount taken by the respondent. Question is whether this relief can be obtained by the official liquidator by way of an application to the company judge in charge of the winding-up proceeding of the company or he should be directed to file a suit. Contention is that there is no specific provision for making such an application. Section 446 which I have set out in extenso provides that the court which is windi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be deemed to be in custody of the court. If the liquidator fails to collect the assets of the company he would be charged for negligence in performance of duty. Therefore, while performing this duty if he comes across any sale of property of the company which would be void under any of the provisions of the Companies Act or any other law for the time being in force and which would not be binding on him as liquidator of the company, it would be equally his duty to take action to collect that asset. If this is the duty cast on the liquidator, simultaneously power was conferred upon him under section 457(1) to institute or defend any legal proceedings. If he has power to institute or defend legal proceedings and if in performance of his duty he comes across a transaction which is void against him, the transaction becoming void because of the winding-up proceedings, it would be a question of fact arising in the course of winding up of the company and this court will have jurisdiction to decide that question. This appears to me to be the scope and ambit of jurisdiction conferred upon the High Court under section 446(2). It is necessary to put liberal construction on section 446(2) so as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iquidator, in course of winding-up proceedings, it is not necessary that specific provision should be made that an application for certain relief could be made to the court. It would be implicit in the provisions casting duty on the liquidator along with the provisions by which jurisdiction is conferred on the High Court that proceedings of a certain nature in a winding up can be taken up before the High Court and that exactly has been done in this case. I would now refer to some of the cases to which my attention was drawn at the Bar. In Grey Steel Casting and Finishing Co. P. Ltd. v. Adverts ( Private ) Ltd. [1969] 39 Comp. Cas. 595 (Bom.) facts were that Adverts (P.) Ltd. filed a suit against Ovation International (India) Pvt. Ltd., and obtained an order for attachment before judgment of certain properties of the company, during the pendency of the winding-up petition filed by Grey Steel Casting and Finishing Co. P. Ltd. against Ovation International (India) P. Ltd. Subsequently, petitioning creditor took out summons under section 442 for stay of further proceedings in the suit and for an injunction restraining the attaching creditor from taking any further proceedings ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... te decree was made and which the tenant subsequently sought to get it set aside but his application was dismissed. The tenant thereupon filed a suit in the original side of the High Court asking for a declaration that the ex parte decree against him was made without jurisdiction and was a nullity and that he continued to be tenant notwithstanding the said ex parte decree. It was contended before the Supreme Court that no action could be taken by the liquidator under section 45B(1) of the Banking Companies Act, 1949, for recovering possession from the tenant but the liquidator should have filed a suit and the order of the High Court on the summons taken out by the liquidator was without jurisdiction and such a decree would be a nullity. Section 45B of the Banking Companies Act is in pari materia with section 446(2) of the Companies Act. After referring to section 45B, the Supreme Court negatived the contention of the tenant that the ex parte decree made by the High Court in winding-up proceedings at the instance of the liquidator was a nullity and observed as under: "It appears to us that, consistently with this policy and with the scheme of the Amending Act. where the li ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l come into play and the High Court will have no jurisdiction to entertain the present summons. To be frank, I was completely at a loss to understand this contention. If the submission starts by saying that the High Court has concurrent jurisdiction with ordinary civil court, I fail to see how that jurisdiction will be lost by the provision contained in section 15 of the Code of Civil Procedure. Section 15 provides that every suit shall be instituted in the court of the lowest grade competent to try it. It was urged that hierarchy of courts envisaged under the Code of Civil Procedure is the court of civil judge, junior or senior division, as the case may be. Next higher court is District Court and the highest court in the State is the High Court. Contention is that once jurisdiction of the ordinary civil court is not excluded to entertain a proceeding for granting relief as sought in this summons, obviously, the liquidator should have approached the civil court of the lowest grade competent to try the proceeding in which the same relief could be granted. There is absolutely no merit in this contention. If special jurisdiction is conferred on the High Court by section 446(2) to ente ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that this court at present is not concerned with the initial attachment before judgment obtained by the respondent because that is not challenged in this summons. The summons is directed against sale of the property. I must confess that attachment before judgment was obtained prior to the presentation of the winding-up petition. I have my own doubt whether the word "attachment" as used in section 537(1)( a ) includes within its sweep attachment before judgment. But as attachment before judgment obtained by the respondent is not the subject-matter of dispute in this summons, I would not further dilate upon the point. This summons is directed against the sale of the property. Assuming for a moment that the attachment before judgment was levied prior to the presentation of the winding-up petition, that by itself does not validate the sale in execution which took place after the commencement of the winding up proceeding and which was held without leave of this court. Even if a valid attachment is levied, it does not create any interest in the attached property of the attaching-creditor. The effect of attachment of a property of the company which is being wound-up against the liquidat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Mr. L. T. Shah, learned advocate for the official liquidator, repelled this contention by urging that no period of limitation is provided for an application of the type made by the liquidator and even if the respondent is right in urging that the period of limitation is three years, factually the application is within time in view of section 458A of the Companies Act. I will examine the second limb of the argument first. Section 458A of the Companies Act reads as under : "458A. Exclusion of certain time in computing periods of limitation. Notwithstanding anything in the Indian Limitation Act, 1908, or in any other law for the time being in force, in computing the period of limitation prescribed for any suit or application in the name and on behalf of a company which is being wound-up by the court, the period from the date of commencement of the winding-up of the company to the date on which the winding-up order is made (both inclusive), and a period of one year immediately following the date of the winding-up order shall be excluded". I will first proceed on the assumption that section 458A applies and the period of limitation is three years as contended by the respondent. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... any particular article and, therefore, it would necessarily be covered by residuary article 137. Article 137 refers to application for which no period of limitation is provided elsewhere in the Third Division of the Schedule. Mr. Trivedi urged that summons taken out by the liquidator is an application for which no period of limitation is provided in any of the articles placed in the Third Division and, therefore, necessarily it would be covered by article 137. In support of this submission, he drew my attention to the definition of the "applicant" in section 2( a ). It is an inclusive definition and it provides that "applicant" includes petitioner, etc . It was urged that in the Limitation Act of 1908, definition of the word "applicant" did not include the petitioner and this is an innovation made in order to cover all types of applications which can be commenced by a petition. Contention is that whenever a petition has to be filed the person who files the petition would be petitioner and he would be included in the definition of "applicant" and proceedings filed by him would be an application and if there is no particular article which provides a period of limitation for that ty ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d be no period of limitation for such an application. Since the repeal of the Limitation Act of 1908 and replacement of article 181 by article 137 a controversy is again raised whether article 137 applies only to the applications that can be made under the Code of Civil Procedure or any other application under any other statute. This question was examined by the Andhra Pradesh High Court in In re Vegetols Ltd. ( In Liquidation ) [1968] 38 Comp. Cas. 58 (A.P.) . In that case summons was taken out by the liquidator under sections 468, 477 and 537 of the Companies Act, 1956, for a direction that the Indian Bank Ltd., Vellore, shall pay Rs. 25,41715 to the official liquidator. Allegation was that the payment was made after the commencement of the winding-up proceedings and it would be void under section 536(2) unless the court otherwise directs. Summons was resisted, inter alia , on the ground that the application of the official liquidator was barred by limitation and reliance was placed on article 137 of the Limitation Act of 1963. After examining the previous case law on the subject, it was held that article 137 is corresponding to article 181 of the Limitation Act of 1908 and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fact, the addition of the word ' other ' between the words 'any' and 'application' would indicate that the legislature wanted to make it clear that the principle of interpretation of article 181 on the basis of ejusdem generis should be applied when interpreting the new article 137. This word 'other' implies a reference to earlier articles, and, consequently, in interpreting this article, regard must be had to the provisions contained in all the earlier articles. The other articles in the third division to the schedule refer to applications under the Code of Civil Procedure, with the exception of applications under the Arbitration Act and also in two cases applications under the Code of Criminal Procedure. The effect of introduction in the third division of the schedule of reference to applications under the Arbitration Act in the old Limitation Act has already been considered by this Court in the case of Sha Mulchand Co. Ltd. [1953] 23 Comp. Cas. 1 ; [1953] S.C.R. 351 ; A.I.R. 1953 S.C. 98 We think that, on the same principle, it must be held that even the further alteration made in the articles contained in the third division of the schedule to the new Limitation Act conta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dator is not one under the Code of Civil Procedure. It is a special application under the Companies Act made to the High Court on whom jurisdiction is conferred by section 10 of the Companies Act. Proceedings under the Companies Act would not ordinarily be governed by the Code of Civil Procedure. Power was conferred upon the Supreme Court under section 643 of the Companies Act to make rules providing for all matters relating to the winding-up of companies which, by the Act are to be prescribed and also to make rules providing for all such matters as may be prescribed, except those reserved to the Central Government. Power is also conferred upon the Supreme Court to make rules consistent with the Code of Civil Procedure as to the mode of proceedings to be had for winding-up a company, and for the voluntary winding-up of companies, for the holding of meetings of creditors and members in connection with the proceedings under section 391, and for giving effect to the provisions of the Act as to the reduction of the capital and generally for all applications to be made to the court under the provisions of the Act. Armed with these powers, the Supreme Court has enacted the Companies (Cou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on behalf of the company. In this connection it was contended that the liquidator of a company which is being wound up has two independent capacities: ( i ) as official liquidator of the company in liquidation, and ( ii ) as representative of the creditors and contributories of the company. Reference was made to Kent v. La Communaute Des Soeurs De Charite De La Providence [1903] A.C. 220 (P.C.) . In that case action was commenced by Kent and others as liquidators of the Ville-Marie Bank against the respondent to recover $20,000 alleged to be owing by the respondents to the bank on a promissory note. The respondents admitted the debt claimed, but alleged that it was extinguished by compensation or set-off. The applicant moved for leave to amend the summons by adding description as liquidators of the bank. Both the application and notices were dismissed holding that the liquidators were " sans qualite" to bring the action in their own name. After the appeal was dismissed by the King's Bench Division, the matter was brought before the Privy Council. The Privy Council allowed the amendment and remanded the matter for decision on merits. In the process it was observed that the li ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the company but the claim arose in favour of the creditors and contributories of the company and the present action, therefore, by the liquidator is as the representative of the creditors and contributories. There is again no merit in this contention. It is true that, if the company was not ordered to be wound up it could not have claimed back shares or sale proceeds thereof if it has submitted both to the decree and to the execution thereof. But a right may accrue under a statute in favour of the company and the right may accrue on the happening of certain events which may not be available before the happening of that event. The company must get back all those properties transferred in violation of certain provisions of the Companies Act on the happening of the event, viz ., order winding up the company being made. If that right accrues after such an order is made, it is none-the-less a right of the company albeit to be exercised by the liquidator because of the winding-up order. But, it cannot be denied that right is the right of the company. Therefore, the present action is maintainable and the application is in the name of and on behalf of the company and not as a representat ..... X X X X Extracts X X X X X X X X Extracts X X X X
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